Unlocking Undercollateralized Lending | Laurence Day

Transcript

there is something else that I I think like the dream right I talk about these hockey stick moments in terms of um like it's like debt instruments and using onchain to facilitate it I mentioned this elsewhere recently but I would really really love it if we could somehow get into a position where we could say like oh hey I have a bakery in Chicago and I'd like to establish some debt for that onchain so that you could actually see that you're you know you were facilitating some real world Goods because there is a very potent argument to be made that like really all we're doing is we're just slushing money around in the same pool uh by by keeping it all on chain right it's just all in the service of markets and uh and like chasing liquidity and like Arbitrage or

what have you all right everyone this is a message for my dgen listeners out there if you are getting scalped paying expensive fees to per Dees I highly recommend that you check out index co-op's new leverage sweep now whenever it comes to leverage do your own research this is not Financial advice don't bet more than you can lose all that good stuff but if you are going to lever up you might as well not pay an arm and a leg for it you can get leverage on BTC and E with built-in liquidation Perfection uh now available on base mainnet and arbitrum so click the link in the bottom of the show notes and head over and check them out today and you'll hear more from them later in the program hey everyone this episode is brought to you by Supra the vertically integrated L1 for super daps uh they

have a very cool new product coming out called Supra containers so head over to supra.com that's supra.com containers so if you're building on an L1 and it feels a little bit crowded or the complexity of L2 and l3s are getting you down just head over to Supra they'll get you sorted Thank Me Later hey everyone this episode is brought to you by Fuel Labs who's launching fuel ignition a new high performance ethereum L2 powered by the fuel VM now you're going to be hearing all about ignition later in the program but for now what you need to know is they are launching phase two of their points program so click the link at the bottom of the show notes and head over start experimenting messing around on fuel today thank me later all right everyone welcome back to another episode of bell curve before we jump in quick

disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another episode of bell curve today I am joined by Lawrence who doesn't have I think an official title yet at Wildcat but maybe we can call you uh Chief yapping officer how does that sound that works yeah um and actually I found you obious I've been a longtime Twitter follow of yours but I saw you Tweeting about some of the features in uh in

Wildcat V2 uh which I'm excited to to dig into you with about today but I actually wanted to get a sense before we get into some of the specifics of Wildcat which allows for fixed rate borrow lend and under collateralized lending which has been this long sought after and talked about category within the defi lending space can you just give us a little bit of a sense of the history of lending in crypto there's been a sort of an offchain history of lending these sort of uh blenders like the Genesis and the block fies and the celsus of the world and then there's been a long history of onchain uh lending and how that has evolved over the years okay fair enough also good to be here thanks very much for inviting me thanks thanks for hopping on thanks foring on do think that um you know ever since

kind of you know the launch of ethereum and the the rise of smart contract S as as something that you could kind of meaningfully use to basically put whatever you wanted into um this possibility of doing lending in an under collateralized way was always there and has happened on chain in in several ways as we've seen you know like and they've not all been failures some of them worked really well and they they still work um however when it comes to defi in general and and and crypto we've got this you know don't trust verify uh kind of slogan that we've really internalized simply because we we see the dangers of you know getting drained getting wrecked in various ways the way the things collapsed has has been like adequately illustrated by uh Sam pman freed and

Co and so the The Lending that we that we see isn't typically lending right um it's it's through platforms like OA it's through platforms like arve which are generally over collateralized it's you know put in more than you can stand to lose by borrowing out and so on and so forth but that isn't really appealing for entities that want to say borrow size um so you know market makers funds anyone that really just kind of wants maybe more than like five figures and so there was a ready facilitation for these kind of exchanges and instruments that were um made available through entities such as Genesis Celsius nexo and so on as as you precisely mentioned right and

they worked and like a credit always works until it doesn't you know kind of contingent on whatever happens the you know the way these generally always work and and have done in perpetuity up until the current day is that you know they'll you'll have parties that will meet up they'll make an arrangement together it'll be dealt with completely offchain and the only thing that actually happens onchain is the exchange of assets right and no one will know that this that this exists no one will know like kind of what the terms are because there's no trace of it on chain except for exchange of assets and then it really just kind of Waits until something goes wrong before we find out that these existed we we saw this with the you know the collapse of three arrows Capital you know that um

