DeFi by Design EP#74: Creating Resilient DeFi Mechanisms w Sperax

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich it's your boy andy and welcome back to the defy slate youtube channel smash the like button on this video that really helps us out and sit back and enjoy the content thank you very much what's going on guys welcome to episode 74 of the d5 by design podcast here today to talk about some really interesting stuff going on in the d5 space what's being built and yeah it's been a wild ride out there the last weeks if you've been following along the market i mean but this ust collapse was just insane um followed by bitcoin falling apart followed by all this other jazz that's

been going on it's been a while we've just been building been working been learning been expanding what we're doing and yeah excited today to speak with alec alec is a co-founder of sparex sparex is an arbitrary native project we love arbitrary we love layer 2 so anything that's arbitrary native is is usually something to pay attention to from our experience in terms of the quality of builders and tech so always excited to learn more about what's going on over at sparex without giving away too much info pass it on to rob rob how you doing bro doing well man um yeah kind of like you said you know markets are topsy turvy right they went up and bounced and went down volatility is kind

of getting sucked out of the market so yeah don't over trade um you know there's uh there's definitely some opportunities out there and we'll we'll talk about a few today um on what's going on over at spearax and the interesting mechanism that they have over there to to help yield generation um and yeah obviously you know the ust collapse kind of threw a wrench in the algo stable coin mix um but it really unveiled kind of the difference between i'll go stables and ponzi stables and we'll we'll touch a bit on that today uh so yeah i'm super stoked to talk to alec uh over at spirax and yeah alec how you doing man good to

see you hey guys andy rob thanks for having me great to see you guys as well yes sir how did you get into d5 and kind of what what led you to cro to think about sparex uh yeah yeah so my entrance into d5 was kind of unique i guess in uh 2016 i was a sophomore in college and i had some buddies that were upperclassmen and i wanted to go to the bar with them i wanted to go get some beard so we were in the market for some fake ids and the only currency that these websites accepted was this

thing called bitcoin so in 2016 we bought like 30 bitcoin to pay for like a couple hundred dollar order and we had a couple bitcoin left over so in 2017 that started running up in price we're like what the hell is going on uh so we found a couple other students interested in bitcoin and crypto in blockchain uh we found a couple professors as well in the finance department that were keen on it and then we started the market blockchain lab so that was my first uh kind of experience in crypto and that was like a student-run research facility kind of club uh

and yeah that's how i first got plugged in in the 2017 cycle and got absolutely wrapped in 2018 but fan lifted yeah i got wrecked on max man thank god i wasn't dabbling with bit max i was just holding spot and uh i was kind of up in this like boat of believing that everything was going up into the right so that was a very humbling experience for me as i was doing public talks like encouraging people to get some exposure in 2018 uh you know it really forced me to figure out what was going on under the hood once the asset prices started dropping so it was a very like uh

exciting time to join but very rapidly it became really sobering i had to really figure out what was going on uh underneath the hood yeah yeah yeah yeah you know it's tough like once you kind of like catch the bug and almost see like the inevitability of of the value that that it brings it's like well how could this thing ever go down but like you know just in the midst of the macro environment there's still there's still a strong correlation um and kind of like way back when right like 2016 there wasn't that correlation um because it wasn't it was almost not even treated as an investment yet it was just like this new form of technology

that people were getting exposure to but it didn't have that same kind of like connotation as an alternative investment and um you know it was like it was like still uncorrelated and then kind of now as it's become more like integrated into you know traditional finance uh it's really you know become correlated uh to the macro environment and now like you know we're all kind of like well is this correlation gonna stick around or is it is it gonna break um what do you think like ultimately you know as bitcoin kind of like embedded into traditional finance with this correlation we're seeing today or

do you see a path to its uh you know own mature asset class yeah i think that there's two schools of thought there so first off i view it in more of the tradition traditional financial like risk spectrum being as far right down the risk curve as possible so if that if a sell-off of risky assets are going to happen you know if you subscribe to that school of thought bitcoin ether all cryptos should be sold off first to cover margin on less risky assets like equities and then those are sold off to

