Rune Christensen: DeFi Is Not Over. Here's Why

Transcript

Welcome to Stabled Up episode number 28. Our premier weekly stablecoin oriented show powered by our friends at FRA and their FRXUSD product. We've got Rune Christensen here, co-founder of Sky. Run, what a 96 hours in DeFi, man. >> Yeah, it's uh another day in DeFi, I guess. >> Yeah, indeed. Indeed. Um, where do we start here? Well, Run, I mean, I would just love to just get a bit of your perspective. Uh we'll start on kind of this exploit. What happened transition this convo into just kind of more broadly stable coins USDS sky. Starting on this exploit here I mean initial reactions thoughts um so much has

happened from arbitum uh earlier today with Kelp statement layer layer zero statement a statement kind of finding out what actually happened. Run, I mean from your perspective um what went wrong? What happened here? And um just any immediate reflections and lessons here? Yeah, I mean I think first of all it's pretty uh it feels pretty uh shocking right that it happened so close to the drift incident which was I don't know feels like that was like two weeks ago or something almost you know that that was very recent as well and uh I mean my understanding was that this was a pretty deep attack into the the

you know the offchain infrastructure of layer zero combined with basically uh suboptimal configurations on the smart contract side for both uh kelp and then a which which led a lot of these uh assets basically then get sort of cashed out. Um, but ultimately like I mean it was just it's still like it's it's still quite surprising to actually see this kind of attack where North Korea like literally got onto like sort of very deep into the systems of a to my understanding like quite security focused uh organization like layer zero and I mean a lot of the sort of fear

that's that I'm sort of you know that I've been sensing recently is this like fear around AI powered uh hacking basically and and attacks on DeFi and and I I I think I remember from one of the statements that there were literally there literally was this mention of like that there were you know this could have been somehow AI accelerated which of course I mean yeah I mean it's you can't really tell I guess necessarily and and on the other hand every export always like it always happens because there's some kind of mistake made like you can't have you know AI systems can't just like literally like hack something that is like built fully correctly just through magic. So it's not like everybody should be really scared and like expect you know anything

to blow up any moment but definitely like I think across the whole industry I mean already following the the drift hack to some extent everyone is just realizing like North Korea is watching you know they are running you know 100 agents scanning your protocol right now you know 24/7 they're looking for every single possible vulnerability and everybody must just be prioritizing security even greater than they were before, right? That should have been priority number one already, but now it needs to be sort of an even bigger part of what you're doing is just basically everybody should be just keeping all of the money safe looking for every single uh attack vector and and uh basically fix it before the the agents find it.

And I think Run, one of the other kind of preemptive points that you made was around this idea of the political post exploit dynamic between protocols and voices in the space kind of almost operating without a I mean really without a plan, without a kind of emergency plan. And you know, you kind of wrote about how you think this is something that Sky should really work on and think about and anybody should think about. You know, I I'm curious kind of what you think about how how a protocol is or a you know, community here, right, of this of the shareholders of the token holders of the participants of any given

ecosystem should think preemptively about designing a post potential post exploit u command system or you know a line of fire as far as like you know XYZ is to happen. How do you think about this? what is your kind of ideal uh end outcome for for for a company like Sky or others who you know maybe face with something like this in the future or perhaps not but of course always being careful is better than um you know not being >> yeah I mean I just I think that I mean I think a lot of people have been mentioning this right that in many ways the damage done to the DeFi industry from the uncertainty around this might actually been greater than the loss of

the hack itself just because you've had like several days of this like completely unprecedented sort of liquidity seizing up and it's kind it's as if it's like the great financial crisis and uh the mortgage back securities just turn out to be worthless and so on but the reality is this is actually I mean sadly for DeFi this is not a like this is a it's a big hack sure but it's not like it's you know a similarly sized hack happened like a couple of weeks ago right so the real problem here is actually just that there's a lot of you know It brought a lot of systems into uh sort of states uh they were not prepared to be in where suddenly there's this like uncertainty around what is this you know like sort of