I've mentioned this a few times in other places you know that that PDF that they threw up going here are assets no further questions you're honor um and oh God just you should get that framed hanging in the Wildcat offices it's it's something that we've posted more than once as kind of like this is why we're here and and other people have taken that lesson to heart too you know both in this cycle and previous ones um you see entities such as as Maple uh you know now moving syrup as well clearpool uh entities like Goldfinch centrifuge even even arve with its credit delegation limits they they

all work in like attempting to do the same thing which is fundamentally allowing one party to borrow more than they stand to risk on chain and the these work right they uh they they did really well in terms of the amount of volume that they put through in uh the previous cycle and I think it was very much just a case of you know once uh 3 um 3ac and FTX collapsed that just the ghost went um out of everyone no one was interested anymore because there were a lot of bodies in the water that that were friends of people that were you know VCS or relatively large players in the space and even significant amounts of retail you know we're still seeing the aftermath of that happening now and these these are all interesting right

it's defaults happen in uh in credit all the time that's kind of where the risk premium comes from that it's why you you do it it's it's it's further out on the risk curve but that doesn't make it bad but crypto is always a funny thing because it's so kind of tightly Bound in with so few entities I think that you know like the fates of one entity could like and could do and demonstrably have had this really weird ripple effect and domino effect that takes out several others like more so than any kind of like banking crisis that we'd have seen 16 years ago completely I so you know the we were talking about this a little bit before we before we hopped on here but the first season of bell curve for folks who've been listening for a long time was actually on fixed rate um and

under collateralized uh borrow lend in crypto and this has been this has been an interest of mine for a long time uh because for a couple of reasons which is one it's just a new interesting part of the market the the trafi analog right is there's there is asset back lending in trafi and then there's under collateralized lending it's that's changed over the years now you have all these like personal guarantees and stuff like that but the market for under collateralized lending is you know I used to know the stats off the top of my head but at least a full order of magnitude larger right it's massive um and then the ability to borrow and lend at a at a fixed rate is also massive as well because you know most of the you know like the AES of the world are are great um and a lot of people use them

for great reasons but the variable lending rate on that is really tough right because as a as a borrower your yields can just Spike you know they try to fight this by providing liquidity through facilities like the d3m and and stuff like that but just very challenging right and it constrains you and so on the one hand this is a really large Market that no one has quite cracked yet in crypto but on the other hand the other reason it's interesting from my vantage point to the overall space is that we've essentially only had Equity financing in crypto to date and it's two way to find two ways to finance yourself if you're an organization through Equity or through debt and the market for debt is much larger uh for for companies that size and at maturity and so it's kind of this super interesting Market on one hand but it's

also it feels to me like because this Market hasn't developed it's holding back the growth of crypto in some way do you agree with that yeah no I absolutely agree I mean to to your first point here you know the the variable rates uh curves that work on platforms like RV work really well kind of within a sealed environment right um assets and demand should charge more a premium but I think what you end up seeing is the way that like the Kink works is that like towards like that last desile or quartile you end up seeing like really kind of perverse incentives that pop up where people can be like oh well you know we want to drive stuff down in terms of our capacity or we may second hop some of the uh the assets that we've borrowed and move it somewhere else to kind of

reduce our um the amount that we're after or perhaps you know if it's something where they do have control say like we we we're seeking to borrow way more than we actually want to to keep ourselves fairly low down on the curve and it's also then tricky for someone who wants to lend right because let's say that I I go to you Mike and I say like I'm going to to deposit to you into something that's an Ave and I I then go into a coma for a month and it turns out that like right before I did that you actually paid back a bunch of debt and drove me way down like uh on the curve to where I wasn't expecting to be I I think it it does work really well like I I'm I'm a longtime user a daily user of a bunch of these platforms but in terms

of the kind of assurances that you would want for I'm lending you X money and I want it to be set at a certain rate for X and Y time is is just missing right yeah and as we were said before we started recording the this is the same kind of you know this constraining of where debt kind of can grow like the fact that it doesn't grow in crypto is what happens to you know like original uh D you know it was purely backed by Ether you got D and exchange but D could only really know ever kind of cap out at a maximum amount short of you know all of The Ether that was around getting popped into uh um cdps and so I think this was recognized and you know we started seeing multic

collateral die and we started seeing other kind of assets that could back things up but even that's not kind of fully there and I don't think we should be having like like fully widely accepted stable coins that are like completely under collateralized sitting on chain but um the the invention of so many lending instruments centuries ago was really what sparked off these growth these hockey stick moments in various Industries right so um again I was commenting beforehand like the reason that the British Empire managed to do all of the things that it did was because people were happy to lend the money in London to uh to S off and go do things in Sri Lanka or India or what have you um pretty risky I I don't think

we would have managed to do that in crypto now but but it was there and it's it's generally always this kind of you know how do we Finance debt how do we like establish patterns of debt and kind of you know what are the recourses for that are hugely important um we keep talking about how what we'd like to do with crypto and defi is to to rebuild the financial system you know that that's that's one of the really common refrains and you you can't hope to do that without a couple of core things and that's you know Equity financing as you've said and debt financing is one of the others everything else that you build on that is very much the money Lego um but you're kind of tying one hand behind your back if you don't have a

