Funding Abundance: Aave’s Vision for DeFi and Real-World Assets | Stani Kulechov

Transcript

effectively DeFi has the infrastructure, it has also the capital. They can move faster on a on a smaller startup scale compared to big financial uh institutions and and that is why I think it it's a massive opportunity for uh for for DeFi and obvious specifically it's an opportunity which is between 15 to uh $50 trillion. >> This episode is sponsored by Canton, the only public permissionless blockchain built for institutional finance. We'll hear more from Canton later in the episode. Blockwork's Digital Asset Summit is back in New York March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under

one roof. Think Black Rockck, Coinbase, Robin Hood, and more. Follow the link in today's show notes to buy tickets and make sure to use code Bell200 for $200 off at checkout. See you there. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on bell curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds or projects discussed. All right, everyone. Welcome back to another episode of Bell Curve. Uh today I'm joined uh by the man, the myth, Stani Kulach, the founder at A Labs.

Stanie welcome. Thanks for having me here, Michael. >> Yeah, this will be fun. We're talking about a month out from DS, so I'll see you in person in New York soon as well. Um, are you spending >> are you spending a bunch of time in New York these days? What's your uh there's like this theme about the institutional poll of New York, but how much of your time are you spending there? >> Quite a lot, actually. I'm I'm going to be New York uh next week, so um yeah, and um uh quite a lot. there there's a lot of uh institutional demand at the moment. Um RWAS with what we're doing with the horizon um that has a lot of uh connectivity there. So I'm I'm really

excited about that because I think now than ever before we we have the highest uh institutional um interest at the moment on on chain. So I'm I'm super excited. You know, I got to be honest. The we talked about this at um and we'll this will segue into what I would love to start with is this um this blog post that you wrote a will win as a jumping off point a funding abundance actually is the title of the blog post. But um you know I've been saying this a couple times at D over the years now that there's a real divergence in between there's always been kind of the cryptonative side of crypto and then the institutional side and the sentiment divergence um is so wide at the moment.

I mean, people in the the cryptonative trenches are not doing quite so hot, but on the institutional side of things, stuff is just flying. And you must see that firsthand from your seat at a labs. But yeah, what does it feel like on the ground talking to some of these more institutional players? No, and I I think like on the native uh crypto side, you know, like the for example, DeFi has grown like significantly and and uh if if you look at for example the the growth that a for example has had last year, we peaked at 76 uh billion net deposit uh 30 billion outstanding um borrows and and and most of that was basic native crypto. So growing as the

uh native crypto assets are growing but in in the context of um RWAs we're extremely early. So DeFi has peaked to 220 billion. It's now 120 and and when we look at the RWA market cap that's 25 billion and it's very early and it feels that every every institution that we're talking to bank asset manager um fintech anyone who wants say stable coin commerce um there's this sort of a um the the trend that every institution is is having their own digital asset team.

Some of these banks and asset managers had that for years now, but now it's becoming like almost like a uh um you know table stakes. Actually, >> I completely agree with that and maybe this is a good way to transition into this this blog post of yours in this new massive $ 30 trillion market that you're attacking. So the the title of the blog post that you wrote is funding abundance and you started the blog post by kicking off your perspective on the state of the union of DeFi and what the bottleneck is in general which is kind of on the demand and the capital side. But before you get into the opportunity that a is attacking here can we just get a sense of yeah state of the union what's working what what is the bottleneck that

still exists like how are you thinking about especially the borrow lend space in general these days? Yeah, what we did extremely well uh in DeFi looking at the the past few years is that we sort of uh were able to um create this very efficient capital allocation layer. So um LPS and and allocators any part of the world um can actually create strategies allocate whether it's lending or market making or any sort of uh um yield or P&L opportunity and this is very significant because in a defy world liquidity moves uh in a in a sort of a fluid way. So if there's an opportunity

um theoretically it should be captured. So if there's the same risk adjusted opportunity elsewhere or newly created capital should be able to to move them there and reallocate. So DeFi sort of fixed this whole u and not just fixed but made it efficient uh to allocate uh uh capital. Now where we kind of have more uh challenges is is sort of uh um uh on the demand side. So this challenge actually has come because DeFi has been able to grow so significantly uh within uh these crypto assets. So if you look at most of the growth that for example ABA has had uh o over the years and defi in general it's to do with these crypto

assets. So lending against bitcoin lending against ethereum uh ethereum looping strategies and now more recently uh yield bearing stable coins which is uh sort of a new category. But a lot of this this this growth has happened uh because of these native crypto assets and the space has been growing and now because we have sold really efficiently the capital allocation uh part the supply side um we basically need more opportunities and the opportunities can come by going uh beyond the native crypto assets. So we're very bullish that uh crypto assets will going to grow. Um and I think what we did really well with a specifically we we proved

