DeFi By Design EP#16: Ushering In A New Era Of Decentralized Fund Managers

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich what's up guys it's boy andy real quick just want to tell you about the sponsors that make the defy by design podcast possible first we have ave is a non-custodial money market protocol where you can go and leverage your assets and earn interest so you can go in there and deposit about 10 or 20 assets eth any stable coins rap bitcoin a whole bunch link and you can lend them and you can borrow tokens to go long to go short to earn interest head over to app.avi.com check it out they have v2 is coming soon check out albe next we

have diversify diversify is a layer 2 gasless decentralized exchange on ethereum they use starkware to conduct their trades on layer 2. the token neck nec has a liquidity mining scheme ongoing and they have a bunch of cool stuff coming in so if you want to trade on l2 in order books not just swaps uh check out diversify they're awesome with that being said let's get right back to the show i hope you guys enjoy and again check out ave and diversify diversify.com to lend and borrow and trade on l2 cheers guys [Music] welcome everyone to episode 17 of the d5 by design podcast today we have a very special guest

henrik one of the co-founders of d-hedge remember d-hedge is a decentralized system a protocol for hedge funds and it allows lots of users anyone to spin up their own fund and people to contribute to it i'll let henrik go into some more of the details i'm hendrick how you doing today man good how are you good good so uh maybe maybe you could start it off by saying a little bit about yourself how you got started at d hedge and your journey you know since you've been there and then we'll go from there sure sort of my background is in traditional finance i spent some 15 years in mostly quant equities also institutional equity sales i'm originally from sweden i also worked

in singapore spent 10 years in new york and goes into crypto uh seven years ago and first bitcoin and then sort of the wider crypto ecosystem i moved to australia with my family five years ago now i started one of the australia's first crypto funds called apollo capital been running that for close to three years now investing heavily in the d5 space kind of we so the low-hanging fruit for smart contracts being financial contracts uh so before you know we knew about the word defy we invested into financial applications uh built mostly on ethereum and we thought a lot about

d5 applications and what would be the core primitives being built in the d5 ecosystem ico founded a d5 protocol called m-stable together with one of my previous analysts at apollo called jim simpson and at about the same time i had the idea for dh which is a as you said robot decentralized asset management protocol that we are building i had the idea a bit over two years ago for dh i thought it would be a really cool product to build a non-custodial trustless permissionless basically essentially a copy trading platform on top of ethereum but i didn't really

uh understand how to do that um there are things to overcome right so how do you let the managers on a decentralized asset management platform trade how do you get them access to a wide range of assets how can you let them trade with a low slippage how do you make sure that the user's funds are safe because even if they're non-custodial if you let the managers trade any asset out there you know they could create their own asset and kind of manipulate price of the pool or they could encourage incur huge slippage trading on decentralized exchanges so this is a pretty hard thing to overcome but during i think the last 18 months i

became very familiar with synthetics apollo was one of the early investors in synthetics which are also originally based out of australia and discussing synthetics with their co-founder kane i realized that synthetics would be the perfect platform to build dh on and then sort of that's when i got together with with the co-founders and we started building dh at the beginning of this year and we have some great backers for the project and we finally launched mainnet almost four weeks ago now we are kind of in a very intense growth phase at the moment with a lot of features uh there will be a lot over the coming days and weeks and we are super excited about the launch

and what we have in the pipeline so yeah i think this great potential for a new primitive in d5 around decentralization management i don't think they've seen this vertical if you like being tried yet in a way that's really user friendly and kind of unleash the potential in this space awesome it's really cool how you mentioned synthetics was kind of the springboard that d hedge was built on that's one of the the coolest aspects of the defy ecosystem and really just the the emerging digital economy how all these pieces are composable together and they're allowing for innovation just by new projects springing up and then

merging and collaborating together could maybe explain you know why you thought synthetics was a good springboard how does synthetics really you know integrate into dhedge and allow it to flourish what was the choice in building on synthetics rather than some of the other existing money legos as people like to call them around the industry so yeah we wanted to create this closed sandbox if you like for the managers to be able to trade on because we cannot just leave it kind of have an open system because of these problems that i explained before that you know you you cannot let the managers just trade any asset out there right on any decks because you know you could create your own assets right and put all your funds in

into one exit and sort of put the the copy traders money at risk in that way so you needed kind of a closed system and when you look across the board you want a system where you have access to a lot of different assets where you have low slippage those are some of the criterias we looked at and i think it's only really synthetic that can fulfill the requirements of dh so on synthetics you have crypto assets like bitcoin ethereum you know 10 other crypto assets right right on the dates right now and that's a growing list you can go along those assets you can also go short those assets so they have some something called inverse assets basically getting a short exposure to these assets so if you think of a hedge fund they want to