good couple of mechanisms not just one I'm not suggesting Wild Cat's the only one ways of handling this stuff on chain I have so complet and just want to underscore again that sort of lesson of history and I would recommend anyone who hasn't read Nile Ferguson's Ascent of money it is a really good read and he starts with sort of the history of money as a precious metal more commodity based money the transition into debt instruments credit based money all the way up to equities and modern he actually he actually I was reading at the time and he I was like this guy I feel like he would like Bitcoin and he has now since gone back and added a whole chapter on bitcoin so it's pretty cool yeah yeah it's pretty cool reading this around 2017 right so ethereum would have been fairly new so that's when I

got into it so like like the possibility was there how finny identified this in 2010 he was saying he thought you know like the fate of Bitcoin was to end up kind of in like banks with with against them perhaps in under collateralized ways depending on the policies there's so much great content from that period of time I jok I'm entering my second Bitcoin Arc it's like all of the stuff that's happening right now if you want to if you want to know what's coming in the discourse just go back to the 20 201 10 2011 Forum forums and just they were talking about all this stuff back then it's so funny yeah so one more question to you before we get to because I want to get into the weeds of Wildcat and how it's designed it I I think it's very interesting that you bring up this idea

of multic collateral and there is a little bit of a sliding doors moment here I think because this was this was Maker's Big Challenge is the scalability because for the most part people are going to makeer to get leverage on their eth and it turns out there's only a certain that that market is only so large right and so if the idea is to continue to expand the die Supply you need to look for other forms of collateral and we've gone down this rwa route um you know to I think success but certainly some certainly some tradeoffs and I'm wondering from your standpoint if we figured out something like under collateralized lending do you think that some of these D5 protocols would look different today do you think rdb would be as big as they are like how do you sort of play out that path dependence in

your head I think things like t- bills and what have you that appear on Jane are very much you know the reason that like when we say rwa now what we're generally referring to is like you know five years ago we used to be talking about you know uh real estate right and and and nowadays when we say it it's it's really just a bu word the T bills and I I do think that that is almost a consequence of this need to kind of allow for exogenous kind of interest to appear from somewhere and because under collateralized uh financing wasn't really kind of no one was sympatico with the idea at the time or if they were it was really early or they felt like the technology wasn't ready because that's you know an exogenous source of Interest as well is just debt but because the way

that we' structured you know the way that we thought was okay well it has to come from somewhere so it might as well be the US Treasury and so this this is why like tether is such like a massive money printing machine right is that everyone was kind of looking for this uh like collateral and source of yield even though tether keeps all of it because they're only obliged to pay the face value um I I do think had we solved this a couple of of years prior I I certainly don't think tether would be as big as it is now I certainly think we'd be looking more towards like rwa would be a lot more exotic I I think we're we're getting back towards more Exotics uh you every time you kind of like peek your head into what German and Switzerland are doing they're always kind of going

ah yes we're here we are like on on our fifth or sixth attempt to to tokenize um stocks or what have you and and you're seeing this now as well with you know black Rock's Biddle fund um we're starting to see kind of like more collaterally like assets like appearing to to back stuff up I I think maker would have existed anyway I think we're all Lucky to to have make like a thing like maker that exists um I I I don't want to uh to pause it mostly because I don't want to be told I'm incredibly wrong in my read of like how it would have looked had we not decided that you know it was things like usdt and usdc that were going to be added as backing as well like you know what if it had been something like debt financing for for maker itself or like a

major investor I think you could you could drive yourself mad that way yeah I think I think it's very tough to figure it's kind of an unanswerable question I'm just curious you know to and and the reality is they're both critical building blocks right like you need you need all of these things you want um you know over collateralized lending with Crypton native collateral art like t- bills and and dollars on chain and then you need under collateralized as well so maybe with that Lawrence we could get into Wildcat can you just start at 10,000 feet give us an overview of what the protocol looks like yeah sure it is fundamentally just to use a sentence it facilitates the settlement of fixed income uh markets that that's all it does right um that's probably the 20,000 fet view going down a little bit fur

further it is very simply the way that under collateralized lending tends to work on chain lately or you know kind of in in Cycles gone and the cycle that we're heading into is that a lender will decide uh to put their money into a pool where everyone else has done the same thing and then parties you know that sit there as as Underwriters or credit risk analysts will decide you know borrowers will approach them and say um you know hey I'm looking to borrow some money and these these Underwriters will decide okay this is how much we reckon that you're eligible to uh to borrow and this is what we think that your your rate should be uh this this works um it's also very kind of similar to the to the model that you know these these offchain

entities Genesis and so on uh followed it's just that the onchain variant had a little bit more visibility because you could see at any given point and of where things stood in terms of like how much was being loaned out how much was actually available you know what did the The Tam look like roughly for people that were a familiar with these protocols and B were willing to to extend that Capital yeah um the way we've kind of flipped this on its head over at Wildcat where instead of having a single pool where assets gets Dro dumped into where someone decides you know this is where it routes to we allow borrowers who you know have approached Wildcats and have had have passed some KYB it's it's it's not an open protocol