that uh this protocol works really well and it's very resilient and we we battle tested it with the most volatile dynamic assets. So going beyond that uh we have to go into uh RWAS and that is sort of like the the uh uh axiom of this whole uh funding abundance and when we think about these RWAs uh there's in my opinion there's like a two different categories. So the the first category is the ones that fit into this sort of a horizon uh bucket where you have asset managers, banks and they have existing financial products that they're bringing on chain uh for whatever reason for existing users

attracting new new uh customer bases and that provides the ability to borrow against those assets at 247 basis and then for stable coin supplier perspective to lend stable coins onchain. against more traditional risk profile instead of against uh sort of crypto assets. Category one. Category uh two is this idea of u well what are the assets that are not really uh traded and existing in the traditional world uh in in this uh like highly liquid uh accessible markets. what are those assets and is in this asset category can you find assets that are basically uh

future proof or or or in some ways uh backing the future that we're basically going towards and when we look at all the innovation that is happening at the moment with uh smart contracts automation with with basically uh AI uh intelligence um we see this sort of a common theme of um that every person in planet is going to have some sort of uh uh very more evenly distributed resources. So AI has proven that really well that uh anyone can have enormous amount of uh intelligence uh and compute. Then we have for example robotics coming. So at some point uh there's going to be a limited amount of

labor and then uh we're going to also move to uh very cheap lowc cost energy which powers everything uh around us and and all these categories together uh create this sort of a future of abundance. um and and and uh and then the DeFi opportunity comes into tokenizing them as assets and then using as a collateral and then um uh accelerating this transition to um abundance which going to take up up to 2050 or or beyond. But by using DeFi, we maybe can accelerate this by 10 to 15 years because um it's starting to become more of a finance problem instead of

innovation problem because a lot of this technology uh is matured. But to understand and this is like one important point is that to understand the difference between the the new and old is that abundance is about this sort of uh uh new future and the and and where we're existing now is based on scarcity. So uh banks and capital allocators uh allocate to mortgages which is real estates uh corporate bonds um which is these traditional companies uh and also funding um uh governments that are taking more and more debt. So what I what we're proposing from uh our sort of vision uh over the future is

that um the winners of the future are the ones that can bank abundance um when we are moving away from this scarcity economy because in the future you don't care where you live. uh you can build uh a lot of infrastructure, housing, uh buildings very cheaply easily any part of the world and you don't need this concentration of uh uh people and and capital into cities effectively. So that is whole whole uh idea of like what is the the funding of abundance all about?

Stony if maybe if I could sum this up and tell me if I'm being too simplistic here but in the two categories that you mentioned there's one some kind of more traditional assets like yeah maybe mortgages or treasuries and these issuers are looking at uh crypto is kind of a new distribution channel for them mostly they're like hey and maybe it's easier to get funding or like a loan against it or something like that but they're kind of wellestablished category of financial assets and you know you're looking for some of these benefits distribution you ease of access to capital, maybe lower cost of capital in the future for existing assets. But then there's also this this new category.

There's all this new interesting and exciting technology in the world. And the growth perspective from crypto is to be able to offer financing and grow alongside for instance an exciting new category like solar or you know AI GPUs or or something like that. Is that roughly kind of the right way to think about it? And I I think that's finance is sort of uh uh very connected into um uh banking the the the future whatever time it is. So if you go back in time for example and and look how for example uh JP Morgan uh became successful that that was funding uh innovation funding um Edison funding of electrification

that was basically a paradigm shift for for for everything. Uh we had the same thing with uh industrial uh revolution and and railways where capital was uh um uh taken from from the uh a agriculture um uh landscape and reallocated into um the sort of industrial revolution in building factories and and that changed the whole um uh world. And now we're moving towards a uh a new paradigm shift where we going to start unlimit having unlimited amount of resources. Um and this transition is going to take a lot of time uh anything between 25 to to 50 years and being able to finance that. um

and and who who basically banks to this future is are the are the winners uh effectively and I think from like the traditional financial institution angle they will obviously also uh fund uh similar types of technologies whether it's like data centers GPUs and solar uh batteries uh water disselination so uh I think it's going to be happening everywhere but where it can be actually um who can move really fast on this on this uh category is is DeFi because effectively DeFi has the infrastructure.