shreddingerous collateral like you don't really know if it's worth anything and then you can't run liquidations and you can't sort of you don't know if is there going to be a bailout or not and all of these things like all of the uncertainty just just results in everybody sort of being more conservative and basically not taking action and That can just be incredibly bad for interconnected financial systems because they're all about liquidity. Once you remove the liquidity, it's just like it becomes very very damaging and harmful and you have like users like loopers that uh can be sort of really you know that sort of depend on the ability to to to jump in and out of positions and just like a lot of damage being caused by uh the uncertainty rather than the the uh the

incident itself, right? is like the classic like um you know we have to fear fear itself right that that actually the this is itself a very harmful thing uh but I think there's great news like I mean I think the the fact that the arbitum assets were frozen and there's some indication that like even mantle which is a completely uh you know external project is like stepping up to actually help and try to backs stop this I think that's going to like you know these kinds of of of of movements is something that at least if I was a like an affected DeFi user, I would feel, you know, that would be something that would sort of be

comforting in the sense that I would expect that this type of stuff is what's going to lead up to some kind of I mean some kind of resolution uh happening because the momentum and like the goodwill shown is going to make it a lot easier for everybody to come to the table and figure out how to basically resolve this instead of what I think there was some fear of in the early days which was some kind of like total PVP uh lawsuits everywhere. Everything is frozen for months, right? Which would just be so bad for everybody. So, I'm very happy to see that there is this collab like that that there is this like um likely collaborative uh solution and hopefully uh things can get sort of uh fixed and and recovered before it gets completely out of hand

with the damage from the liquidity issues and the fear. >> Yeah. Um the staked USDS APR or APY to supply on Sky hit upwards of 25% in the past 24ish hours due to large people withdrawing. I is this a is this a a general broad riskoff sentiment thing? you know, maybe you could just explain the the dynamic behind this kind of yield ratio and and and how the sky asset is involved here. Um because I think there's generally just this kind of riskoff sentiment happening as you're as you're you know explaining here the

fear being more problematic than the actual event itself. Uh you know clearly this is a very high yield opportunity for uh USDS holders. What's happening here? >> Well, okay. So maybe I should just first explain SDUSDS and sort of the the broader landscape of Sky um products and I mean so Sky of course is it's primarily known as a decentralized stable coin protocol right with USDS that's the largest yield generating stable coin the third largest stable coin in the world but actually sky has like a lot of financial primitives a lot of building blocks uh for different financial use cases and you know famously the sky agents that are just enabling really a lot of stuff to happen

within Sky. Uh even though it's like one ecosystem, it's it's, you know, it has the ability to sort of do a lot of different things all at once. And then one of the things that this that also really uh enables basically the the ability for Sky to um to basically be very flexible and very complex in in the types of things that are possible is uh risk tranching. So basically uh you have sort of multiple different types of uh financial products that that sit at different layers of what's called a capital stack. So basically you know like if you want to take like basically I mean I guess what people are used to in in crypto and DeFi is usually like well here's the safe project so I can

put my money there and it's like low yield and low risk and here's the super risky project and then if I put my money there it's like high yield and high risk. or the sky. There's actually like you know you can hold SUSDS that is like you know absolutely optimized for risk adjusted return right it's like the definitely the most uh proven best lindy uh like stable coin uh product with a really really reasonable uh rate of return right right now it's at 3.75% which is actually 10 points above sofur which is you know a lot of people dunking on D5 to not for not being able to beat trad But >> USS does in fact still beat Trafi and is very much highly risk optimized, right?

But with Sky, you can also use a product like STUS, which is a sort of, you know, it's a higher risk token that is still uh that still has this link to the US dollar. And you can actually go even more, you know, higher risk and and buy something like SPK, right, which is then, you know, a completely volatile governance token of of one of the Sky agents. But so SUSDS uh because it's a risk token and it's explicitly like marketed as risk capital uh you know it's like um it's for it's for advanced users right because it has higher risk.