because otherwise some of the worst people in the world like bit booy would create markets and say to borrow $3 million that's the us is thinking about when it comes to KYB it's very much the are you bit boy yes no that's literally the only question they ask that's once you're um on boarded with wild cat you effectively are allowed to deploy a market in any configuration that you'd like and when I say any I mean that there are enough dials on it that it does look a little bit like an airplane cockpit so fundamentally the asset that you want to borrow because that's the most important one you know I suspect most people it's usdc or usdt or what whatever you but you could borrow curve LP tokens if you wanted to you could borrow my lady the fixed rate that you're willing to offer

on it how much of it you're willing to borrow now this is the one where we actually we we are hands off we don't perform any underwriting on this and I will loop back to you by talking about Rari uh here in a second um you know kind of what your withdrawal cycle period looks like uh whether it's a fixed term markets you know so whether any funds that you dump in have to be have to stay there for 6 12 18 months and so on and so forth the minimum deposit amount you know how much of it you know you you can kind of self- Select for the certain type of uh entity that you want to lend to you by saying okay only a quarter of a million dollars at once please and beyond that it really is a

market a credit line that is owned by the borrower parameterized the way that they think is going to be like appealing to the markets or even if it's just that they want to have settlement on chain through private you know private counterparties and they're actually not seeking to to borrow uh from you know the wider crypto space it's it's owned by them it's directed by them it's parameterized by them um Wild Cat's actually very hands-off and the reason that this is the case is that i' said I'd loop back to Rari I might as well do it now we we saw a recent SEC case against Rari capital and one of the things that they objected to was you know you guys tried to risk PR to to grade these pools in terms of Risk by scaling them between a to F and by doing that you know you were

performing an information service you were effectively acting as a broker so it seems that funnily enough the the Contra to you know trying to provide as much information that you can is very much let the market decide itself whether something is saying or not whether it's risky now that there is more to that because the the fundamental protocol itself is very hands-off but then there's obviously social aspects to it too which I can address as we go forward but I mean if you you could think of it as wellcat as facilitating onchain bonds you could think of it as facilitating under collateralized lending it's it it works for a bunch of entities you know a market maker that wants to facilitate thicker liquidity a fund that thinks it's locked into some strategy that it just wants to use the

capital for and you know can offer an appealing rate for it a dow perhaps that wants operational funds but and has a bunch of native tokens that they don't want to sell in order to uh to facilitate that uh so you know say Ave and you you don't actually want to sell a bunch of Ave you can go you know off the back of avara uh the The Entity itself to uh to go yeah like we we clearly have the assets and we could clearly be compelled to to make you whole if you wanted to but save us a bit of time and effort here and we'll just borrow directly to worldcat I suspect that's going to be the case with quite a few Dows actually um I I actually want to spend a bunch of time on who this is for the initial use cases that you see and the

market maker one is fascinating to me the Dow one I'm going to keep referring back to the season to pump my own tires but that that to me like the the Dow debt financing is EXT protocol debt financing in general is extremely interesting as a use case because yeah I mean you've just seen I think D5 1.0 is a really interesting uh use case for this maybe your example of they have basically had the they did extremely well in defi summer and they've been working through this Supply overhang of their tokens ever since and they haven't some of the appreciation that may their fundamentals would dictate because of these weird token Supply Dynamics but uh I want I want to ask you actually a little bit because it's it was interesting reading

first of all by the way I don't do you write your white paper I see a little bit of lawence humor enus infused in it it's it's very much if you could tell that there's a man who would be like loves to do nothing more than sit in latch writing white papers it's probably got my grubby hands on it yeah I was like all there's a little more personality than I'm used to in these white Pap so I would highly recommend it's worth the read and but one of the things that I was thinking to myself as I was reading it was this feels a little bit different from the strategy that I've seen some like the compounds and the AES of the world coales around which is I feel like a in its earlier days used to be you can deposit you can create a market for any uh collateral

and they've since said hey you know what people really just want to borrow usdc for the most part or an eth and so we're going to specialize for those markets be as capital as efficient as we want and you know we can get into some of the specifics around like the market maker use case that you've outlined in the white paper but it almost feels like you're going in the opposite direction and saying actually there should be completely dictated by the borrower we want it to be really customizable which which is great but it also maybe fragments liquidity a little bit across different pools like how do you view that tradeoff I I I think that's probably a fair observation and I I suspect it's it's very possible and probably more likely than not that uh the majority of the volume that a wildcat will see is just going to be

purely it's going to be uh three categories it's going to be stable coins it's going to be e and it's going to be Bitcoin right that's it um I think the fundamentally the market structure the way that the actual code works is that it's completely ambivalent it doesn't actually care what the underlying asset is yeah so you may well find you know if we we come back to talk about this a year down the line that there are you know say 100 markets but only about eight nine of them have significant volume because the rest are all just sitting there in in LP tokens or assets that like they could be in like in in worldcoin or or something that people were perhaps interested in using temporarily for a fixed purpose and just you know the appeal to bite just isn't there anymore this is also very much