go both long and short and that is possible on on synthetics today which is really unique in the on a decentralized platform but not only do you have crypto assets you also have fx so you can trade not only us dollar stable coin you can trade the japanese yen you can trade british sterling you can trade aud et cetera on synthetics um you can trade commodities so on synthetics you can trade long and short silver gold they just added oil as well um and they even are looking at at the equity market so currently you have two equity indices nikkei which is the main equity indus in japan and you have

footsie which is the the uk major equity index on synthetics and this is a very fast growing list of assets that you can access to synthetics so that's really unique and the second thing is slippage so if you look at some other platforms that have been trying doing similar things that dh is doing in a decentralized fashion they've had major problems with the traders incurring slippage trading on amps or other type of dexes but on synthetics you can show up to their smart contract and you're guaranteed to be able to trade it at the oracle price meaning you don't incur any slippage and

they have this infinite liquidity model so it doesn't matter how big you are um you can have a million dollars uh you know in a pool you need to reallocate you incur zero slippage uh which you know it's better than a centralized exchange like even if you trade on binance you will incur some slippage depending on the size of your trade uh that's not the case on synthetics so on the decks you have lower slippage than on a centralized exchange and so i think this makes synthetics really unique and that's why we chosen to build on on top of them if you like we sort of the managers or our system or smart countries integrate with the

synthetic exchange right so that is really unique i'm not aware of any other platform where we could have built uh this system um on top of yeah yeah i'm not too familiar with the infinite liquidity model but that seems uh really critical to anyone that's looking to copy trade for the reasons you mentioned you can't have someone copy trading when they're able to create their own asset and then drive the price whichever way they desire whether that's up or down and that that's something that's really i mean it's important for for copy traders but as well as it's going to be important for any trader is there something that you really find exciting about d-hedge compared to some of the other protocols that you've built you mentioned m stable which i'm familiar with and

some of the other projects which sounded a little bit more like you know traditional venture funds in in terms of apollo capital is there something that excites you about the hedge that's a little bit different from the other protocols that you've built i i think you know i think it's kind of uh unsorted territory when it comes to decentralized asset management so i think you know we are quickly quickly growing the uh the value on dh and i think we have a real chance of taking uh kind of a major share of the decentralized assets management uh market and yeah i think you know some of the other verticals within d fire i think are very competitive so when it comes to mmms for example um that's a super competitive space

there is no reason why you know you cannot just copy occur from another one uh from another amm um and i think we have seen an explosion in the number of amms come into the market you know certainly during the last three four months and i think the next phase is probably that you will have upgradeable fully customized curves when it comes to amens and the way they work uh you know unisop will come out with their next version of the protocol uh you know you have curve and you have all the other derivatives um of these mms and you know it will be very hard to compete i think in the market where was i think you know building uh

having pools on top of dh that are building a sustainable track record over time uh you know where everyone can measure you know the risk adjusted returns over certain time periods uh you can build a transparent track record that's really i think hard to uh to replicate um because you're not just going to move the capital out of the pool into some new protocol that is being built because you will destroy your track record that you have built on something like that right so you know we are focusing on building a strong community um you know managers that have a strong track record i know they will rise to the top of the leaderboard on

the hedge and i think uh there is i think it would be a high barrier to entry to uh to sort of move that funds over to some other platform i think in the d5 space in the am space uh when it comes to all the yield farming stuff that is going on you see the capital can move very easily between the protocols i don't think that would be the case necessarily with dh um so i think that makes it uh pretty unique compared to many other d5 protocols where you know you see capital moving around to where the highest deal is at the moment yeah absolutely and and you mentioned kind of the barrier to entry which we certainly see in in traditional funds there's various regulation

exams that managers have to fulfill and it makes me think you know how much can the decentralized asset management protocols how much can they encroach on the existing traditional funds and if there's any overlap there is that something that you expect is to kind of take some market share away from uh the existing traditional fund managers or is it more of building from the ground up in cryptocurrency um and treating it more from the decentralized routes rather than from the asset management routes you know as more general industry yeah i think that's a great question i think you know overall in d5 we haven't really seen default being adopted

by the traditional players right at least not yet they're certainly discovering that's probably going to happen at some point yeah they're discovering bitcoin but they haven't quite gotten into that d5 realm just yet it seems exactly exactly and you know you will have you know you you probably will have at some point some some overlap right you will have maybe some traditional player accepting stable coins or something like that and then you might have some yield products at some point but i think we are pretty far away from kind of the mainstream traditional adoption of d5 primitives and i don't think we need that in the short term or medium term either for that matter because you know we have