It's not just a stable coin that is designed to to you know protect you uh above everything else. With SDUSDS it's also about being able to offer a higher rate of return. Uh and one of the things that one of the consequences of this is that uh it can have its liquidity it's it's onetoone uh liquidity with USDS frozen when there's a lot of withdrawals and that did happen for about I think for maybe for 24 hours maybe a little bit longer uh right as the big uh crisis and the initial shock occurred.

Sorry. But actually uh the liquidity returned actually quite rapidly. >> Yeah. So, and this is also a very good uh sort of story about you know and and I think this should be very encouraging to everybody in DeFi that because uh Sky is sort of the the protocol that has really optimized for security right we've always been focused on security always focused on risk management this has always been on messaging right has always been how we sort of built and conducted uh ourselves in the ecosystem uh and as we as as the products were marketed from from uh yeah from the Sky Frontier Foundation from all the Sky agents as they market their individual

products right and that really paid off in this crisis because you got a sort of like partially like a flight to quality right where so SDUSDs is something like I mean it wasn't affected by this at all but people just risk off they're scared and then they're like yeah >> at first they pull out the money but quite rapidly uh they basically put it back in because um you know they got to have assets somewhere and if they're not ready to completely leave leave uh the onchain world then what sky has to offer is sort of at this point very right it has a lot of lindy effect it's quite uh trusted yeah no I mean for sure and I think you know we've seen a kind of transition of capital or a shifting of capital into

one of the uh stars as well being spark I think has got a ton of deposits and you also mentioned and you got some push back for this post about U Sparks SPUSDT being one of the few USDT yield products that uh actually stayed fully liquid during the market stress. Maybe you could just explain why that happened and um you know what what the dynamics of that SPUSDT uh stable coin yield product in Spark is and why wasn't affected.

>> Yeah. So well so similar to what we just talked about with ST USDS which is like a one of these like it's a >> a D5 yield product uh you know I mean the basically there's the the the two bread and butter primary types of D5 products that exist are USDC vaults and USDT vaults right so basically where you can put your USDT you put your USDC and get a a return on that and typically USDT uh products tend to have an easier your time like they tend to more easily run into liquidity issues. Uh why exactly that's the case, I'm actually not 100% sure. One of the reasons might be because of the Sky PSM because Sky has like gigantic amounts of USDC liquidity

and this might generally help uh kind of deal with users moving in and out of of uh getting a yield on the USDC specifically. But because there's no um USDT PSM in Sky uh although actually there is an ongoing effort to increase USDT liquidity actually in Sky but but currently there's not nearly as much USDT liquidity in Sky as there is in USDC and I think this might be one of the contributing factors to USDT generally in crisis events like this. uh it can it's it's often much more easy for the USDT pools to dry up and the USDT to get stuck. Uh and this like happened across the board. Uh I think in

all of DeFi actually, you know, there might actually have been, you know, I can't actually be 100% I didn't literally verify this myself, right? But from all the major pools I looked at, the only one I I saw that that never uh seized up even once uh was the SPUSDT uh spark pool. And I actually heard from some of the contributors that Spark was like actively managing this and actually losing money just trying to maintain that liquidity uh in this like sort of throughout the the event right as there was like a sort of a run on the bank across the the the whole uh ecosystem.