just down to not wanting to impose I don't want to put our thumb on any kind of decision point about this right um I think when the the idea first manifested um the the first purpose I actually thought of was was a for market makers and B for doubts like these are very kind of two things that have run through the entire time and as soon as you talk about Dows then you want to be talking about their native tokens as well but one of the things that wild doesn't do is it doesn't demand collateral upfront from anyone right so you can attach auxiliary contracts that have collateral in them so it provided there's a path for them to be liquidated so you could say you know oh I'm I'm a and I'll stick a contract on that has a

bunch of RVE in it but that's not collateral as RVE what would happen is it would be liquidated into the asset that I'm seeking to borrow so usdc usdt so you know so long as there's a path through an aggregator such as 1 in or cow swap or what have you that that's possible but you're not you know if if someone defaults they're not getting liquidated and get being sent RVE that's also I think quite risky because you end up like it really depends on how thinly traded your collateral token is like yeah if your collateral is just s or R ether then you know you're fine but if it's something you know that like is is fairly new then you're probably going to get like 180 90% like a slipage like at the really high end depending on what you're after um but yeah I don't think you're

wrong I think stable coins are what most people demand but when it comes to people who are perhaps interest you know you have a couple of dows now that are even just not even just it's actually a fairly complicated thing like yield farming kind of in 2024 yeah is is is a lot more uh perverse and longwinded than it used to be a couple of years ago where it was just dump into protocol and then go into a coma and you actually have to do quite a bit and so there are a couple of intermediate assets that some people may actually want to have so how would you expect the if I put a gun to your head and made you guess you know there's going to be a bunch of different vaults that spring up I would imagine you know when Wildcat launches or the

the new version launches and would you expect that it's very diverse or would you expect that a lot of the liquidity concentrates around a handful of like three pools five pools I mean how what do you expect the power law to be I I do expect there to be a fairly high power LW here this is how these things always go but one thing that's worth noting is that you know kind of as we settled in towards saying you know Wildcat V2s code is finished and now we've just got some ux and legal stuff to do people have been piling in and had been piling in even while we were developing uh all from the thing of you know I'm a oneman band yeah um all the way to you know kind of we we're about to launch a dow to you know we're we're a really small firm we've maybe

got like five million AUM and they've all been interested there's a couple of you know kind of like Banky like entities as well that are looking for buffer Capital if they have to swap between uh currencies on on exchanges but I think the most interesting thing was that I'd received a bunch of messages from people who said this seems really cool is this going to be available for me as retail uh to create a market to borrow because you know to pull one example out from like recent memory is like I'd really want to purchase a mortgage I'm like I think that's a really cool idea I think you know if you could that that's exactly the kind of thing that I think we should be facilitating on chain but it's so far out on the risk curve compared to say lending to like I don't know I'm just

going to mention like jump yeah or something that like you know it's very easy to sue jump in a default it's it's much harder to sue Lawrence day who then like promptly gets on a plane um I think in terms of talking about the power law question I think this is really tricky because one of the bug bears that I've had in my mind throughout is that so that Wildcat V1 exists right and wi to use it um in in no small amount but um I do also feel that if three hours capital or alimat research had deployed a market on Wildcat a bunch of people would have loaned to them site un scene you know kind of just leveraging on the reputation from uh from online you know like these Masters

of the Universe and and of course we we saw how those ended right so that there is all always kind of you know like what are you opening in terms of Pandora's Box I'll I'll loop back into kind of like the the protections that can be offered or you know kind of the I think the the level of awareness that you should have going into these things but my my point is that if if you create a a credit Marketplace effectively which is what wild is seeking to be in terms of it is a bizaar where you can walk in and go here is who is seeking your capital on what terms I think if I walked into a room as someone who perhaps you know I worked for a family office or you know I I I hit it big on some shitcoin and I

really just want to uh just kind of lock something away like relatively safe I suspect I would probably lend to large market makers even above and beyond perhaps like smaller Dows that I I don't know so much right and that's I think that's a I think that's a social problem but I also don't think that's a problem that's new to crypto I think anyone would sooner lend to Boeing even though they're literally blowing up in the sky than they would to like you know my Bakery that's one of these human problems is really tough to get around there's there are these problems in media too it's the Cory for media everyone complains that it's incendiary comment it's not nuance and it's like well guess what it's like that for a reason no one wants to consume Nuance content the the market

size for confirmation bias is two orders of magnitude larger than the market look at the Washington Post right over the last three days right yeah that's yeah it's been super interesting I think I I saw like a third of the editorial staff ended up leaving after that oped from they lost 10% of their subscribers yeah so the position of trying Jeff Bezos trying to exert a little bit of nuance right many such cases no no no yeah people people don't actually want that's one of these like human engineering problems it's like the the uh cupers in cars right what everyone says they want versus what they actually demonstra like empirically want is if I see one more person on Twitter going people would ask for Faster Horses I think I'm going to to send post it you know you bring up it's just