cover positions and bonds real estate etc so if you believe in that you you would expect a pretty like significant correlation but then there's this other school of thought that i really subscribe to which is you know this younger generation of internet native uh gen z type individuals um one they have no idea how to even access their excuse me equities they have no interest in purchasing bonds so this cash that they have when they think of investing they almost are immediately thinking of cryptos to begin with and then the riskier play for them is

something like an nft so for these individuals they might view you know equities as a risky play so any investment capital coming from gen z may filter right into the asset class they're most familiar with which would be bitcoin would be there would be crypto and there's something really unique which is the fact that a lot of these gen zeros man they're incredibly rich like they're they're youtube stars they're tick tock stars and they actually have incredible amounts of buying power so there might be the silver lining of equities you know the bed but but crypto's continuing to hold strong

simply because it is the asset of choice for the next generation and if that plays out we could see a decoupling which is going to be a really exciting time over the next couple of years fair enough um exciting exciting times indeed i mean we're we're looking at just that unprecedented kind of world order right now it's it's it's yeah it's pretty wild to kind of unpack everything that's happening um but in in the nitty-gritty we're still building in d5 kind of taking products um you know from stage one to two to three and it's been really interesting to see the evolution of uh of all this growth now um you know now we have these all these different chains

and now we have these layer twos and eventually layer threes and each 2.0 and all this other really cool stuff happening almost like within our little bubble uh that is affected by bitcoin being like a macro instrument so it kind of drives the rest of the market but it's almost like already decoupled and uncorrelated in the sense that you know especially even like nfts obviously with like the risk parameters and kind of liquidity concepts you see you see trends emerge when everything's up and everything's kind of down but we're kind of in our own bubble here um which kind of brings me to the point of what you guys are building at sparex so i'm curious why why arbitram you know how did you guys get involved with arbitram what's your thought process behind arbitram um you

know kind of what's the what's how did that become the landing point for sparex yeah great question um so the the decision was actually fairly simple uh once we kind of took a first principles approach so um we knew that there am layer one was pricing out a lot of the newer retail users and building a high yielding stablecoin product which we'll get into you know our primary user base is not like this risk-on degen type character that maybe is an expert in interacting with blockchains and

maybe has a big big purse willing to pay the level one gas fees we didn't think that that was our target market so we needed a accessible blockchain but back to this notion of we're servicing newer crypto users we didn't want to sacrifice any security when uh delivering the cheaper gas fee experience so we figured okay what's still like hyper secure but uh still delivers cheap gas fees and we basically started investigating popular alternative layer ones but growing up and being introduced to

crypto first through ethereum i just didn't see the decentralization or the censorship resistance principles in those ecosystems they were much more willing to sacrifice decentralization in exchange for transaction throughput and i thought that that was a cool short-term solution but it didn't seem to really resonate with me as a long-term arena to host this new censorship-resistant financial system so we began looking at some alternatives and

we are you know ethereum ogs and really we're watching the layer two scene and when we learned about optimistic roll-ups and the ability to borrow the security guarantees from ethereum but still deliver significantly cheaper gas fees it was a no-brainer for us we basically believe you know the newer users need the cheaper gas fees but the larger net worth users won't trust bridges and the perfect happy medium there is arbitrage you know the ethereum whales are happy to use optimistic bridges and the new users are happy to use arbitrary with the cheap transaction fees uh the next barrier is just to

figure out all of the various ways to get capital into arbitrary which we're working on as well but i'll pause over there for now yeah i mean it's definitely it's the biggest layer too by uh liquidity and tvl i think optimism has been gaining some traction but um i mean yeah you guys could always deploy on other layered shoes as well it's not like you know you it has to be only on arbitrary but um yeah interesting kind of thought process i know i completely agree i support all our return projects i really support all layer two projects over anything else right now i mean obviously mainnet projects are great but like anything even on other chains is just like i mean