it has also the capital um and uh they can move faster on a on a smaller startup scale compared to big financial uh institutions and and that is why I think it it's a massive opportunity for uh for for DeFi and obvious specifically it's an opportunity which is between 15 to uh $50 trillion uh size and if you compare that to for example uh JP Morgan is has a um 4 trillion in asset management. Um Black Rockck has basically uh uh three times of more of that. So we're talking about the amount uh that is significant there and actually can

rearrange the the sort of uh financial institutional landscape over long period of time. You know what I I als I'm not sure if you but I als I think something that a trend that benefits DeFi with some of these new technologies is that for the first time in a long time these are ass balance sheet intensive investments that companies are needing to make like if you just look at the the capex from the hyperscalers it's crawling up somewhere around 700 billion dollars a year and I saw that JP Morgan just released a a new framework for stocks which they're calling halo uh and that's heavy assets low obsolescence. So this includes capex

and supply chain bottleneck beneficiaries, robotics and sector staples. And it just strikes me that if we could tokenize if you could tokenize this, DeFi is really well suited to this because historically, you know, the world of lending um has been pretty undercolateralized, right? But now that there's a demand for some of these harder assets um you know that you can also collateralize them uh and lend against them, DeFi is very very well suited. And I know in your in your blog post you call out some of the reasons why solar is a particularly interesting opportunity that's well suited to DeFi.

So maybe we could get into you know why you're attacking this market and then I'd love to cascade down into um you know what levers you're pulling to uh you know to pursue the market. >> Yeah. And of course the opportunity is is is um incredible and obviously at the same time you know we're we're focusing on what is important near term uh still growing the the crypto assets uh from our perspective growing also RWAS um that are coming from the the traditional world that already are traded somewhere so through horizon so these categories will still grow the reason why uh we think uh um solar particular is really

interesting is that uh one thing about the the the the technology that always follows is the economies of scale. So when you get into a certain point where the the prices of the units are dropping significantly um the asset becomes more and more investable and solar particularly is a lowrisk technology but at the same time it is heavy on the capex uh and extremely low on the opex. So it it sort of is a perfect um asset for financing because uh you need a lot of upfront but then once you clear the upfront you have a very simple um sort of a operational

uh profile and if you can use something like a where you can tokenize this asset uh even to a sort of a portfolio where you have a lot of diversification of uh solar farms uh across globally um you can start actually borrowing against that collateral and expand that uh leverage and reinvest and and and build faster uh solar. So there is a incredible uh benefits uh there as a as an asset and I think the same model will also follow with batteries. I think batteries are um 10 15 years uh sort of where where solar uh used to be. Um and that is why it's it's super interesting.

But what it also does for a sort of a technological like a distribution perspective is that a is building the AVA app which is consumerf facing app a pro for the sophisticated defy users and and ava kit for enterprise and and fintech integrations. So what it allows us to do is that we are able to create uh uh in some ways opinionated yield opinionated financial products that we're um uh com comfortable to uh know that these are the resources that that are needed to to bank the future and distribute that yield all the way to across all the user bases. And why it's

important is that today all the financial opportunities are very commoditized uh and they are in between categories of lending for governments lending uh to basically financial institutions who are allocating capital into uh mortgages funds in sort of that scars the e economy um uh financing model and this provides something new and and also uh uncorrelated within the existing financial system. That is why I think it's it's it's a really interesting hedge uh compared to what exists today.

>> Before we get back into the episode, here's a quick word from our sponsor, Canton. The only public permissionless blockchain built for institutional finance. >> Tradfi wasn't built for 247 markets. Defi wasn't built for regulated institutions. But Canton is where the power of finance meets the promise of blockchain. The only public blockchain with institutional-grade privacy, true composability, real assets, real markets. Why reinvent finance when Canton makes it work the way it should? Canton, where finance flows.

So, can we get into the A app as well? And I I'm very curious like one you know observation of mine over the years is a lot of the DeFi 1.0 which like the Aves of the world the you know unis swaps of the world are still still you know kind of have much better longevity than like almost every like DeFi 2.0 category remember that acronym from a number of years ago um hasn't hasn't done quite as well. I'm actually curious why why that is from your perspective. But another thing that I've noticed is many um protocols that started out purely as protocols and as kind of infrastructure backend are moving up the stack and

vertically integrating and that could be you know anything from like unis swap launching uni chain um and obviously they have their own front end and their own kind of intentbased uh trading system with unis swap x. Then also I'm noticing the same thing with a right there's um the A protocol like V3 I kind of think of as one managed protocol we'll talk about V4 as kind of a more a broader um kind of more modular approach to lending but then you're also controlling uh the front end as well with the A app and it's almost like this um yeah very almost like a kind of a a fintech sort of approach with your own back end like how should how should listeners think about the whole the strategy here um with with a's offering It's it's really interesting because um

