Exploring New Frontiers in DeFi Economics

Transcript

yeah good afternoon everyone how are we doing after lunch today would that if not tired all right okay well I hope hopefully we get some more enjoyment uh more energy into space I mean we've got to sell our panel for you tonight uh today sorry I'm struggling already um but we'll sort of jump straight into it with quick introductions and then we'll unpack a little bit about what this topic actually entails so a bit about me I'm one of the co-founders at drift well with the largest Perpetual is excellent Solana right now done about 10 billion in volume since uh our launch so that's just me uh panelists Tasha may be starting with you just a quick 30 second on a bit about you and what you're doing sure uh so co-founder and CEO of alpha

finance and Stella we started building since 2020 in D5 particularly in leverage and we can talk more about you know what we think of Leverage in the bear market now as well but the main product that we built uh is leverage farming and leverage LP on all machines so mainly evm ethereum optimism arbitrim Avalanche Phantom uh the highest tvl or total usage was around two billion dollars and now we are scaling that to more sustainable and also for the next full market for for a new way of Leverage so now building under Stella excellent Tian yeah so um TN CEO co-founder of Pendle so panel is uh yield tokenization and trading protocol

and among the use cases that the protocol enables uh firstly it's fixed yield um we're currently the largest protocol on D5 that enables fixed yield and then there's yield speculation primarily for traders to express a view on assets apy and last but not least Smokey please yeah um hey guys my name is Smokey the Bear of bear chain as it might be a little bit evident I run an evm compatible L1 built on the cosmos SDK and powered by proof of liquidity which effectively allows us to re-hypothecate liquidity as a form of security to power core applications and smart contracts building on the Chain such that the

validators on bear chain utilize stage Capital to Tower the applications building on top of them excellent thanks panelists for the quick introduction so we'll dive into this topic so the topic today being New Frontier of D5 economics so maybe I'll flip it around Smokey starting with you when you're a base chain how does how do you guys think about zero to one as one of the newer players in the market and what does that mean for you yeah um you know for us I think that it's interesting because we see defy ecosystems evolve in a number of different ways they often revolve around run major super app and I think for the last few years we've seen this thesis play out where people try to solve a blockchain scaling trilemma or blockchain try element in general and look towards decentralization security scalability Etc

um but I think more than anything else people are just chasing a hot ball of liquidity in users so really the way that we've thought about this and the way that I think bear chain is engineered with this purpose in mind is actually to build around liquidity as a core primitive and have that feed into as much of defy as possible so our thesis is that if you build you know liquidity uh take aggregation and accumulation into the base plate of the chain and allow the apps and that's say the application's building on top of it to actually draw on that and have a meaningful reason to exist there and that's how you start the ecosystem off the ground I think you need a good combination of activation energy unique apps that can be a base plate something like GMX and arbitrum and I'd say just

new Builders to get that off the ground but it's a multi-faceted Approach at the end of the day no absolutely agree I think if we wind back about a year and a half two years when we think about GMX and what that did for arbitrim still to today jmx has approximately 35 to 45 percent market dominance and it just goes to show how much a single application can bring to a chain I think that sort of brings me to the two of you Tia and Tasha both of you building applications on on of D5 and quite quite different in some regards maybe Tien I know we've known each other for a while there was a time where Pendle TVO was closer to five million now it's close to 125 so this is a massive increase 25x if not more uh

tell me how did the change in economics work for you what did you guys do differently to really ramp that up because I think it's one of the fastest growing protocols for 2023. so we actually spent a good part of last year revamping the protocol so at the product layer there had been quite a substantial change um at the amm layer and also just how um certain yields are stacked uh beyond that it was a lot of experiments with narratives so to a large extent we have been a great beneficiary of the lsd5 movement in the first half of this year and then that was when I think we started to see a more

gradual increase and then eventually became more exponential in a relatively short span of time because one panel enabled for lcd5 at that point in time was a view a venue for speculators to express a view this was before chappella fork and um before chappella Fork there there are a lot of um I mean people have maybe divided views right whether Paul Chapel folk would then be more deficits or less deposit and if you have either of these views what can you do in order to generate wealth so we became the venue for asset deposits and also for yield speculation so I think that became a