i don't know i don't see the value of being on a different chain when you can exactly as you're saying get the security of ethereum same you know kind of cost and speed benefits um yeah we'd love to kind of learn more about the mechanism behind usds how kind of like the auto yield kind of works how you guys came up with that idea um yeah i mean there's a bunch more questions but yeah yeah for sure um so there's a couple different points i want to touch on first kind of like what sparex is if that's okay and then i can talk about kind of like our backing and then how we you know maintain our peg maybe we could hit that so first off you know sparex is a

software development company you know we build uh financial software but instead of like keeping that software code a secret and monetizing the code that way uh we do the exact opposite we publish it open source we deploy it on public blockchains so anyone can go tinker with it can fork it can play with they can improve it they can do whatever they want with it you know and our first financial software product that we built uh is a stable coin that generates passive income for holders at a rate of 11 and our basic you know thesis is that crypto should be

easy and right now it's quite challenging uh even for experienced users so we want to remove all the complexity and the anxiety around simple uh d5 stablecoin activities so let me explain a little bit how it works so i just want to make something very yeah go ahead so real quick like immediate first thought that that somebody is going to have is how how can you guys get 11 if you know my bonds are only getting me right now on a 10 year two and a half percent yes so all of our yield that is generated is 100 organic and we use zero inflation

rewards from our protocol so we don't subsidize a penny and let me explain that in just one second but uh it a little secret it comes from our 100 collateral backing so we are a stable coin but unlike other stable coins we are 100 back backed so each and every usds that's out in the market has at least one usdc or at least one usdt sitting in the reserves ready to be redeemed at any point so when you're holding this thing you can think of it basically just as like a receipt token so now you're given the

right to go to the website or our protocol at any any given time and you can burn your receipt token and you will be given one usdc or one usdt for the receipt token so i just want to make that very clear right off the bat and the collateral and the reserves are actually what enables our stable coin to remain pegged and it generates the auto yield so first off on the peg front it remains profitable because of this redeeming process so let's just go through two quick examples let's say hypothetically usds is trading off its peg and it's trading at 95 cents

so under one dollar because of our collateral in the reserves arbitrage traders can have confidence that if they buy that usds on unison for 95 cents so basically you're catching a falling knife at this point you're catching you're buying a de-pegging stablecoin but what you're doing is you're buying that stablecoin for 92 93 94 cents you're then going to the protocol sparex usd and you can deposit all of those uh stable coins that you just paid 93 cents for for one dollar worth of usdc so then once you get your one dollar you worth of usdc you go to the open market

and you sell it on the open market that arbitrage trader just made a seven percent arbitrage profit the value of the stablecoin is back to one dollar and the holders of the usds are happy and sitting dandy with their one dollar peg the same thing works in reverse so if it's trading for over one dollar you as an arbitrage trader can send us dc to the protocol which will then mint equal amounts of usds but the usds is trading at a premium in the open market so now you just paid a hundred thousand dollars for a hundred

five thousand dollars with a staple coins uh so you sell the usds on unison you take the five percent arbitrage profit usds becomes one dollar everyone's happy arbitrage trader made profit uh the stable coins back to one dollar and this is just very important to note that without explicit collateral that arbitrage trader won't do the trade so that'll that'll come in later i'm sure we'll talk about some other stuff but uh so the same collateral that allows for the peg to remain stable is also what generates the auto yield

so all of the collateral sitting in the reserve is sent to various d5 protocols right now we only use curve just because it's the most trustworthy and risk off and then once the stable coins are in curve they generate trading fees and it generates crv and then that crv is sold for more usds and the usds is then sent to anyone that's holding usds in their wallet at a rate of 11 per year so we don't have to subsidize a thing all of the yield is generated from our collateral reserves uh sitting inside of uh curve positions and we're using the