And in my opinion that was like a really clever move. So even though it cost them some money to to subsidize this uh it will I think it will have really really uh bought them a lot of goodwill. Uh and that's because I think if you I mean so somebody like me I mean I'm I'm in DeFi 24/7 right? So I all the time DeFi finance, you know, asset liability management, like I'm pretty it's not a surprise to me that your USDT can get s stuck in a D5 pool. That sort of seems like this is this is some of the most basic stuff that's like, yeah, that's one of the risks you accept, right? But for a lot of normal people who who try this kind of stuff, I mean, if if it's crypto is already scary, right? It's already hard to understand. And then

your money is suddenly stuck and you can't get it out, that's really going to like affect you emotionally. And I think uh you know like the price of of not giving your user that shock where they maybe have a day where they think maybe they will lose their savings or something like the value of that is is is really priceless in a in an emerging market like DeFi and crypto right where it's all about like establishing that that uh brand and that sort of market presence. And I think the fact that the the Spark guys, they they actually made this decision and they sort of really doubled down on investing during this crisis in order to build uh their brand and and build build trust with their

users for the long term. I think that that must have really paid off. And I also want to highlight how it's quite, you know, unique and sort of very Yeah, it's like very unique to to um to Sky specifically, right? That as a sort of as a Sky agent, right? They're like a sub component of of Sky basically, right? they exist inside the sort of broader Sky uh ecosystem running on Sky protocol rails and everything, but they still had enough flexibility to build a system that let them do this. Like I wasn't actually I wasn't even aware that they could they could even do this. So I was like surprised like how do you even pull it off? and they were like, "Oh, this is, you know, we use these primitives and then this way we were able to to do it, right?" And I think

that's that's really cool, right? That you can have this uh, you know, the overarching like standardized risk management, security, and processes of Sky and then they were able to basically put it together into into some very useful features that really paid off uh, in this moment of crisis. >> Yeah. Yeah. And I think it's it kind of goes to explain some of the risk management choices holistically within, you know, the Sky ecosystem and obviously been prioritizing ETH, staked ETH, a lot of RWAs to backed USDS and just kind of very, you know, uh, more like what people would call pristine collateral over more exotic collateral.

you know, I'm curious how your general view of collateral backing has changed as a result of this RS ETH uh kind of uh exploit here. Obviously, you know, we've even seen Athena come out as of late and say that their sole basis trade backing for USD is not what their future is going to look like. They're, you know, the they're looking at other RWA collateral, the basis trade on commodities, etc. uh you know I'm just curious following this this event has your view on DeFi native versus kind of more RWA or TRDFI if you will collateral um has that view shifted changed is it staying the same kind of generally how

is your viewpoint on the way DeFi should be thinking about collateral and the types of collateral uh you know changed or has it been just further reinforced? >> Yeah. So I mean so Sky is at this point it's uh I guess a more it's more than 11 years old right it's the oldest D5 protocol it has maintained stable coin products without ever suffering any kind of loss or major instability for almost nine years and uh so end to end the protocol has had no security incidents of any kind for more than six years and this is all because the whole time what

Sky has fundamentally always obsessed over is security, risk management, you know, what's going to happen to the collateral, right? I mean, that's what has kept me up every single night for the last 10 years, right? Is just thinking about what what if something happens to the collateral, right? And uh I mean and so what the kind of I mean the kind of things that have been happening in DeFi lately uh despite it being very shocking and You know, even to me it definitely makes me feel uncomfortable to see sort of big hits being being taken sort of left and right like this. Like none of what's the types of things that are being exploited and the kind of things that are going wrong right now is not actually at all the kind of stuff that I'm scared of in

the sense that it's all preventable. like you know this recent RS ETH situation uh you know doesn't at all teach us anything new in Sky because that's that's been very clear to us for for many many years right that you you shouldn't uh you know you shouldn't do that kind of stuff right you need to have a lot more clarity about the security setups of these types of assets and even just generally uh the degree to which you can I mean use these like highly complex assets like reststaking and so on. It's not really uh something that that is allowed um very much or at all in in Sky because it's just not like it and it really

comes down to like the uh the risk adjusted return. It's just not worth the tradeoff or the risk to to use these kind of assets generally. But in order to understand that you need to have very advanced like risk management uh frameworks and capabilities and and monitoring systems and so on. And uh I think about 6 months ago actually in Sky we we got we we managed to kind of uh really increase our risk management capabilities and risk assessment capabilities and we actually from that realized that even though we had been obsessing about risk for so long and we had been building everything to be low as low risk as possible uh there was still like we actually realized we were