it's an interesting point though on the under collateralized side because because look I I am a supporter of crypto I am a i a stand for all these principles about transparency and you know permissionless and trustless whenever we can get it but I do remember people saying hey when FTX was blowing up defi is completely fine and the reason that it's fine is because it's transparent and it's on chain and I just wanted to poke at that a little bit because I'm not 100% convinced that was the re so for instance by the way Luna was totally transparent and nonchain didn't stop anyone from doing dumb about it and the other thing was a lot of the first of all I'm not the big difference for most of the big lending protocols is that it was over calized instead of

under collateralized lending then the other thing is that for like the maples of the World by the way huge fan of maple love those guys um but they were also they were much smaller than the block fights of the world and I think the reason why probably you know they made the decisions that they made was that they had to find new sources of yield and you know at size it's you have very limited options right actually in a weird way three had a ton of Leverage like Alam and three had a lot of Leverage over their lenders which is why they all you know blew up yeah I I I I do fundamentally think that this is down to kind of um you know crypto markets like they could be as transparent as you want but you know fundamentally like one of the most important things that you

that you need in a market is liquidity right and so you you do find that there is this Pantheon of a couple of parties um you know to this day where if if one of them collapses then you you know you're going to start seeing like a bunch of the rest of them drinking Hemlock as well and all of a sudden your you know your 0.1% slippage on your stable coin trade starts looking in order of magnitude higher if not more yeah so yeah you're right there is significant leverage kind of available there like if you're a market maker you know if you're just a big fund then you know that old adage of you know you owe a bank 1 million it's your problem if you owe a bank 100 million it's it's a them problem and I think that's exactly what happened with like 3ac and alamaa

because they were considered so pivotal um two things and as you say right like that that leverage exists and I I don't think can necessarily be solved for and one of the things that we you know kind of the the core thing running to be wild cat is like if you're going to enter into this stuff there's two sides to it it's a discoverability problem right first off you may have a borrower who is perfectly good at U you like actually very creditworthy really interested in like making use of some Capital they've actually got a good idea for it with contingency plans but lenders don't know that they are looking for Capital similarly you know these these borrowers may be like okay well you know

time to rotate around a little bit because we we don't know who's seeking to lend to us or or or not to us but you know to any one of our comps um so this also then becomes kind of about you know who you know party right like if you don't necessarily know like how to to reach out to someone that's an OTC broker or you know kind of have have the um an ear for like someone that works at an exchange something it's really hard to see kind of where these opportunities lay um in order for you to to extend credit which which is I think also why you you found places like um Celsius so successful right because everyone was very happy to just listen to Alex mashinsky and you know his promises of 8% yield at the time which

you know during zurp was a gang busters amount of money compared to anywhere else um I think the way that we view it is that sure transparency doesn't necessarily mean much in terms of like preventing the aftershocks of things but what it can do is it can serve as an early warning system so what we found kind of previously was you know these these opaque entities kind of collapsed and there were a bunch of them dead in the water and that didn't reflect on chain for quite some time and I take your point about Luna yeah the skids for that were very much greased in a very visible way but it it also wasn't as if there weren't people that were ringing the bell about that like six nine months before they were yeah you can go back now and like if you see some of them

like you know there's posts that say like I think this is gonna happen and loads of responses going Lan alib like you know is too humble to tell everyone to liquidate everyone that's why he's more deep yeah um I do think if you have the settlement layer of credit on chain even though the the actual agreements themselves are legal and they are they are signed between parties you do have a degree of protection against rot or at least advanced notice that someone's pissed in the liquidity pool if if I default um you know for for me and my my grand

total of what I have like I'm running like a oneman prop shop yeah the only people that are mad at me I like you know a couple of my LPS and maybe anyone that extended me any credits kind of you know OTC if if jump crypto collapses that's a huge problem for everyone and then the question there is all right you know did they did they screw up you know with one of their risk calculations which is perfectly like fine if that happens you like if it's literally just a oh someone like made a like the super cycle thesis was wrong then that's that's that's almost okay right I I think if it's if it's more like is there rot somewhere in this building and we can expect start seeing a couple more victims so L I've got a question I I

actually was planning on getting into the weeds with you about how this protocol actually works and I'm just asking you these vague high level questions but how do you how do you think about the tradeoff in between transparency and opacity when it comes to financial markets in general and here's like a couple of examples I I would give you on this that I I I don't know how I feel about this but on the one hand you want transparency because when you were looking at something like everyone loves to talk about the financial crisis and all these different derivative positions that were super opaque and no one understood the risk and what what that everyone before that everyone loved to talk about Enon right yeah right yeah so you know people love to there was I think right that big