I I think that's um the the way for a as um protocol is to succeed is to have a infrastructure that is uh really widely utilized and the way we see it it you have to pretty much go into two two sort of uh directions at the same time. So one direction is that you you make the protocol as accessible as possible, easy to integrate um across the ecosystem um existing native uh D5 products uh fintex um uh and for institutions as well. And the reason for there is that unlike like the traditional like a SAS models uh D5

protocols like A um when users are supplying liquidity or or borrowing liquidity against a collateral um they're actually uh reinforcing the network effects uh of the protocol. Uh what it means is that um even if you have uh multiple different fintexs uh contributing liquidity um and and sort of offering almost like similar types of products, they're refor reinforcing um the available liquidity on the protocol which reduces the withdrawal risks and reduces the cost of capital for for borrowers. Um and that creates more attractive uh utilization for for

borrowers. And you can think the same thing uh other way around. And what we notice is that uh these integrations are really important and it's going to happen in the next uh couple of years. Um and now they can be a backbone of sort of all of the uh financial uh lending um at at its sort of uh best. But at the same time we have to bring more users and uh take a bit more um proactive stance on on actually bringing more users into a way to do that is to enhance the user experience so that a is accessible to any mainstream user. And

to get there, you need an experience where you could download a simple application um on mobile, login with your email or your uh uh phone number um and then link your bank account and and deposit into a without any sort of uh uh thinking about uh wallets or uh gas fees or um um any any sort of uh network forks. Everything is purely abstracted away. while still preserving your uh control over uh the funds. And then on the the more sort of uh web interface, we want to ensure the highest possible uh experience for sophisticated DeFi

users that has have been in the space since the beginning and is also like uh expanding uh user group to do more sophisticated usage of of of a and defi. Um so they they all kind of like a play uh towards the same direction of uh increasing the network effects which benefits everyone and I think it's the first time ever in fintech um or like finance where these network effects are so obvious for example another example besides a on the lending context is um stable coins so for example PayPal has its own stable coin PI USD.

Um, and typically when you think about stable coins and uh inflows and outflows, so if you have an application, a fintech app and you have outflows, typically that that is a loss of business, right? But if that alcohol is in your native stable coin like PI USD um that is just used in some other application like a um that simply means that that user is still in the ecosystem of of of PayPal and generates also revenue for for PayPal. So we're moving away from this world of uh um sort of like um competing uh uh competing positioning into uh more like a compounding network effects of uh

working together and expanding the whole pie which helps everyone else in the supply chain. >> Awesome. Well, I I agree with that framing in general and this reminds me of a kind of a long debate, right, around where value is going to acrue at the at the kind of app layer or the protocol layer and you know there there are some analoges I guess and just I guess there's no really one right way of answering it but you know and to get into maybe the a will win uh maybe debate that was going on between um you know labs and and the DAO uh you know you can look at these examples of maybe someone like Nvidia as an example where you have a software

component and a hardware like two potential lockins, right? And you could either like Nvidia has shown to give away the software uh CUDA uh to lock in the GPUs kind of similar thing with um with Apple as well between their with their network the you know iOS and the app store and the phones. Um, but you can kind of choose where you want to monetize there. And it seems like the alignment that A has focused focused on and and centered around is uh monetizing at the the protocol layer and trying to direct, you know, fees uh trying to direct fees down into that protocol layer via the app and being but being flexible at that layer. Is that roughly the right way to think about it?

>> Yeah. And it's all also going back to how we structured the uh protocol economics. So if you look at the way the other protocol monetizes today um and that started from AIP1 where we established that um any sort of like a governance is related to the protocol contracts and also the economics of the protocol. So anytime there is sort of a lending and borrowing uh portion of that uh uh uh revenue goes into the um a treasury um which is controlled by a which aaps is also uh part of and then there's another protocol which is the a native go stable coin um and obviously

uh in most cases um there's a hard 100% margin that goes into the aid because uh uh there's no LP in in in in in the main sort of a facilitator there which is higher margin but also uh smaller uh consumption at the time but growing significantly and uh what we notice is that any sort of a product that is being built uh on top of the protocol that is integrating the protocol increases the economical activity of the protocol. So that can be a labs v products like the a pro or existing interface or a app um or the enterprise offering or it can be

another application that is integrated in a uses defy saver is a really good uh example and typically these applications they they monetize I'm pretty sure that fintex that integrate a uh in the future they will also uh monetize on the top of the protocol layer and the exchange that is happening effectively is that they're bringing liquidity or creating consumption which generates revenue and that's great for the protocol and typically this is how we've also been thinking from the aas perspective that labs simply needs to build products be self sustainable um uh get capital injections outside of the the the protocol itself uh and and and grow and