definitely overweight on on the level of risk the protocol was carrying. So actually for the about the last six months like Sky has been consistently in this like deleveraging risk off uh just like simplifying the exposures reducing um uh you know like yeah like just reducing sort of the bulk of like concentration into some of the more I mean I would say some of the more sort of interesting assets right that originally was the kind of stuff that I mean it still is the kind of stuff that makes Sky really unique uh like it you know for instance it's backed by by CLO ETFs Yeah, >> which are quite interesting assets. But >> uh about 6 months ago, it was determined that that it had gone a little bit too

far and and that was the kind of stuff that that that has been had the exposure quite decreased. Um and yeah, like I mean the the crazy technical stuff like yeah resticking and bridges and that kind of stuff. I mean that's something uh Sky has had a very low tolerance to that for for for quite a long time uh already. Uh I think honestly in the end uh the really big takeaway for me from this actually to the earlier point about like uh understanding the fallout of everything in advance is really like there's got to be you know there's always got to be like a clear protocol like a clear rule set for what happens if a bridge gets compromised like that's got to be you

know and I mean I think by default I think the simple answer probably should be you got to make it really clear to the users that choose to use a bridge that they are taking on additional risk that applies to them only. And on the contrary, like the mainet users, Ethereum mainet users that are consciously, right, they're choosing Ethereum mainet because they want to be safe, they they need that reassurance that you're not going to get contagion from other users that choose to to use a bridge, right? And uh but I mean this is of course this is kind of one of the major things that are being really examined >> in Sky now as a consequence of everything that happened. So you guys just pushed a native deployment of USDS and S USDS onto Avalanche using this

kind of Skylink technology. It's already live on Salana. So you guys are obviously pushing a multi-chain strategy forward as well. How do you how do you avoid the give the kind of native issuance problem when it comes to Ethereum being kind of the home and you've got these other chains but there are other security practices, models, validator sets, sequencers. How do you ensure that the representations of USDS and SUSDS across the broader multi-chain or uh you know crosschain ecosystem also remain resilient. What does that look like for the users on other chains of Sky assets?

Uh I mean so definitely uh something that uh that has been like a core tenant of like the the Sky like Sky approach to to multi- chain for quite a while is that it must be built I guess you can say in-house. >> Yeah. Like there used to be a time where you know there's where you'd have other projects do bridges and you'd have these like I mean you also have you have the example of like USDC right where sometimes you go on on uh on like multi-chain uh blockchains and they will have like multiple different versions of USDC because you have kind like different bridges doing different versions and that's something that I believe I mean I think later uh you know I found out or I believe it's like it

can be quite risky right you really don't want your product and sort of users that that you know like I mean let's say users that want to use USDS and then somebody conveniently bridges USDS somewhere and then it's available and then you get this organic adoption that sounds good in theory but in practice that can actually be a huge mess and very dangerous because once you have that adoption going it can be difficult to actually then transition it uh and if you can't easily upgrade the bridge uh it could be a huge problem if the bridge turns out to not be very secure.

>> Yeah. So actually Skylink was this uh this innovation that was basically designed to ensure that you only do USDS bridges and you only do multi-chain USDS uh when it's built following the Skylink standard which ensures that it can be upgraded by Sky governance and there's not going to be like external multisc or external parties that are involved in the I mean potentially the management of this or the decision about how should it be upgraded or what to do in how to set the the safety limits and so on, right?