plenty of growth within d5 you know crypto native growth we have you know a new generation of traders speculators technologists you know people interested in crypto that that is growing the space at the very false pace so you know i think we can grow kind of natively within crypto for a long time um you know at some point we you might have some crossover which is super exciting if that were to happen i don't expect you know traditional fund managers to move over to the rails of dh uh anytime soon they're not just they're not set up for interacting with d5 protocols as you say like bitcoin bitcoin is still very foreign to many

traditional investors yeah yeah and it seems that maybe the reason for that isn't so much that crypto isn't ready to scale or that you know the blockchain industry isn't ready to scale it's more on the other side that the traditional finance just isn't quite ready to delve into that and there's certainly been criticisms that the industry from an investment perspective isn't mature um it is too speculative you know it seems like as more institutional players come into the system that narrative is is starting to diminish a little bit um but there are certainly other concerns like scaling from the blockchain side ethereum you know not being able to process transactions is that something that d

hedge is seeing um kind of like a bottleneck uh because of ethereum gas and necessity that it needs to scale yeah i i think that's something that everyone is struggling with in d5 um at the moment you know to create a pool on the edge it might cost 50 today uh depending on the gas price you know to invest to exit the pool it all costs gas right and it's not that cheap we wish it was much cheaper so yeah that's that's something we struggle with like everyone else in d5 at the moment you know i see a lot of promise coming from player two synthetics have advanced plans to move to optimistic

rollups uh and we plan to you know follow them um and i think once we have optimistic implemented on statistics in the edge i think the user experience will be amazing because you can trade with no lag there is currently kind of this settlement issue on synthetics where you have to wait three minutes before a trade is is settled you know it waits for an oracle update all those things will just work so much better where prices will not be a problem anymore so we we can't wait to there but it's a 2021 event and that that will uh really change d5 for the better that makes me think of some

outrageous arbitrage opportunities if that there's zero lag in addition to zero slippage it seems like there are certainly some opportunities for arbitrage trading uh in those kinds of markets yeah i know it's a good it's good point i think you know with the volume we are seeing on texas today you know it used to be like something like unit swap were always lagging you know centralized exchanges but as you have seen certainly in you know mid cap coins the volume on dexes are often higher than on centralized exchanges uh same thing with stable coins so you could argue that there's actually dexes that are driving the price discovery and not the other way around yeah that certainly seems to be a novel theme this time around rather than some of these past market cycles

where there was barriers to entry because of these centralized exchanges for example 2017 where bittrex and binance were not allowing any new customers because they were just you know overcrowded we're seeing some different barriers to entry this time around in this market cycle dealing with with scaling and you know like we just said kind of the more openness that that's going on in this cycle with decentralized exchanges compared to centralized yeah i think this you know i think it's super exciting what's happening with dexes because 12 months ago we were arguing oh it's you know the experience is lagging to centralize exchanges and you know it really needs to be much better for it to get an

adoption but if you look at it today you have in many cases lower slippage uh you know higher volume on many coins on dexes versus centralized exchanges and the experience is just so much better because you don't have to sign up to an exchange you don't have to remember a password your 2fa you don't need anything of that and you can just access uh and trade right away you don't have to worry about you know at least in theory right that the security is not there because you don't really lose custodial funds until you trade so the experience is starting to get just much better on dexes and this is before l2 and after r2 is just going to be 10x better than anything in the centralized world

yeah yeah absolutely i mean layered two and 2.0 has been long awaited for years now and it seems like once that gets released the expectation is everything's just gonna click and uh all these improvements are gonna be made and they're gonna allow for a lot of scalability a lot more users i don't really see it that way i think it is a progression and uh layer two is going to enable the ability for all these users to come on but then there is still the necessity for incentives and kind of the there needs to be a reason that these people are using protocols um not just that they're able to now but you know everyone's gonna want their piece of the pie and just because ethereum allows uh more users there still needs to be

you know some some of the pie left for you know new newcomers to the system and i'm it's curious what all you know if adoption does increase and more users come to these platforms um what that's going to do to apy's and and yields kind of across the the farming industry and you know we we talked a lot about the asset managements and kind of the tokens and um decentralized exchanges but not so much about yield farming um and kind of the developments on that side is there plans for dhedge to incorporate yield farming do you see that as kind of like a short-term market cycle that you know will probably die out what are your opinions and your expectations on