pretty good use case for for Pendle and then we started to see more deposits and then gradually we also expanded the focus to other verticals of assets so beyond just if lsds we also have a strong emphasis on per protocols so we have definitely benefited from the growth of GMX and gains Network and and yeah again similarly right because the yields for these Protocols are very very volatile and then we provide a venue for users to speculate more recently I think uh it's it's we're taking a keen interest on real

world assets so along the way we're just mostly identifying narratives that we think would make sense and then associate the Pendle brand to these narratives and and stay relevant absolutely Tasha I know uh in a previous product that you built I think you really took the leveraged products in the market and I guess in a similar vein how have you done that for Stella yeah I think the one thing to realize is that a lot of people think you know in the bear Market there's not much demand for leverage which is true I think a lot of the on-chain Usage Now is also very minimal let alone leverage alone right but I think it's very important to also note that Leverage is very bread and

butter to any Financial system because that's how you actually maximize the capital efficiency so I think the the way we're actually positioned still for the next you know wave of cycle of defies that we need to identify what's actually Echo TN we need to identify what's the you know tokens or the assets that people will be you know mainly you know holding or trading right because if you actually went back to 2020 a lot of the tokens were all governance tokens right so different you know governance token and a bit of major tokens like BTC ease Stables but because of you know majority of the tokens are governance tokens and that's how a lot of new members get onboarded then that's where you know the initial leverage you farming came to place so if we take a

view that okay the next wave of you know new capital is going to flowing through rwas or real world assets then you have to imagine what are the different leverage and goals that actually make sense uh to to enable even more yields on these rwas but in a different way than just leverage farming then different way from just literacy LPN because that only works for governance tokens in which you know the years are super high right but rwas the yields are quite low because the years are sustainable and from The Real World so we have to kind of combine I would say D5 economics to more of a fundamental and really like long-term sustainable view of rwas and then enable that through leverage absolutely and do you think that's something that's driven by

by market cycle because I do recall there was a period where I higher the number the better the product or the higher the adoption I feel like as of 2023 people are getting more cautious around what they're jumping into they're aping a lot less they're thinking about sustainability so how do you evaluate that based on Market cycle if you think that's relevant yeah I think a lot of the times when you're in that moment you actually don't know whether what's sustainable what's not and and it was funny because back into an interview like in 2020 I recall a lot of people think four-digit yield is sustainable but I think with the current bear Market a lot of the setbacks that we have um shift the mindset quite a lot so I think now a lot of people anchor more on their different Stables or even

different um rwas so I think the key thing to see what's actually sustainable or not is to you know come back to the real world and imagine okay if this is going to be in world would it you know make sense and maybe you can add some you know DJ multiplier to it to a certain expense but not like you know 100x like like in in 2020 and I think that's like my range of like what a view of sustainability for sure you cannot go full stream you know anchor everything to the real world and then go with the pace of the world because it's going to be too slow for a crypto and it's too slow for D5 absolutely yeah I know tan we talked a little bit about about real world assets entering Pendle uh how do you think about that as a newish asset class I

think it's been a hot topic for 2023 how have real world assets interacted with the existing Suite of products that you have so from our view we are very bullish on real world assets again because I think in this current climate there's a lot more emphasis on sustainability of yields and so far I think uh at least prior to this current cycle the yields were largely driven by emissions and then when token prices collapse the the apis also went down and then a lot of money just went away and then I think the the

people who are still staying in the space are a lot more wary of that and then looking for assets that could give meaningful and sustainable yields so right now we're seeing t-bills mostly getting tokenized and then starting to see increasing tvl so if I remember correctly in in July there was probably a little less than a billion dollars in TBL for real well asset but by now across all the different kind of assets including gold precious metals t-bills it's it's already three and a half billion dollars so there is a steady inflow of liquidity from all chain to on-chain and getting tokenized

through all these different like crypto means and I think um I mean personally um I think this is um it's it's probably the start because the start is is relatively slow um but I think uh in a relatively short span of time that inflow will probably compound and grow exponentially and then this is where with more liquidity on chain protocols can get creative and try to build on top of the yield I mean right now for t-bill tokens it's probably offering around like five percent apy so of course like if you if you and and just just given the composibility nature of D5 there are