That should all be uh something set by Sky core governance. Uh and yeah, I mean that that part of the the strategy I think was totally correct. I think now again what what probably needs to be re-examined by Sky and everyone else is like just how you know just how strict should these limits be and they should possibly be stricter than uh people were expecting up until this point, right? Because you really want to avoid again this kind of situation where a loss occurs and it's big enough like an event happens and the the the the security incident is big enough that it creates this concern and fear of

contagion and things start to like to seize up and that's just a very bad thing. You really got to enjoy like got to avoid that at all costs. >> Yeah. Yeah. 100%. Um, we're kind of getting into a more of a forwardlooking environment here and conversation. Interestingly enough, the new Fed chair WSH came out today and had a, you know, bit a bit of a speech about his policies and his views. And ultimately, I think it's it's decently certain that we're going to get at least one, two, if not three rate cuts this year. Probably just 25 bips. Um a lot of the stable coin products and and use cases for yield are directly derived from treasury bills and

T bills from you know shortdated assets in um you know these you know very very safe very liquid uh opportunities on chain and so as you mentioned earlier in an earlier point there's this rhetoric right now that DeFi um is less yield than this the risk-free rate uh with a lot more risk. A and I've kind of got this like inverse thesis here where as the macro Fed rates decline more speculative activity picks up onchain driving the de demand to borrow stable coins driving the the yield to lenders up and the opposite happens in environments kind of like now with you know somewhat elevated rates

and lower rates on chain. Now, obviously you guys have a special kind of situation here, but that is what begs the question. You know, in an in a in a lower rate environment coming up, what even if it's just 50 bips, 75 bips by the end of the year, you know, you can kind of see that the administration is pushing this forward that the Fed wants this. Obviously, Trump is, you know, screaming about it. I'm just curious like how much of your strategy changed from a collateral perspective, from a yield perspective, from an expansion perspective when you have a lower rate environment versus a higher rate environment. Um what you expect from users, what kind of uh you know anticipatory measures you may be taking

as a protocol or maybe none at all and it doesn't really matter. Just curious how you think about the broader macro Fed interest rates as it pertains to the value prop of something like SUSDS on chain. Yeah, Sky has been engineered carefully to be able to handle whatever macro environment uh it it finds itself in. Uh and I think actually I mean to some extent as rates go lower uh increasingly uh credit spreads get more important. Um, so basically it's, you know, it's no longer enough to just be able to sort of like deliver the

yield. It's like you got to be more you got to be able to handle more complexity and then source the yield from from basically through different avenues. And this is through this you can you can uh you can basically offer um like you can capture credit spreads, right? But the thing is I mean even when rates are high you still want to capture credit spreads and offer the best possible risk just return right and I think like I mean I think this idea of like uh you know DeFi uh gives you like lower rates and way higher risk >> that applies whether rates generally are low or they're high like it's just as annoying to take tons of risk and then get you know 4% when the risk really

raise 5% as it is to to do the same thing and then take tons of risk and get 2% when the risk rate is 3%. Right? In either case, you're underperforming and taking extra risk. uh and the I would say the opportunity for DeFi is to on one hand really really really deal with the risk uh first of all and I mean I think in Sky case uh the ecosystem has really done almost uh everything it it possibly could right because I mean it's maintained uh a clear track record for many many years at this point even as as um like even as other projects have been uh dealt with like dealing with issues is just not really something that has been happening to Sky

uh in the same way and that's of course I mean that really matters a lot but then on top of that there's also this whole I mean just the transparency and like the effort that goes into actually explaining the risk understanding the risk right because it's not just like through luck that that Sky didn't uh have security incidents right and and or and or or risk uh events it's because it's like very carefully engineered very carefully designed And um all of the thinking that goes into that design is made as public and open and transparent as possible because this is essential for the you know like sophisticated users right institutions and crypto whales that that use Sky and and hold their assets in SUSDS.