curve two pool right now to generate that yield that you know really uh paints a picture of i think two questions that are begged right away which is you know how does usds maintain the peg uh and you mentioned you know it's this this mechanism of economic enforcement when arbitrage traders can can mint and burn directly with the protocol and interact with the fully backed reserves of usds this is i think really important to highlight the difference between these algo staples that are fully backed and then what i would call you know terra

ponzi stable where a portion of those reserves are just you know thin air and you don't really know you just kind of have to trust and have confidence in in those reserves to to you know back the stablecoin asset which we've seen obviously is is a flawed model um do that real fast please yeah i just want to point out the fact that so as we just talked about you know if if the peg is deviating down say usds is trading at 95 cents you have to have a really ballsy trader coming in to buy that stablecoin right because everyone's thinking oh it's gonna go to zero

uh but once you have a collateral pool that has explicit stable coins in there it gives that trader confidence to buy the discounted stablecoin because they know they can go to the protocol and get one usdc for it where in the terra ust example when ust was trading for 95 cents no one wanted to buy ust because all they get is luna and luna was going to zero rapidly so all of a sudden anyone looking at ust they go i'm not going to buy that all i'm going to get is luna and luna's going to zero so

introducing hard external stablecoin collateral collateral maintains that peg but also gives us that dope benefit of being able to deploy strategic capital to generate auto yield to make our protocols safer do a whole bunch of stuff so i just wanted to kind of point that out uh that's kind of what yeah no one wanted to buy ust because all you got was luna was right right and there's an element of transparency that an open source protocol with you know decentralized smart contracts offers like sparex does over and beyond something like tether

where there isn't transparency into what their reserves are so you don't fully understand or have confidence in that one-to-one peg to hold up um because it's not it's not a fluid transparent model where you can see okay this is this is fully backed you know even even though they do have audits it's still it's still kind of um a matter of trust whereas there is actually like a a block explorer you can go check the contract address to see the amount of usdc and usdt in the spirix contract at all times and make sure that you know the the two sides of the equation are balanced yeah

you got it exactly like you know people trust tether because for every usdt i'm speaking as an institution here because you and i we couldn't but if we had a fund we could redeem usdt so you think okay sure they got like 80 billion circulating uh they probably have at least 50 60 billion in reserves you know i'm not going to eat up all 60 billion or the observers but uh someone might if there's a bank run you don't actually know how much they have and uh the glory of sparex usds as you mentioned bradley if you see 15 30 50 million of usds outstanding you

can go check our reserve contracts which are right on our analytics page and you can see that there's one dollar for every usds outstanding which then just gives everyone the confidence to be holding the currency because the protocol would work down to the last circulating usds like we could have a bank run all the way down to 99 of our stable coins being redeemed and the protocol still worked perfectly fine our governance still could probably wouldn't perform too well but like the protocol can operate with just a single usbs outstanding which is pretty cool yeah that i mean and and go ahead the

yeah real quick the the element of transparency also opens up the entire market to the arbitrage traders whereas like you mentioned only institutions are able to arbitrage the tethered peg because you know only institutions can redeem but on the in this on-chain more peer-to-peer world it opens up all these you know market makers liquidity providers anyone can be an arbitrage trader and take advantage of those opportunities yeah on that note real fast you know this this arbitrage to maintain asset is nothing new so this is uh an etf style arbitrage which you can you know everyone can go check out on investopedia you know basically if the

pegged asset is deviated from the peg you can redeem underline and it will uh bring it back but rob as you as you touched on like it's only available for accredited investors so now these cool financial primitives are becoming democratized and we saw it first with liquidity provision with uniswap anyone can be an lp now but i'm excited for these a little bit more exotic strategies like etf style arbitrage being democratized as well so we're going to see a flourishing market for for this type of trade and this type of

activity from retail in the coming years as well which we're stoked on fair enough yeah that ability to access the um you know all these protocols just with a wi-fi and or your own wi-fi and meta mask is just i mean i mean it's crazy it's yeah it's truly democratizing the entire landscape um you know i i'd like to kind of dive into some of the pitfalls as to where uh luna and ust went wrong and kind of what your thoughts are on the general state of of stable coins um in d5 perhaps we could like kind of go through and explain to our listeners some of the different types and kind of risks involved you know so