many ways that you can mix and match uh t-bill yield and then lsd5 yield and maybe something else and package it and the effective apy could become as high as 20 or more right um so so I think that will probably eventually play out uh and from a panel standpoint right now because of our position on uh because of our view on rwas we're starting to support t-build derivatives of t-bill tokens like as die and have usdc and then gradually we want to explore how else we can increase the number of assets listed on on Pendle and then allow for use speculation and more means and

strategies for wealth generation absolutely so you mentioned some of the usdc variants and I know something that's also I think based in single potentially Athena has been a big Talk of the Town in terms of How It's generating essentially cash rates by just holding it any thoughts on that and open to all the panelists here for I guess a new style of stablecoin if you may I I don't have too much of a view on that at the moment um yeah I probably need to study more on it but I think talking about stable coins I feel like uh we're still going through like experimentation phase even though

it's been you know many years of experimentation uh but we still haven't break through you know anchoring everything to centralized um like the main usds on chain are still usdt and UCC um even though we have you know more articles coming and there are like different protocols that are doing stable coins backed by rwas on chain for example T protocol like it it solves a problem in another angle but it still you know comes back to civilization you know so I feel like a lot of the experiments still have to go a long way and I think also depends on the decision the legal landscape as well because that alone kind of sets a lot of the projects away from continuing to develop or you know having to Anchor back to to

centralize like the frax token yeah no absolutely and I guess Smokey for you when you think about bringing that those projects for that zero to one what are some of the core focuses you think about when scaling up this default ecosystem on Vera chain yeah that's a great question man um I think for us you know we've seen very standard things across a number of different ecos right you always have a decks you always have a lending Market you always have perps I think that what we need more than anything else is the next generation of Primitives and I don't think that's a hot take I think we've all been saying we need a next generation of Primitives forever um it's rather what does that actually look like is it stuff like what tien's doing around you know interest rate derivatives which I think have a massive

feature on chain is it stuff like you know bringing credit default swaps on chain which is you know being done by a protocol building with us that I'm super excited about is it the recapitulation of a Trad fire World on chain or is it actually leaning into the composability and some of the stuff that we just discussed earlier like with t-bills and rwas Etc um I do think that you have to take a multi-pronged approach and I think that you can't just dial in on one area but it's probably important to be t-shaped I'm probably most interested in broadly what could look like the space around exotic derivatives you know new types of options new types of wrist launching in terms of collateral when you come to lending markets perps but I also think there's another meta that could evolve very quickly in the next little while

sort of with the rise of account abstraction and sort of the um you know the erc6551 standard and I could see a very cool world emerging around basically whole account collateral because when you think about the reasons that people choose to take an action on Chain versus off chain right why one would buy t-bills on Chain versus just buying them in your bank right or why one would choose to take leverage on Jane versus going out and take an LLC Etc um in most cases it's ease of use in other cases it's easy access to leverage in other cases it's just you know a click away um so I think a world in which one could tokenize or effectively have their entire account as a smart wall a smart contract um and then basically take leverage against that because it's very interesting especially when you feed it

into other protocols so I think we could see a whole world emerging around whole account collateral so to answer your questions straight up I think it has to be new things because people are tired and there's no reason to you know bridge to a new chain explore a new ecosystem if there aren't new things to look at I think that it's been interesting to see that from a non-d5 but almost a social five point of view on base and sort of what that's looked like with fun Tech and the explosion of new accounts and 135k users coming in from that and I'd like to see D5 Primitives achieve that in ecosystems like bear chain down the road absolutely so one thing that's been discussed so far on this panel has been this shift towards rwas in a previous cycle there was a big emphasis on

governance tokens that Tasha mentioned leveraging them up so with that in mind do you guys have any thoughts on how Native tokens play into economics moving forward before we had these giant emissions that uh took the fall of the kudini mining that was I think the progenerative being compound and then there were a lot of these food tokens that took place and that's you know that four digit API was considered sustainable but that seems to have changed quite significantly now so how do governance tokens if at all play into D5 economics in this current time I mean it can start I feel like defy uh token itself or you know governance tokens I see that as a tool right so you know this one tool is actually very