uh they really need to be able to do their due diligence and actually, you know, access public information uh in things like our risk dashboards or our uh governance uh rule sets so they can sort of directly actually look at like sort of look at how the sausage is made on their own rather than listening to some salesman telling them it's all good right? >> Yeah. Um and uh yeah uh that's just going to be continuously improved over time. And what's interesting is like it sounds like well you know we're just you know Sky is just focusing more and more on security, managing risk better and better. Like it sounds really boring, right? Like it's just like a bunch of

going in circles and making everything more safe and more secure. But the thing about in particular decentralized systems in in DeFi, right? And and I guess I guess maybe you can think more broadly decentralized systems, there's this really interesting characteristic that security and risk management is what enables scale. So without I mean so so basically like when we when we think about like when I'm thinking about like how we're going to grow Sky to get really huge and massive and like a huge business and make tons of money and tons of profits and so on like the key to that is through security and risk management and that's because if you do tons of security like if you have extremely solid extremely scalable

security and risk management processes you can open up for more complexity. So actually like in theory Sky could like do 10 times what it's doing right now. Like it it the protocol absolutely has the capacity to onboard like 10 times as much collateral and uh you know like go into like do this sort of very diversify like into all sorts of high risk or not necessarily high risk but like all these like exotic super innovative things out there. Um but the problem is uh like at that point it gets impossible to track end to end what's happening everywhere all at once, right?

>> And and that's the kind of that's the key to this like you you shouldn't be uh you know you shouldn't be scaling so fast you can't track and explain exactly what's going on in every single corner. Uh and this is really like I mean with Sky the the the the kind of the the model that Sky is going with for scaling is modularity right so you have multiple Sky agents right you have Spark focusing a lot of DeFi you have Growth focusing on RWA right you have um OPEX ke like other agents that are all focusing on different areas and they all have their own autonomy to go and and do things right so with that approach you could really just like open the floodgates and let's be like go do whatever you want. And they would dig

up, you know, a thousand opportunities within a very short amount of time. Um, but that's exactly the opposite of what we want, right? It has to be that everything they do, it must be sort of possible to essentially like >> I guess you could say mathematically prove >> that this is within the risk tolerances. This is within the existing approved risk categories. It's following the the capital ratios. It's like following best practice. And ultimately I mean the goal is really to be able to at all times prove that Sky is following best practice that is equivalent to or better than what you see in uh modern banking.

Right? So all the risk management frameworks are sort of fundamentally uh based on and and and kind of building on top of uh the Barcel uh banking risk management framework. run. Um, one of your points was particularly interesting about kind of managing all of the, you know, disparit risk parameters that are present in a given DeFi protocol. One of the things that uh Rob Haddock said yesterday on the show is that this is just another clear example that the ex that the design of pulled lending is really likely going to slowly kind of consolidate into uh much more of this isolated model as the Fidelities and the

Revolutes and these larger firms come on chain. Do you agree that the future of onchain lending is very isolated? It's very single collateral asset, single debt asset, very clear as far as what you're getting into from that perspective. Like I'm just curious like what what you think about how onchain lending is going to evolve because I think spark you know maybe is not exactly in this direction. Morpho probably closer but you know maybe that's not the right take. like just generally curious is this another example of hey onchain lending is moving towards isolated curated risk design rather than the poolled model how do you think about this transition yeah I mean it's I guess it's an

interesting topic and it's kind of frying my brain a little bit in the sense that a lot when you talk about finance it's like often you use a lot of different words more or less like one or two or three maybe like basic concepts right so I guess the question is do consider uh like stable coin, do you think like of banking of of deposits, do you think of that as lending your money like when you put your money in the bank, is that lending to the bank? And depending on how you sort of want to answer that semantic question, right? Then uh I mean if you if you if you basically define lending as you know I'm like I have something I consider my sort of my currency my my risk-free asset and then