be the sort of a uh growth entity for the a protocol by increasing the uh usage of these uh products. Currently for example with the A interface um we are facilitating probably uh roughly 80% of the traffic uh into A and that is sort of a product that we maintain uh improve on a day-to-day uh basis and keep it secure and hadn't had any security incidents since uh since the launch in uh 2020. Now the other will win proposal what it really tries to solve is is this sort of a component of uh when you have a labs entity and then you have a a token. Uh for a lot of token holders it's sort of a uh there's

a little bit uncertainty of like how value generates into the um lab structure and how value generates into the token. And obviously the trade-off here is that um if labs has its own um is all sustainable and manages its own sort of revenue streams uh the DAO doesn't need to u pay for any sort of uh um any of these products to be developed and and and and the growth of it and so forth. And with the other will win proposal what we actually are doing is that to remove this uncertainty uh we're redirecting 100% of the fees uh from the uh product layer directly to the aid for

the benefit of the uh token holders and this is significant why because uh it expands the revenue stream of the protocol. Uh for example, now we have um integrations for position and swaps uh and swaps in general in in the A interface which generates uh between 10 to uh 30 million annualized uh revenue um uh to A which is going to go to the DAO. But most importantly is that it allows a labs to build products and monetization faster than on the protocol layer which we are also uh contributing with a v4 um and and capture more revenue and and that's where your

example uh Michael where you have this sort of Nvidia uh CUDA and and then like the software and hardware is is really interesting because um it simply for us is a expansion of what AVA could actually earn revenue uh in the future. And this ties to the earlier discussion of like how AVA will grow beyond the native crypto assets and how we actually create more revenue uh for the DAO. And can we talk a little bit about V4 because this is the more modular you know approach to um you know maybe like the risk is managed a little bit less by the DAO is which is sort of my

understanding of like V3 how I generally think about it is uh but now you know in V4 it's going to be much more modular where you kind of have everything segmented into these different pools and it's much more flexible for onboarding different types of institutions or borrowers or lenders that might have different needs. Um, can you maybe explain to to listeners like just give us the kind of the broad overview of V4 and and how we should be thinking about that and maybe some of the core tenants of the protocol too. >> Yeah. Now V4 is something that we've been uh designing and building for the past um two and a half years. Um so av3 is is a state-of-the-art. It's basically uh the best architecture there at the

time at at the moment where you can um you can take the architecture you can deploy different sort of pools. So you can u create pools that collaterals don't rehyperate. Uh you can create uh all sort of combinations which is uh really great. uh AV4 actually approaches um lending and borrowing from a a bit more like a expansive uh nature and the architecture is more modular where we have uh hubs um and and spokes that are connected into these hubs. So hubs is where the liquidity is stored uh and then that liquidity is given to spokes as a credit line um and spokes

have that borrowing strategy. So which assets can be listed as a collateral? What is the sort of a loan to value ratio for for those collizations? Um and one example of of thinking analogy to think about this is that the the hubs are sort of uh central banks and the spokes are commercial banks that have their own lending strategies. So what this allows to do is that uh typically when we always create new markets uh in in onchain lending you have to bootstrap those markets from the get-go and this bootstrapping has a fundamental uh challenge where uh you have to put a lot of incentives um and and try to grow uh the pools and capital comes in it can be

borrowed out and need to wait for new capital and it's it happens in a course of time. Now with a V4 uh that capital needs to be injected only once uh into the hub. So once it's grown once you can add uh different sort of a use cases uh beyond collaterals and connect as a spoke into the hub. So what this allows to do is that it expands the AB's ability to create new use cases uh attract more deposits uh more borrowing and eventually more revenue into the aid. A great example is that there's a a really good protocol uh named fluid and they have this uh depth trading feature

where uh users can allow uh traders to trade with their collateral or the the debt position and that generates revenue them that decreases the cost of the borrowing that they might have. Now with the hoba spoke architecture uh we can create a specific spoke that is focusing on this sort of angle. The second uh example is that uh we can create a spoke that uses uh unisop lps as a collateral uh and you can borrow go against that. And a third really exciting uh uh example is that uh you can create a spoke where actually the custom logic because spokes can be completely custom um can actually be attached to a

qualified custodian. So institutional users that have Bitcoin, Ethereum or other assets in a qualified audience and don't are are don't have the ability to move on chain can borrow directly from a uh and this is like a significant size of a of a of a business basically that can be tapped into. So this modularity is is sort of an example how uh the protocol use cases can be scaled and the spokes can be built any sort of uh by any sort of AB service provider uh or even a third party that basically wants to uh build a a a D5 product and then scale it with the liquidity of a