useful for different stage of the product or like a project so let's say when you're starting out you can selling out the product you can use this tool to incentivize uh later on I think I mean backtrack to 2020 people only use that tool to instant device and that's it right but I think what we have to do now is change uh application of the tool to make it such that you can capitalize and make it sustainable so hence now we see different way of tokenomics for example ve tokens or you know es token so I think people are exploring more on like okay we have incentivized the product through this tool of token how do we use this tool again to kind of capture it and make it more sustainable and then once you kind of maintain that you know

growth then to a certain point you can unlock the community engagement through governance so I feel like you know all three things that you mentioned are very unfined in terms of incentives and like capturing the value more sustainably and also governance but a lot of the times people only do one thing and that's it right for the tool you have to kind of do all the applications but maybe at different time because if you unlock the governance to be so early when your community is not Super Active it's also going to be you know ways of your time to to drive on that as well certainly and speaking of I guess the ve model I know V Pendle is a thing maybe Tien if you could share with the audience quick summary of what vpandal is and how it operates within your ecosystem

so V Pendle is our implementation of the V token model basically when a user locks up Pendle from a device between the duration of one week and two years they get V Pendle and V Pendle has three functions right one is as a yield booster specifically for liquidity providers secondly it functions as a voting right for incentive channeling because every week there is a budget of liquidity incentives that can be distributed to the various pools so this is where I think there's an alignment of interest between the voters and the liquidity providers because they if if they have a

position and a stake in a certain liquidity pool they are more incentivized to vote for incentives to be directed to the pool that they have a position in and then thirdly after voting there is also the the V token V panel functions as a means to claim protocol Revenue because protocol generates some revenue and then after voting there's a voter apy again this is mostly to align interests so pertaining to your questions related to whether token takes a part in economics I think it definitely does especially in the earlier stage right it helps a lot with liquidity

bootstrapping especially for D5 protocols because without liquidity trading and any kind of activities wouldn't make a lot of sense like say amm for example without liquidity there's no there's no there's no like trading is a lot harder to take place and the trading experience will not be good and then people wouldn't come but with the token in place there is an incentive for liquidity providers to provide liquidity and then whoever wants to trade token can trade with better trading experience uh but of course I think just bootstrapping liquidity is probably a subset of that I think more importantly from a protocol token issue

a standpoint it's about thinking it's it's probably more important to think about the utility so again like Beyond just like V there are probably other token models but ultimately it has to have a purpose because otherwise if there's no reason to hold on to the tokens after farming the tokens by becoming a liquidity provider the next natural step is really to monetize the protocol token right so selling it at secondary markets to realize the the yield for liquidity provision so this is what I think a lot of other protocol tokens that do not have very concrete token models suffer from

um and it and for a large part of like panel and V1 that was how we were so with the launch of panel V2 we incorporated the learnings and the observations of token designs into the like into into like the entire Constructor ve panel and I think to a large extent it has helped accelerated the growth I think absolutely the results speak for themselves and when I look at a lot of uh tokens of perpetuals exchange I mean Perpetual exchanges are a happy marriage of you know derivatives and also crypto which you know for regulator is not too great um but with that said when you think of these exchange tokens be it uni swab dydx these are essentially vanilla governance tokens that are crew no value

but somehow still maintain very large fdvs for the panelists do you have any thoughts on these governance tokens that you know at face Valley don't have much value crawl I think we're starting to see things change with dodx moving to V4 and their whole validator setup and then as such the token becomes quite useful in the second but prior to that all these governance tokens were just there for the purposes of being a token so maybe Smokey I know something you might want to jump in on here yeah I definitely have thoughts on this because bear Jane has a sort of funky governance structure um as a very quick high level the only way to gain the governance token of the chain bgt which is also the staking token of the network is by providing liquidity to a set of D5 Primitives that are built into the chain so you can't