yield farming kind of uh into the future and as a part of d-hedge as well yeah it's going to be part of dh and we're actually going to launch it fairly soon within a couple of weeks from where where this interview is recorded so it will be out live very very shortly uh we call it performance mining which uh cannot be we want to incentivize managers to perform greatly on the platform and we will incentivize people investing in these managers that are performing the best and sort of we have thought about making the system in a way that is non-gameable i think we have seen some problems uh with some of the yield farms where it's quite easy to game them

but we want to make something that is sustainable that's really increasing the value of the whole protocol we are going to look up the tokens for one year for for the people who form on dhedge they're still going to be staked for that year so you can still use it the tokens in the system but they'll be locked up similar to what's happening on synthetics if you stake on synthetics your tokens are locked for one year but you can still use them as taking collateral um and i think it's a sustainable model uh it's a way to distribute the token it's a way to incentivize users to come to the

platform um and you know one advantage of having a token on top of a platform is that you can build a strong community around that token and you can align everyone you can align the builders the developers the users uh the governors of the platform and it can also be one of one of the same right you can be user developer governor of the platform and it also creates i think a sustainable mode if you like or a direct entry which we wouldn't have without the token so we are super excited

about launching the performance mining program on dh and i think it can run for a very long time we have over 50 percent of the token in the dial and the users can uh over time decide to use the large part of that for this kind of incentives yeah we'll try to take the best learnings from other d5 protocols uh in this space when we design the program gotcha yeah that is a great segue because you mentioned the dow and how the token it sounds like a a reward for performance mining on dhedge can you talk a little bit more about the value proposition and how you is going to generate you know maybe some aspect from the system whether that's fees but it does seem across the industry from the past d5 protocols

i'm thinking of wi-fi um how it aligns governance as well as some of the rewards from the system and that the the community can reap the benefits um just by holding the coin is that something similar in the d hedge dow or do you have some more specific plans for your token on uh kind of the value proposition and how you uh yeah i think we have a really unique token and and we haven't talked much about exactly how it will work so i think the market will be kind of surprised how it will all fit together and i can share some of that now personally i think you know a high level comment is that you know if you want to build an unstoppable decentralized protocol and you need some

kind of way to upgrade the protocol going forward you need a governance token right because we don't know of any other way to kind of do decentralized governance without without the token uh so unless you want to have a protocol that will never change like bitcoin you need some kind of governance token um so that's number one like it's hard to get away with all the token if you have a protocol that you think can benefit from evolving over time and then i think you can build in strong economic incentives uh around around the token in our case the dha protocol has an admin fee of 10 so similarly to perhaps compound how they

have a protocol fee as well d has a protocol fee of of 10 percent and that captures the income on the platform if you think about the income on the platform what is that well the managers of the platform they can charge charge a fee um currently we have performance fees so they can set their own performance fees those fees are actually short in their own pool tokens so the managers create a pool they set their own performance fees they earn performance fees if they have great performance and they earn that in their own pool token so their share of their own pool will increase over time but there is also a 10 percent admin fee on the protocol that goes to a dial so this da collects

pull tokens so this star fills up with the best performing pools over time on the platform uh you can see it as a composite pool or a funnel funds type of structure that will consist of the best performing managers over time this dao will be controlled by the dht stakers so we will have natives taking on the platform where you look up the token over a certain time period similar to curve or m stable where you have have a boost if you look up the token for longer and by doing that you can direct how this composite pool is managed so for example you can imagine the dht

stakers putting up a proposal to perhaps liquidate underperforming pools in this composite pool and you know convert the assets to susd and distribute those to dht stakers we are also looking to bootstrap this composite pool we recently announced that the daw is looking to incentivize managers to come to the dh platform so you know there was an announcement going out just over a week ago saying that the dao will invest 500 000 sust into managers you know moving to the dh platform

and that's another way of bootstrapping this composite pool and give immediate value and incentive to the dht token holders and stakers once once the state native staking is launched which we expect to happen before the end of this year awesome yeah defy slate is a proud applicant to that grant program so we have a uh a pool uh excuse me a fund on d hedge now so if you're listening to this everyone go check out d hedge not investment advice to join the pool but you know definitely check out the different pools out there and uh i'm sure d5 slate is towards the top of the leaderboard still so

you know we're we're planning on implementing some more uh features and kind of adding to the complexity of the fund over there very soon um but the idea of a composite fund dow is really interesting because like you said you're you're essentially a fund of funds where anyone is able to create their fund and then that composite fund is decentralized um it is managed in a decentralized way exactly and the only way to get exposure to this fund of fund which consists of the best managers on dh is to stake dht right that's the only way you can get exposure to kind of you know all the economic activity on the edge yeah that and