>> Got it. Okay, that makes an enormous amount of sense. is like is the reason for this architecture here just seems you know across a number of protocols and I you know I read this um you know every year hu does a a goose you know goose update um I'm just he you know the last one that he did was basically as institutions move into the space they have a much more heterogene there's a much more heterogeneous demand profile than there has been in the past and I think that's from everything to from liquid staking to borrow, lend to trading, right? Like institutions and owners of capital are going to be more regulated, but also, you know, not all capital is the same, right? Very

institutions are very different and so you have to have the flexibility to kind of meet them where they're at. Is that roughly roughly the size of it? >> I think yes and no. So the yes aspect is that it always starts typically that way and to enable the maxima of innovation you have to be the enabler. Um and that's where sort of a v4 comes into play where uh basically with hub and spokes we can launch a more like a dedicated hubs um with additional trust assumptions and and spokes attached to that catering um institutional usages where you maybe have more risk or a lot of the sort of due diligence happens

offchain um and so forth. So that fulfills uh that type of uh criteria. The reason I'm also like a slightly skeptical is also because um not all of the innovation or the requirements will become something that actually gets product market fit. Um and I think um the reason for that is that when stratify creates products they have this whole bunch of like restrictions and compliance and um it's just like a really like a big um hassle to create a financial product. So once you kind of like uh are thinking about uh financial engineerings or or these financial products and you get like signos from all these different departments, you end up with a product that uh you know may

or may not actually get uh uh uh traction and and and interesting case it it might be but there's also like kind of like the the meet in the middle sometimes leads you into situations where uh you don't get necessarily the the traction and then the best thing would have just to depositing into uh the the the most sort of a liquid liquid pools on a >> everyone in crypto loves to talk about transparency, but would any serious business publish its payroll for the world to see or hand competitors its contracts? That's not a feature. That's a bug. And it's why most financial institutions can't operate on today's public rails. Canton network is different. It's the only public permissionless layer 1 blockchain built

with privacy at its core, sharing data only on a need to- know basis. That's why Goldman Sachs, NASDAQ, and Broadridge are already building on the network. Only Canton delivers the network effects of a public chain with the privacy and control real finance demands. Learn more about Canton by following the link in today's show notes. Stony, what do you think? How do you think in this new phase of growth the lending activity is going to change in crypto? So you know when I kind of think of a lot of the like the a initial use case and this is maker to some degree as well is really serving the demand to go long on cryptonative assets like ETH right there was a lot of you

know the most I would guess vanilla kind of used pool was kind of you collateralize your ETH and you borrow stable coins u now even if you were to look at the deposits on a I think about 50% or over 50% of the deposits or in the mix of USDC and USDT or other stable coins. Um, and I'm just curious, you know, how do you see that changing? It seems like everyone's very excited about RWAs and that's obviously, you know, with the solar market that AB is attacking. It seems like that's the direction that um that AB is going as well. And I I'm just curious, you know, if you had to, you know, if we're having this conversation in five years, you know, how you what role or like what

percentage of the of the lending market um or I guess the collateral market rather are kind of native assets like Bitcoin Ere. >> Yeah, I think the native assets will still keep growing. Um and and for example um I as a depositor were you know probably I care about uh supplying against those um those assets. Um the the reality is that uh a protocol like a is built to cater whole 500 um trillion asset base. Um because end of the day like you can use the same protocol for the crypton native assets

to to all >> um what I think is going to happen is that the the fastest grow is going to happen where you don't need to be restricted by the market capitalization of existing assets. So the whole sort of a defi is correlated to to bitcoin uh loans and ethereum loans right. So um even when you think about uh Athena and and and that sort of a yield so going forward there's going to be more and more uncorrelated um bit like non-crypto colorated assets and and that's really interesting because if you look at Horizon for example uh during 10 of 10 and recent uh market drops uh Horizon um you know net deposits were exactly the same level

because there wasn't any uh fluctuation their traditional assets effectively that don't have uh volatility in in their case. So I think from 5 years from now we're going to see a lot of these traditional financial institutions tokenizing assets um a lot of failures a lot of wins uh good amount of growth but I think there's going to be a tipping point and it might be that year five or year six from now when the abundance assets uh will take over um it might happen earlier uh depending how many projects are actually working on this but I I think that's where the biggest opportunity is because the abundance assets are