let's start with ust and and luna kind of so what are your thoughts overall on that kind of algorithmic stable coin um concept like uh is are do you think those are done for do you think there's any way to make it work you know what what are your overall thoughts on the algorithmic stable coin concept yeah um i'm trying to introduce this new mental model for stable coins which is something that i want to call a redemption based stable coin because at the end of the day like maker it's just a bunch of algorithms in a smart contract on ethereum like i don't know how that isn't an

algorithmic stable coin there isn't like some you know like uh roon isn't sitting there like managing all these trades and managing the die savings rate and stuff like it is an algorithmic stablecoin so um i view two large categories of stable coins being redemption based stable coins which is the old algorithmic version or we have cdp model stable coins collateralized depth position stable coins which is like make or die so the make or die system i just want to kind of paint this picture real fast a user locks each they meant a stable coin

if heath goes down to their collateralization ratio the e is sold the user keeps the die or if a user sends the die back to the protocol to close their cdp position uh you get all your collateral back so say you you locked in one eighth you minted some some dye when you return the die you get your one each back okay these are these are extremely robust stable coin mechanisms and they've done an amazing job maintaining the pay but there is a very glaring problem the problem is that these are not stable coin protocols

they're decentralized leverage protocols so the implication of that is when demand for leverage dries up so basically when people stop depositing heath to mint their die no more dog gets minted so if people think the value of ether is going to go down they're sure as hell not going to deposit ether into a leveraged position which is what minting die is so these systems are very very robust but they don't scale they only scale in bull markets in their markets they completely dry up and you can check the performance of dye in 2018 to 2020 to validate that

so that's the cdp model brilliant but doesn't scale the second model which is the quote-unquote algo stable model i'm trying to rebrand as redemption-based model is basically how usdc usdt and all etfs remain stable and there's something really important to note that these redemption products have a risk spectrum so they can go all the way from zero percent collateralized all the way up to 100 percent collateralized and there are trade-offs when thinking about where you want to lie on that risk spectrum

so on the far left being the most risky was ust some people call these ponzi stables and they work very very well in bull markets as well they can actually scale incredibly fast because they require no external capital um so let's just kind of look at this high level far left ust backed only by luna if luna's going down no one wants to arbitrage so when luna goes up everyone's happy to arbitrage hell everyone's pumping money into it it's amazing and because you require no usdc or usdt you can do a lot

of cool fun incentives to basically juice up your growth but in the event that you had a bear market people stop arbitraging okay so that's a zero percent collateral then you can enter the middle or maybe a little bit farther on the right of the of the risk spectrum which would be something like frax so frax is actually a hybrid for every frax that's outstanding one stable coin of fracs there's 85 cents worth of usdc and then there's 15 percent that's unbacked that in the event of a bank run the protocol will mint the governance

token so these work well but in the event of a bank run users are still going to be given at least some portion of collateral in fxs which if fxs is decreasing rapidly users may be not so inclined to arbitrage the price back to one dollar so frax has actually done an exceptional job and maybe 85 percent is the perfect collateral ratio but for those that prefer a little bit more security usds is 100 collateralized so we're on the far right of the risk spectrum when it comes to redemption stable coins

uh we have uh one stable coin for each and every usdc or usds outstanding and basically the trade-off here is more collateral makes it a little bit harder to scale but you get tighter peg stability and as you introduce more of an algorithmic component so a part collateralized by your governance token you add more scalability but you reduce the ability to generate auto yield and you introduce more risk into the protocol so to summarize you can go all the way from zero percent collateral all the way up to 100 collateral

and sparex usds you know we've elected to start at 100 and then we'll allow the data to decide how algorithmic we become over time and the role of the spherex foundation is to basically be an analyst for spa holders so we'll educate the community on what are the implications if we become 90 collateralized sure we'll burn more spa sure we can scale a little bit faster but if there is a bank run scenario you know will people still want to arbitrage there's no guarantee so our general