that's so key because i i know there's there's lots of tools out there that are are trying to pick apart kind of aspects of what dhedge enables where i know there's certain analytics tools that uh try to pinpoint wallets and addresses uh to the top traders and you know there are certain tools that you can use to either front run those wallets in certain dex trades or to copy trade those wallets when they're performing different on-chain transactions but dhedge makes that all public in a decentralized way where you're able to invest essentially copy trade one of these funds one of these managers or all of them at the same

time in a composite way so i think that is really innovative really novel idea that even the other asset management protocols that i've seen aren't enabling and they recently launched a pretty cool feature where as you say obviously you know working uh something working on on top of ethereum and open boxing all the trades are public but we did launch a feature where the managers can share kind of uh their strategies and their thinking about the market and you know share their alpha directly with with their investors to manage their posts and they can choose to lock those posts so only people who copyright them can can view those posts and get inside the

mind of the managers gotcha so an even more connected circumstance between the managers and the investors that that's going to be a clear differentiator uh is there any other differentiators that you you want to mention between dhedge and some of the other asset management protocols that are out there now yeah one big one that i alluded to before is you know not only can you trade crypto assets but you can trade other tokenized assets all right so i think you know uh in the coming days we will enable you know the managers to trade uh oil for example so s oil which is synthetic oil long and short uh oil which is you know really unique and i think you know in the coming

months we'll see many more assets being enabled by and we plan to support all the assets that synthetics enable we also have some interesting algo type of pools and some of them might be native to dh so right now we just launched a test pool kind of mirroring the depth of synthetics so if you're a synthetic staker you could buy this pool and it has zero fees and you can hatch your debt as a as the next taker if you're as an ex take you incurred is

that which is kind of the outstanding synth on synthetics and by buying this pool by copyrighting this pool on dh you can you can hatch that position so i think this is pretty cool feature as well that i think will attract some of the synthetics community awesome yeah and and we are kind of nearing the end of our time but i'm curious it you know as more money legos pop up and more kind of complex solutions get added another one that comes to mind is the options training that was just enabled on wi-fi and the collaboration between yearn and hedge hedgic options that sounds like a really

cool opportunity for options traders to get involved on chain i'm curious do you guys have any partnerships uh or major updates that are coming up that you know you want to allude to maybe you can't speak too much about but is there any other integrations maybe beyond synthetics that you're really excited about in the in the coming times yeah for sure i mean we will enable some of that composibility as well uh not just with synthetics but you know at some point point you will see managers you know being able to use their assets to you know enhance yield if you like by using certain protocols right so you know if it's perhaps landing or some more advanced strategies that

you know will be enabled by uh by the protocol and you know right now i think for the rest of this year we have a very long list of features that we want to release to the market but looking beyond that i think we want to enable the managers to access some of these other protocols that you mentioned awesome yeah and and before we wrap up you you've shared some serious alpha not only on dhedge um but also just across the industry so if anyone is still listening this this is you know some really uh important and uh actionable knowledge that that's being shared to to wrap up who is one person that you would like the opportunity to pitch dhedge to

uh maybe just a one minute you know what would you say to them and uh what's someone you know maybe it's elon musk or warren buffett you know any anyone in the industry that you can think of uh who who would you want to pitch d hedge to and what would you say um you know there are you know so many influencers out there so many twitter traders who have a great following perhaps on twitter they gave recommendations every day over twitter or youtube or telegram uh you know if you really want to prove yourself come to d hedge and everyone can see your track record if you're really bringing alpha to the table why not get on dhedge and uh

and prove yourself and no one can uh doubt your trading skill if you if you move to dh because you will rise to the top of the leaderboard if you really have what it takes awesome all right all right henrik it was really great talking to you today um i appreciate you coming on this is it was super informational and i know andy and myself are both excited to continue with the hedge and really step up our our fund over there um and as we continue i mean there's there's plenty of great features that are continuing to get added so i'm really interested in the in the composite fund as well and um how that can grow so thanks for coming on is there anything else that you have

that you want to shout out or give to uh the audience listening oh super happy to have you guys on the platform and i you know i i'll follow your uh your performance and and what you do on the platform very closely and uh yeah super excited to have you guys on the platform and can't wait what you have in store awesome yeah thanks for coming out all right this has been henrik and rob on d5 by design thank you everyone for listening and we'll see you next time bye-bye thanks for listening to the d5 by design podcast until next time defy slate team [Music]