underfunded. They're not traded in in a in a liquid venue. Um and and and and these typically are very futurep proof assets and they're infrastructure. So um I think that is where things are going to head at. Um at a we want to serve uh pretty much everything as an infrastructure but we also want to be opinionated on the future and what we want to like sort of a a package and and and distribute to all the way to the uh to the consumers and I think what we wanted to distribute is a better quality of of yield and I think that matters more people are you know people people kind of like uh don't like the

traditional finance necessarily because of these uh institutions and and whatnot and really like corporatism, but because you know you see governments getting more and more into debt. You see government shutdowns, you see basically uh the appreciation of of of a of a dollar. You see inflation in different countries. um you just see a lot of uh kind of like a signs that the economy uh isn't really uh functioning at its most sort of a value preservation uh way for the the the people and I think being able to bring a product into everyone's uh sort of a um um um accessibility where you get better yield but also

better quality is far more uh uh appealing than lending into this sort of old financial system. So I want to ask you uh Stony so this is our this is a part of our a dashboard here and one of the drivers that we've got listed around the token um is like even if you just looked at the price of a and ETH over time you know they're highly highly correlated perhaps because of this like kind of legacy use case or maybe not legacy but the original primary driver um being you know people wanting to get long on their ETH. I'm curious how you see that potentially evolving in a world where RWA's become a larger and larger

percentage of the overall activity um across the a platform. And you know I within that same vein I'm wondering I've been wondering myself lately are RWA's counteryclical um it doesn't seem it doesn't really make sense that they'd be very proyical in the same way that crypto has in the past. I could see in a way they're counteryclical. Like right now the the there's a the the borrow cost for something like USDC or USDT on chain is super low like two or 3%. So I could actually see arbitrageers moving in and in some ways RWAS and capital could be counteryclical or it could just be on a completely different trend line um than than anything else in crypto.

And I'm I'm I'm curious how you see that growth in structural trend line and then how that might influencing you know or maybe decoupling you know things like a from the growth of Ethereum which have historically been very tightly correlated. >> Yeah. I think uh the the more of a as a infrastructure can serve um traditional assets uh tokenized assets um and and beyond one asset class um I think that puts a into very unique uh category um obviously we're doing it already now but in a very small scale compared to these uh native uh crypto assets and that correlation will will show and and

obviously uh another interesting uh path is that after the a will win proposal, a is not only generating revenue from the protocol but revenue from the proto player which um can expand a lot of the the the uh utility. For example, one um part of the a app is actually a a card. So anytimes someone is actually spending with the card that generates revenue into the um a uh dowo. So I I think uh over time that will happen and especially more of these assets are coming in. Defi itself um peaked at uh over 200 billion uh in 2020

and and then again uh 2020 uh five last year again 200 billion uh and it's heavily correlated with uh with with crypto and ethereum um and I think uh once we get towards a place where there's sort of like a flipping between rwas and native um assets then you know it starts to sort of like a chain the momentum starts to change as well. And I still want to say that I'm actually quite bullish on uh native uh crypto assets. I'm bullish on Ethereum and and bullish on Bitcoin. Um I do think there's going to be in the future um more of these native work tokens. Um because it is an open uh open innovative

space. So I would like there's still g things still going to happen and new things are going to come up. But at the same time, I think the the future is tapping into all sort of value that is that is tradable and can be used as a collateral in our to produce yield. I think that's the future. Sony, what's your take on RWA looping? I feel like this has really taken off. I mean, this was a big driver of A's uh TVL in the beginning, right? is looping things like ste um and now people are extending that and pretty logical line of reasoning from my perspective which is a lot of the activity in a is RWAS now there are these unique sets of challenges like if

you're going to collateralize a real world asset that tokenized version doesn't necessarily represent true legal ownership and so you know you can't you know unwind it atomically in the same way that you might do steets so it's kind of this very large and sexy market of you know levering up and getting additional yield on safe or low yielding RWAS but at the same time it presents some complications but I'd imagine you know it's an interesting driver potentially for activity on a like what what are your thoughts on RWA looping >> yeah the RWA looping is going to be the the probably the the most biggest use case of of a by far um just just an example if you if you take um um you know the this The solar example, we we

take a uh solar portfolio of of of 1 billion um put it as a collateral in a we can borrow very high um uh LTV and and you can also have different compositions. So solar farms for example compos of uh uh 70% of senior debt typically and 30% equity. So you can split them into two different uh sort of uh portfolio collaterals that can be used in in a um for the risk parameterization. Um and you can take the liquidity uh from a uh reinvest into the same sort of uh uh asset class to to expand build more solar farms um and loop the strategy. Um and because the