ethos is we're uh erroring on the side of security and tech stability also on the side of auto yield and i'm sure many new stable coin protocols coming out will have a lot less collateral but it's just an exciting time right now where a lot of stablecoin experiments are being conducted and we just want to be there to satisfy those that prefer security prefer peg stability and are willing to sacrifice a little bit of growth in the short term to ensure we're building a hyper robust product so excuse my monologue but i hope that that explained the two different types

of stable coins and then the difference risk spectrum underneath the algorithmic reduction model yeah yeah that does that helps quite a bit kind of paint the picture of you know it almost seems intuitive now to 100 back you know the stable coin and and almost just like you know confusing why someone would would go towards i would almost say previous to your to your monologue like why someone would go closer to the or farther down the left side of that that risk curve um but after kind of understanding like more

the the scalability of the stablecoin in a bull market um that is apparently you know the the chief prerogative that maybe doe kwan or tara had was to scale the network strength of this stablecoin more so than the stability of the stable coin and it's interesting to see how fracs has reinforced their model and you know the peg has held up even in these times of uncertainty it kind of makes me imagine like well you know maybe there's a model where when the market is going up or even just the governance token of that protocol is going up

since that can help defend a peg maybe there's a model where it can be dynamic and um in a situation where that that token is going up maybe there's a little bit less backing since arbitragers are more willing to do that arbitrage and then the reverse for when that market is going down maybe you could even you know you could raise the peg dynamically based on how the market is performing um and i'm having is there any like test cases you guys have done um and experimented with those types of mechanisms or from the jump you've been 100 backed um you know through through and through

yeah a great question so we actually started with such a model uh our original model was decreasing our collateral ratio at one percent per month so 12 annually which is a pretty significant decrease in collateral ratio um and that ratio would respond to market conditions so if our governance token was taking a significant hit any new minting of the of the stable coin would require more collateral so the protocol would actually reserve more collateral in the events that there might be some

fear you know fight in the market uh but actually after the ust death spiral you could call it uh we elected to allow for the dao to make all of those decisions because we don't want to pretend like we're capable to understand what the market's going to do obviously no one knows where it's going to go so we want to ensure 100 percent that the protocol reflects the risk profiles of the governance token holders so we made it 100 collateralized it's now reducing the collateral ratio at 1

per year so like hyper risk off and then we are now just racing toward getting all of our dow levers online so then the community gets to decide they can determine do we want to reintroduce the dynamic ratio component at what rate do we want the collateral ratio to be to decrease on a monthly or annual and then also what type of collateral are we going to accept into the protocol where is that collateral going to be invested to generate the income or to generate the auto yield for for holders

so yeah that's all going to be up to the dow and we just had to take the position of uh security in light of the usg debacle yeah i really like the auto yield concept that you know it's almost like these stable coins become like a protocol level layer and then usds is leveraging that protocol to offer this auto yield and the reason i think it's it's really resilient is because it almost seems like a central bank digital currency is inevitable at this point china's testing us is testing that you know they're all kind of experimenting with these cbdc's and i think that'll take significant

market share from the centralized fiat back stable coins like you know tether usdc but usds is a different is playing a different ball game because you could even incorporate cbdc's into the collateral reserves and then continue to provide yield based off auto yield based off those reserves yeah absolutely so contingents on some regulatory blockers like ensuring that cbdc doesn't blacklist you know the contracts um we anticipate there being some very healthy risk-free rates associated with that cbdc so

we're in the process now of investigating all possible collateral uh additions and you know we're leading with products like frax and vesta the vst stablecoin fully collateralized cdp stablecoin on arbitron we are prioritizing decentralized alternatives but that does not mean that if the cvdc comes along they're favorable to you know decentralized applications and they don't blacklist interactions like hell yeah like let's let's add them let's generate some auto yield and let's get uh