money market fund that broke the buck and there was some really small percentage of Leman paper that was in there but no one know how much it was ended up being like 2% or something like that but because it was so opaque the whole everyone just flooded out of it right and they couldn't they they broke the the peg to the dollar so that is a is a challenge around opacity on on the other hand you know I also if you go back to one of the old financial crisis uh which was long-term Capital Management right they Bas they the goats right yeah goats on risk who used a f you know a fiveyear look back period to calculate all of their their stuff right uh but you know the the challenge that they had was actually as soon as they

they they ran at crazy leverage right like 99 to something that even today would never happen and as soon as they got into trouble there's a pretty famous story about Goldman you know they they brought Goldman in to try to look at their books and see if they could help them find some of their position they basically pass those positions to traders to pick them off right and so you know in some senses actually opacity can be a feature because you don't really want the entire Market to know your positions because then they can push you around a little bit and so how do you think about the I agree right I I think one of the things that has been quite important to to think about on my end and I I may lose my my train of thought here because I want to visit

about three stops on the way all right is that one of the other things that we don't do is because we don't underwrite at wild cat I said you can create a market you can ask for a billion if you want it you'd be like yeah we'll have a yard of circle please and if people are willing to fill that then then that's completely on you uh like again we we have a template legal agreement that we um will you know kind of impose on people they they can choose to like provide their own or or nothing but I would very much suggest anyone that watches this that wants to learn about worldcat only engage with markets that have a legal agreement in place um that's the the other side of things is like how do you kind of price the credit risk if if if if at all right or are you

just kind of like punting in so you saw how you know there are entities such as kind of cedora um who do God's work in terms of you know they'll take Financial uh like uh they'll take your financials and some other data about the assets that you hold Etc and they will produce a credit risk report they will try and like scale you like somewhere between Italy and timbuk 2 uh in terms of where you where you stand in terms of your probability of default and the I think the issue with that is that so like that scales to a certain extent but you also end up having to trust uh these uh these parties you know they do stuff in an sgx or you can you like rely maybe on some

more kind of um zero knowledge based entities such as you know like accountable has just been created there a new startup that I recommend you look at that provide like dashboards of of assets that are held and so you know the way this works is that you would uh you know you'd give like read API keys for your exchanges any assets that you have to sign uh messages that said that you control any onchain um wallets any kind of Bank Reading Etc and you want to be able to kind of provide that kind of information in a zero knowledge preserving way like I have this much but I'm not telling you where it is um a to be like okay well if someone's asking for a billion but they only have 20 million in in assets then maybe that's that's not reasonable but I think the

other reason that you really want this stuff to be privacy preserving is because otherwise if you are a market maker you are revealing a gigantic amount of alpha like you might as well just strategy to be like okay like what what exchanges are they on and what pairs are they on basically just gives the whole game away yeah this is where I wanted to get to as well about the ZK element of this because you know I I know that this whole industry has been excited about it for five years and it's coming every year you know next year for five years every year away from commercial grades z a knowledge Tech always six yeah it's always going to be cheap enough and the latency is going to be low enough where we can actually use this stuff but I it does seem like this

is a huge fix and the reason that this excites me too is because I look if I was one ideological if I had one ideological driver it' be privacy you know I consider myself a pretty non- ideological person but I actually care about that I think that's yeah big good for society but I also you know I see these people saying hey we got to go lead with privacy I'm like hey it's a bipartisan in the issue in the US to not preserve privacy no one's interested in that in Congress right both sides like the dem's probably less so but neither one is sticking up for it and even if you go back to the encryption Wars back in I think it was the late 90s and pretty good privacy and all that stuff what what got people over the Finish Line was not some ideology to

preserve privacy for the benefit of the city citizens it was companies saying hey there is a business case for this like we actually would like privacy as well and that's what I see in the the ZK element of of a lending market right where it's not like hey it would be great if all these transactions were private market makers like no actually I I really needed to be private you so you do find that I think the way the way that I've kind of made pece with this myself is that you know if you if you've borrowed Capital through a wildcat Market it is effectively yours uh for the time being title passes to you at least under the legal agreement that's you know we provide the template for so if you really want to obfuscate kind of where you're going could Bridge it and

move it around a little bit you know kind of like dump it into an exchange and like move it somewhere else now that kind of like breaks the spirit of things because you would want to I think the whole point of this is at least you're tracking the Deb and you kind of like people have asked like is it possible to constrain things to where they where they go so like oh the only reason I want to borrow is so I could provide liquidity on GMX like that's actually really hard to to do in code and if you wanted to kind of make that a covenant in a legal agreement that's actually really hard to enforce as well because someone should be like oh yeah no I just moved it like someone else for the time being uh but no one's actually really going to chase like a like a condition

of default on that um I think the ability to do things like you know at least show what assets you have as collateral is a very good case for ZK right so not necessarily the like um the where is it going or where are my positions like that that um like what am I doing with the capital that I've borrowed because what I'm finding having spoken to people is that there's there's there's an opposite approach as well right which is that on the lender side you may want to be able to kind of prove using zero knowledge who you are so another thing that we are very kind of like hands off on is like who are the people that should be allowed to lend to a particular borrower and the answer to