nomination is pretty much the same, there's no volatility there and at the same time it's backed by the asset which is the infrastructure and typically solar farms have um power purchase agreements between uh 10 15 to 20 uh years um that generates cash flow uh down the line. So that is an example there but you can apply the same strategy in in these other assets. So as long as the the borrow cost on chain is is is cheaper than uh the P&L or the yield that is coming from the RWA you have this arbitrage opportunity in traditional world is is it's is called

leverage and uh we call it looping but it is going to be a way to actually scale a but why I'm excited about that is is not because uh it allows some sort of a optimized yield. I'm excited about it because it can advance the future that we're heading towards uh anything between 10 to 15 years by using DeFi and a lot of these RWAs that are getting looped uh will end up in DeFi uh at that point D5 will pre prevail because it has a better cost structure. You can aggregate capital uh much more seamlessly. um you can then use that capital into these sort of uh uh opportunities and if if you think about

like AB has sort of service providers and whatnot but it's extremely lean uh when you compare it to a a a bank or traditional uh financial rails um liquidations happen automatically uh you know all these calculations of interest rates heavy lifting happens by smart contracts so um the cost structure is just far more better than in the traditional finance. So eventually that will just replace the traditional infrastructure um and takes the benefit for for for for all categories of assets.

>> Yeah, I um I'll show one more visual here, but there's a you know we've done a pretty interesting breakdown here of net interest income um that a generates by uh different assets. We also I I have one more question for you actually on net interest margin in general. um which is also something that we track looking back. It's kind of fluctuated here between around a uh you know half a percent to a percent and you know 125 basis points. What is the what is the driver there and how much do you focus on something like net interest margin?

Like if I'm just looking at the different sources, it feels like go um you know in particular has a very high maybe that's kind of driving the spikes but yeah how how do you think about the importance of net interest margin for a in general and what what kind of drives that for you? It's a really fascinating question because um margins are uh very important. Um but as uh as basically Jeff Besso said um you know your your margin is my opportunity. Right.

>> Right. Right. >> I think the same applies in in DeFi. So when you compare to traditional banks that are, you know, maybe poorly managed, maybe they're in scale, they might have higher margins, but they also have that vertical sort of uh integration um and and and a very legacy uh client base. So I think as a technology as DeFi is, uh for DeFi to win, it has to offer tighter spreads, tighter margins. But the biggest difference about a is that a doesn't compete with for example banks and financial institutions. It is a uh cost structure architecture for them to replace the old bit new uh by providing more efficient business. And when we

look at for example uh centralized uh crypto lending today um you know the the there's still legacy lenders uh there. So, uh, after after the, uh, FDX and Genesis lending collapse, um, they're lending out at between 7 to 12%. Um, against, uh, Bitcoin and Ethereum. Defi does that, uh, 5% and below. So, the the the efficiency is already there. So, at a at a like a theoretical point, you should always borrow from DeFi. Never borrow from like a mar like a like a brokerage.

um there is of course like different constraints um and so forth. So so that is just showcases what is coming from these towards these traditional assets. And then when you get to a scale where a is servicing like you know hundreds of banks and financial institutions or thousands at the same time um you get the the the uh economies of scale and and and and and uh and that's basically where the the uh the the profit compounds and then obviously there's the uh you're right about co because go doesn't have u in its main facilitator an LP the LP is effectively the the a protocol. Um so the margins are far more

greater because you don't pay you don't have to pay for uh LPS. There's still certain pools where you can do that but it is very interesting because uh it is a business line that is high margin um and growing uh steadily. So I think go is going to be a big part of the story of RWA's a big part of the story of uh basically funding abundance um and and overall it's it's going to be a way for uh the the AB um protocol to basically collect higher margins.

>> Yeah, it's been growing uh growing pretty steadily here. So um yeah, very exciting stuff, Stony. And yeah, there's I feel like there's almost so much going on. I know we got to wind down here, but uh you know where if folks want to find out more or you know catch up on the latest of everything going on with a um other than of course seeing you speak at DAS, what's the what's the best way of doing that? >> I mean I obviously I uh I love Das and I recommend everyone to to go there. Uh it's going to be really exciting here because there's so many uh people coming also >> FatFire and and also a lot of uh um from the sort of a native uh um space as well. So I'm going to be uh there you can follow me at Stani Kulichov and uh

any updates that we have or follow um a account uh for regular updates as well. >> Amazing. All right, Stonyie, appreciate you my man. Congrats on everything and uh we'll do this again in a year or so when uh A is fully taken over the world and uh and regroup. >> Excited. Thanks, Michael. >> Cool. Take care.