you know auto yield passed down to those that need it the most that may not understand how to use defy and would rather just go to a download an app and start harnessing 11 api or just going onto a website and getting 11 if you want they don't need to deal with all the intimidating that we deal with uh because we like it you know these people are just trying to kind of like do a little bit of investing a little bit of savings and uh yeah we want to service that user base right yeah i mean definitely the right move then to be kind of on the safe side um you know and just operate in that 100 collateralized

you know area i i appreciate the explanation of of the stable coins i think a lot of people just simply assume a lot of that a lot of of over the majority of the mechanisms are similar which is definitely not the case in d5 you have different types as you're explaining so it kind of brings us to the point of like what's best and you know we haven't really seen what's best you know we've seen what hasn't worked but it'll be interesting to see kind of what is best over time for users and kind of how to get that yield and also ensure the most high-tech and secure applications i'm curious what your thoughts are

about the ever-growing supply of of stable coins when it comes to using them in d5 using them in just all sorts of applications like is could you see a world where there's stable coin market cap larger than than that of like the bitcoin market cap or the ethereum market cap or or you know what's what's your thought process on how big stable coins can get because ultimately i mean they're all backed by dollars effectively or supposed to be um you know the ones that are like the usccs and the usdt's um i'm curious like what your general model is for like the next five ten years of stable coin growth like where you might see it

see things going yeah yeah great question um i'm inclined to believe that this idea of like calling these things stable coins will likely disappear and it'll most likely just be considered money um so various applications will completely abstract away the crypto or the stablecoin type experience i think we're like living in this very weird transitional period um and uh like for example like when we have kids they're gonna just be very confused that everything wasn't digitalized

right off of the bat so i think that all money will become quote unquote stable coins uh every like defense balance sheet will be this more transparent ledger and all the cash on the balance sheet will be quote unquote stable coins cbdc's um so that being said you could you could see a stable coin market cap rapidly you know uh eclipsing bitcoins um but i think it'll just be under this very different uh cultural setting you know it's not going to be crypto this regular finance that's it's going to be finance

some applications will run on crypto rails some will run on swift rails both will have trade-offs and different user profiles that are attracted to those products so uh yeah i would expect stable coins to actually rapidly eclipse uh bitcoin especially if we're in the you know early stages of a multi-year bear market i really hope that we're not but in the event that that happens there's going to be a lot of interest in non-volatile products and a little less interest in some of the

risks especially with i think that that's going to happen yeah especially with bond yields being low like it's tough to get anything in fixed income right now um and yeah i mean if you think about all the dollars in the system right now imagine if those were all crypto dollars or digital dollars on ethereum or i mean ideally probably on like layer twos um at some point with extreme extreme speed and low cost um yeah that's i mean it's definitely exciting to hear i mean it just seems like there's so much room for growth because of like uh just yeah that transitional period where there's already all those dollars in the system it's just that they just almost need to be like swallowed up by crypto dollars um which is yeah which

is crazy exciting so so what are your thoughts on the current yield situation of stable coins um where where is yield coming from currently in d5 is defy yield going is it going to go down is it going to go up is going to get swallowed is it a factor of lending and borrowing is it the bearer market is it a bull market is it better kind of what are your overall thoughts you know in in in a broad space of the current yield and defy on stable coins or just on crypto assets um where do you see it heading what are some of the factors playing into it yeah i mean i'm inclined to believe most of the yield comes from demand for leverage

um so even yield coming from something like curve a lot of the curve transactions are done from traders that are taking out maybe minting die and then swapping on curves or other assets or basically whenever there's a lot of trading activity you see a lot of activity on curve which then correlates to an increased uh yield for stable coin deposits so for you know platforms like curve i anticipate the transaction or the yield to decrease a little bit um but thankfully we have the ability to juice that yield with crv and crv will always have buying pressure because of