I'm going out and I'm deliberately taking some additional risk with it then I think it's absolutely true like in that case and whenever you're sort of thinking and you're like I'm going to go and take some risk. >> Yeah. >> You know like nobody should ever be like oh I'm going to take some risk. I don't know what the hell I'm doing, but let's take some risk, right? Like that's a horrible way to to do stuff, right? But what's interesting is as a type of I mean financial activity which is essentially like savings or uh stable coins, right? So stability that's that's specifically the type of product that is designed to be here. You don't have to think super carefully, right? And really like analyze everything into it. I mean, you should be able to if you want to, right? This is everything we strive for

in in Skype, right? But the the point with with Sky is exactly that. It's this massive diversified pool. Everybody goes in the same Well, it's okay, let me take it back. It's not a it's not a pool. It's a it's it's it's a token, right? Everybody goes in the same token and the token then like deploys through the um I mean through the sky agents they through the co vaults the all the rwas right that are backed by large regulated you know the large global institutions and like this this massive diversified portfolio and ultimately uh I think the point is really that like I mean that's a massive responsibility right like if you if you if you ultimately regulate such a large portfolio which what Sky

does it's just you know it's like a very serious very uh significant task to at all times monitor it monitor that right like measure the risk left and right like and it's once you get big enough also you get this issue that like it's no longer all about um well I guess I mean actually this is like a you know the recent incident is a perfect case of it right that one thing is like insolveny uh like literally losing money and like whoops the money's gone type stuff. But increasingly as you get bigger and as it gets more like uh sort of liquidity focused and and currency like this issue of just purely like liquidity and fear and like I want my money and I

want to feel safe and so on like that itself becomes a huge risk vector which is something that you know gets yeah it gets just gets more and more complicated the more you you dive into it. But um I mean from my perspective if you think of like if you like if you say lending and you define that as like you sort of define that as like risk sort of risky uh very deliberate lending then yes that's absolutely going in individual collateral individual collateral direction. If you think of like DeFi as a whole and sort of this concept of like holding your assets in DeFi and and getting a good return on your assets in DeFi uh it it can't really be done like it has to be diversified. it has to be this uh sort of uh large scale managed

governed stuff and I think what will happen is it will consolidate. I mean this has always been the the case right that there's been like a few very large players in DeFi. Uh and I also think that um actually I mean it will be a lot easier actually for for the large players to distinguish themselves and and kind of benefit from focusing on security and risk management. Uh I mean I I really do feel like that has that is is the you know the market has been changing a lot and that sentiment has been been a lot in the forefront actually like the big moment was exactly like in the fall like around uh 1010 actually was like that's commonly known as like that's the moment

when the vibe really really changed and suddenly uh as a project you had to really you know I mean not only did you have to focus on security that's one thing like sort of focus on being like this is how I'm keeping everything safe is how I'm keeping stable. But what's so amazing actually from that is that it started giving you like an advantage like it started you know the market finally gave you positive feedback when you did the right thing which was yeah >> care about security care about >> uh stability and uh I mean I feel like that's it's been sort of a frustrating thing for Sky because it's the project that has always been so massively obsessed with security and stability and and safety. Uh but you know sort of

crypto cycle after crypto cycle we're sort of getting clowned on every time there's a bull market then everyone is like oh they're so like boring and lame right and then everything crashes and suddenly people want to talk to us again. Uh but like I think I think finally we're past that now and and there is this like fundamental understanding that the lowrisk stuff the riskadjusted returns I mean that's actually when you know um that is when there is a massive opportunity that's and to my earlier point right that's how you get massive scale right that's how you get economies of scale that's going to give you profits right that's going to give you the stuff that the market is now looking for so I really think >> you know I don't think DeFi is over at all from this I think it's going to evolve it's going to get way stronger

and way better and I mean overall it's a terrible situation and I hope it gets resolved really soon right but I also really hope that the whole industry and everyone who sort of survives and comes out on the other end right and and and are able to reconstitute themselves right that they uh really sees this opportunity to to to have stability safety security be the the cornerstone of like their growth and their business case >> I agree I I I think DeFi is going to be fine I appreciate the thorough answer on the on the lending model side of things.

I mean it's it's going to be rapidly evolving the entire space. I mean our from freezing those funds was was a big win and I think the situation hopefully is resolved sooner sooner than later. So appreciate you spending some time with us today man. Um looking forward to seeing Sky hit that 20 billion mark this year. Best of luck man. >> Thanks a lot. Glad to be here. Thanks.