just Market by bgt you effectively have to do the work of providing liquidity on the decks the purpose fault The Lending Market or the save coin lending Market I should say Etc and over time any smart contract on the Chain we thought a lot about the way that we built our tokenomics because I think that as mercenary Farmers as Market participants in the past few years we've seen common AdWords towards you know governance tokens we just Farm it and dump it I think the vast majority of people do not care for governance tokens I think the only way the governance tokens succeed or have value is if people can feasibly earn more Revenue by holding them than by dumping them right and the ve model sometimes works in that direction when it comes to fee sharing and if you have enough fees being generated but in many

cases it actually just prolongs cell pressure and just turns into another vicious cycle where you get this classic like five layer you know triple tvl pie of I've got my decks I've got my V token that Urban shares for my decks or earns fees for my decks I've got a liquid staked version of it and then an aggregator for that and then a bribe layer for the aggregator we've seen this place so many times I'm very much of the opinion that the only way to make you know governance work at scale and to make you know tokens like that valuable is if you can find a way to turn them into meaningful cash flowing assets which I think has always been a little bit of a meme in defy and you know perhaps the Advent of rwas will help move us in Direction in terms of you

know having a sustainable yield I think a lot of people are sort of doing that with LSD LSD fine under the hood like now but the way that works for Bear chain and bgt is that basically you know people who are staking and holding BDT are actually earning a percentage of the fees from all the volume that's flowing through the D5 parameters on the network so the swaps the liquidations on the perps the interest rates on the funding Market Etc and also a form of the bribes that are actually being paid out to validators for um for protocols looking to bootstrap their own liquidity by directly giving incentives to a validator instead of doing a you know self-set up liquidity mining program so the way that gets really interesting in my opinion because when we think about where protocols want to go and when they

you know look at their value across different chains in most cases it comes down to cost of capital so one of the things that we do and we've talked to the Pendle guys a bunch about this and how we might be able to work together is basically having validators work directly with protocols protocols give them x amount of their token in exchange gain y amount of emissions in the form of the governance token of the chain bootstrap their own liquidity from the ground up right so I think stuff like that actually allows a governance token to gain value and perhaps a little bit more longevity in this incredibly mercenary like highly ADHD Market that we're in no I agree I think so many of these protocols have these very long often five-year periods where the governance token gets dropped out over exhibition and maybe these emissions

change these emissions might be at the the discretion of a voting Dow but for the most part it feels like that missions are really the ones that are keeping the users versus you know true product Market fits so I think it's just an opinion I personally have and you know for drift we don't have a token yet so that's why I'm asking these panelists for insights for you know what we how we might do things um with that in mind we've talked about Primitives Advantage I think you know smoking you mentioned that the only way to earn that token is by doing work and I want to draw everyone back to Wi-Fi the only way you could get Wi-Fi was by mining it I think that enabled it took just grow so fast I think it's still one of the fastest growing uh

tokens out there because there was no Advantage for getting it earlier or paying or being a VC or in private rounds it was all sort of Level Playing Field anyone could mind it and I think uh that really set the tone so with things like Wi-Fi are we seeing the model reverting back to you know earning these tokens through work versus payment and does that make more sense and is that more sustainable I miss defy summer but like yeah I hope so um I I'm not so sure about that model because I think I mean it worked in the beginning um but gradually because the proportion

of token that a liquidity provider is rewarded is is quite tied to the share in the pool right so if you are a big whale you have a picture in the pool and then naturally the tokens will like you will accrue most of the tokens in a pool versus like a much smaller liquidity provider so I don't think it is that fair anymore um and and there there will probably be some Innovation around this form of token issuance but I think that models that the Wi-Fi partnered probably wouldn't work out as well

it's kind of like the rich get richer right where you have the bigger bag you have a lot more to work with and by default you have more of the trade so I'm glad you've had this sort of more contrarian stance so in the time that we have left I know we've got about just under five minutes on the clock uh loss questions the law series of questions are going to be focused on more forward looking so on New Primitives uh we've seen you know univ E2 be a new primitive for amms we've seen GMX glp be a new primitive for how a derivative virtual admins work what is the Primitive or a model affirmatives that any of the panelists are looking forward to seeing implemented and feel free to stick your hand up and take it as you go