the curve wars so i i have a glimmer of hope for stable coin yields on products like curve stable queen yields coming from ave from compound i'm a little bit less bullish on that simply because those yields are derived from demand for leverage so if there's not euphoria in the market a lot of times borrowing is going to rapidly decrease and we've already seen that with celsius so celsius recently had to decrease their apr for deposits because institutions are no longer borrowing usdc to aid into coins so

with with the you know general negative market sentiment it does dry up a lot of the yields but something that's really important to note is our protocol actually boosts the yield on a curve so if you have usdc uh you have two options right you want to generate some yield on usdc let's just use curve and sparex for a moment if you put the usbc directly into curve you'll earn the curve rate on the tuple which is three four five percent then how the hell is ferrex returning 11 right let's just say hypothetically you took

your usdc you put it into the sparex protocol sparx protocol now owns it they give you usds so now you have one usds which is yield bearing at 11 where does the 11 come from your usdc gets sent to curve just like you would have done and it begins earning a 5 apr but the secret sauce here is that the only eligible stable coins the only eligible usds that can res that can receive auto yield installments are those usds sitting in user wallets so every single usds that's in saddle

every single usds in uniswap every single usds in any smart contract is excluded from the yield because those depositors get compensated with yield farming rewards with transaction fees a whole bunch of other stuff plenty of yield available for that but the end user who's holding usds in their wallets they're able to get a juiced return because all those other stable coins that weren't generating yield or are generating yield but aren't eligible for the installment you know they are bypassed and their yield is given to the usds holder with the stablecoin in their wallet so that's how

we're able to actually juice up the uh the yields so at the end of the day like sure we're a stable coin but like really we're a diversified basket of interest bearing stable coins and you just have like a share of that fund and then it functions as a two-stop curve strategy so usds holders natively get higher yield because of this totally they get a completely juiced up yield so i mean curve returns 4 today and auto yields we can sustain for another six months at

eleven percent assuming no more yield generated but every day yeah so yeah i know i'm beefy right now it's auto compounded at like eight percent so this is even more boosted than like an auto compounder is totally and the glory of it is you don't have to stake you don't have to claim you don't have to do anything it's actually rebased back to your wallet so rebase causes people yeah man good good times and apple back in the day on april 4th yeah so so the rebase you know we took the best feature of ample which is like this rebase tech but we don't use the

rebase for peg stability we only use rebasing as a tool to distribute the yield in a way that doesn't cost any money so now users get the yield but they don't have to stay they don't have to claim they don't have to do anything that makes total sense which has been awesome man um curious kind of what you guys have up in uh development updates how our audience can get involved uh and what you guys are working on now yeah for sure for sure so uh in light of the ust collapse we're doing everything to ensure that our protocol is like hyper hyper secure so we're launching a couple new yield farms

uh so they're going to be really really juicy and we got stable coin farms coming out with fracks on curves so we're super stoked to announce that partnership by the time this errors i'm sure that it'll be public we also have a a usds spa farm coming out and then this morning we made a huge partnership uh public which is we just signed a deal with street beat so street beat is a fintech provider and we're working with fintech platforms to deliver what we're calling the d5 mullet so we actually stole that term from the

bankless guys so shout out bankless but uh what it means is you know we can actually use usds and d5 protocols to deliver safe reliable and organic yield to fintech users so we just signed a deal with uh 3b they got 50 000 users now 50 000 new users are able to connect their bank account uh get usds and then boom they got an eleven percent ready to go all they got to do is download something off the app store badass dude i love that we're doing something something a little bit similar um as you know just kind of bringing this bringing

yields to fintech users traditional investors so it's always good to see uh keep them safe and protected and good high yields so excited for that excited to see the dow grow and get more involved with the with the community it's been an absolute pleasure alec congrats on this success so far and excited to kind of see this grow and help it grow thanks andy he's great chad i'm not really sure where rob went but he'll be back his his wifi probably went down but yeah man it's been a pleasure so thank you so much for for coming on and uh it was a good episode thank you man have a wonderful day and uh yeah look forward