uh for me I think so again like going back to the previous Point anyway which is like all the past crypto history has all I mean the since 2020 right has always been you know governance tokens so all The Primitives that you mentioned also are for governance tokens right like unusual B3 is very good for a trading governance token because all these government tokens are not you know accessible on Central exchange because it may be too new or you know not past that criteria right or and same for glp too so I feel like if we take if we have a view that a lot of the new money in crypto is going to be through rwas which is you know not governance tokens right so given that that's the fundamental you know element or base layer as a token in

crypto then I think a lot of the New Primitives will be how do you actually like combine different mechanics in in V5 to actually build applications actually make sense for rwas like your tokenization is is one step right but what else because I'm pretty a lot of the people in the next Bowl when they come in through rwas they're not just going to be happy with you know four or five percent because they can also get do that on on their you know Banks or something right if they have access to so apart from accessibility uh what else can they get they're probably gonna be hoping for hey how do we actually maximize rwa yields as much as possible that like real world cannot do so I think that's with that like mindset in

in place so I think they're going to be a lot of New Primitives that we haven't even seen in the past so it's not going to be like different versions of amm it's not really anything of those because like base tokens like RWS are just so completely different than governance tokens so that's my view and that's also what's the last building we're applying the two main things that we think are really really important one is being leveraged one is rwas and how the new money is coming in and how do we actually like engineer ways such that we can maximize the rwa yields through Leverage that actually makes sense um but not to I would say short term like what you know in DFI summer that we've seen yeah no I think it's the next segmentation of how you think about it's

like frankly two different assets and they should be treated differently as such yeah well I am very much looking forward to restaking I think restaking will Revitalize that interest in lsd5 because um it it basically is a much more Capital efficient means um for for for for uh ensuring the security of the underlying chain and also just liquidated provision um yeah we've had a pretty good run with lsds in the first half of the year now there seems to be a shift to towards rwa uh in crypto from like sentiment standpoint but I think in the next

quarter or two with with restaking um I think that that uh Focus will come back to lsds excellent and Smoky yeah um I think a couple of the angles I mentioned earlier are very much in play so effectively when I think about why people are on chain in many cases it's access to an inefficient Market or easy speculation in other cases easy access to leverage I think the whole account based collateral thing can be very interesting there um I think on the other hand on the opposite end of the spectrum one of the things I'm most excited about is Innovations when it comes to Smart contract security and even though it's kind of a bad word Insurance because when we think about you know the you know trillions of dollars of assets that are sort of mandated to be deployed into defy over time from large fund managers

Etc or you know I should say the large groups that have one to two percent of au meant to be deployed into defy in the most case they're scared of smart contracts they don't want to stake with Lido they don't want to use curve they've seen everything and they've been burned lots of times I think interesting new Technical Solutions and also to some exterior Game Theory slash mechanism design that allows us to let's say have better on-chain experiences from a safety point of view will go quite a long way and I think there's groups that are doing really interesting stuff in that space in terms of basically front running exploits and we're having longer settlement times to which a chain can be rolled back and reset such that it serves as a proverbial sandbox which can allow those sorts of groups to actually deploy the capital needed to make things

like Pendle and so on so forth very exciting in an on-chain world right um I think rwas will be very cool and I'm excited to see what happens there especially from a composability point of view because I think most people if they're not seeing you know sort of mid-teens low 20s yield we'll just simply happily sit in stake youth or go to treacheries right they need to have some degree of risk a friend reward there um and I think finally especially with an eye towards what we're doing I'm very excited about what can be achieved within validator protocol interactions from both the capital efficiency point of view and sort of a governance and incentive alignment point of view at the chain protocol level such that you can actually support the applications building on top of it as opposed to just being you know a parasitic object

excellent I know we're just about to run out of time Smokey I have to ask you this for the entertainment of the audience are we in a bear Market you know some would say we're in a bear Market I would actually say we're in a bearer Market that's that's all I got nice all right so before we wrap uh panelists how does anyone in the audience get in contact with you Tasha uh yeah so I'm pretty active on Twitter so it's my first name Tasha underscore pen pen like the two pants that you cook with so that's me on Twitter yeah for me it's Twitter as well uh TN underscore Pendle Smoky yeah um no surprise Twitter Smokey the bearer on Twitter

and for me it's just uh David Taylor just my name and with that that's all the time we have audience thank you so much and please give our panelists a big round of applause