that is effectively is whatever it is that the borrower is comfortable with uh so I think in the very base instance it's going to be you like are they not San are they not like subject to a sanctions designation under the the US EU un anything that's kind of like tracked by the CH analysis list anything that's on ofac but that could range all the way to you know things like do you have a coinbase verification please send me the DNA of your spouse um you you can kind of go like pretty far there but ZK is really tricky in that because any party that really cares about ZK um or about having kyc like data of their things like they often can't make Reliance on like Place legal Reliance on where the the ZK info has come from right so you know if you do if you enter

into an agreement with somewhere like suub or you know like or comply Cube or whatever you generally have like an SLA with them where like some liability will lie in terms of you know where um where the fault lay if it turns out that someone's accidentally like allowed Lazarus uh through some KC process I think for ZK it's a lot harder right because you you may in some cases just effectively be hijacking the credentials from somewhere else like you know hey I'm proving to you that I've signed into some bank which is only accessible to people of a certain wealth therefore this person must be credited yeah in whatever jurisdiction and so the way I've I've thought about this is if someone is if it's really important to

someone that they obfuscate the movement of their Capital they probably should not be using wildc cap right I I I think that's that's a perfectly fine tradeoff to make I think simultaneously though that if it's very much like you are very you are fairly happen like happy to be kind of monitored even though you do always have that Liberty to kind of like if you wanted to Bridge and off thecate fine that doesn't get rid of your liability on J and that you've signed it just means that like people can't see where the money's gone and I think some people would be very understanding of that you know you you'll find two or three people that aren't but again they have the option to not lend to you um but no uh that's it that's the train has come to the end of the station there hey

everyone this episode is brought to you by index Co-op and their new product The Leverage Suite which I highly recommend that you check out click the link in the bottom of the show notes now disclaimer whenever it comes to leverage do your own research this is not Financial advice all that good stuff don't bet more than you can lose but if you are going to lever up you might as well not pay an arm and a leg and save a ton of money and use inex cops leverage sweep so the way that they actually achieve these savings is pretty cool they Leverage The Power of money Legos defi uh in this case Unis Swap and a so the cost of carry for this trade is based on the funding rate of a as opposed to per dexes which tend to be much more variable and higher overall additionally

per Dees will also charge you usually based on the entire uh open interest so the leverage exposure that you have as opposed to just the amount of money that you put in which is what index Co-op is doing here and the result of what you get is just an erc20 which gives you something like 2x e so you want to lever up and you want to save money doing it I highly recommend that you go check out the index Co-op Leverage sweet very very cool thank you very much index Co-op for making this episode possible hey everyone this episode is brought to you by Supra the new blazing fast vertically integrated L1 which helps you scale your D if you are a builder you're probably dealing with some combination of cost complexity and fragmentation of existing Solutions so if you're building over an

eel 2 land everything's feeling a little bit fragmented at the moment and if you're building in salana everything is fast and on one layer but maybe you're limited in terms of what you can do with your ab space so Supra is rolling out a new product called Supra containers you can head over to supra.com Containers um to learn more they offer dedicated customizable app spaces running on suprus 500,000 TPS layer 1 blockchain that gives you complete control over gas tokens and fees so some cool things you can do you get the freedom to you can use your own token create local fee markets or even go gas lless whatever you want so this product isn't live yet but because you're a faithful listener of vurve you get notified first so head over to supra.com containers Thank Me Later hey everyone this episode

is brought to you by Fuel Labs who's unveiling their new high performance ethereum L2 fuel ignition many of you know fuel as the launcher of the first optimistic stage two rollup on ethereum with fuel V1 and now they're launching ignition to address some of the creeping centralization concerns around some uh L2 architectures today and if you like noting out about the tech there's a lot of reasons to get excited about ignition including how they solve State sustainability and perform an execution they have this UT XO asset Centric architecture that's very very cool but there's a lot of other reasons to love it super easy to use you can either use a fuet wallet or your existing ethereum or Salon based wallet like Phantom or metamask or whatever it is there are

cool apps that you can experiment with and again like I said at the top of the program they're launching phase two of their points program so click the link at the bottom of the show notes head over start having fun on fuel ignition today just tell them that I sent you okay I've got two questions for you on U some of the trade-offs actually around like I'm all right so I really like on the one hand this idea of you're just matching borrowers with lenders and letting the borrowers dictate a lot of the terms and you're in one sense eliminating a lot of kind of administrative overhead I would guess for Wildcat the protocol and in theory you should be able to C like willing Market participants free market you should be able to come to uh better rates uh in terms additionally the the

two questions that I have for you on this is one it feels like there's some additional onus that's placed on the borrower and I'm curious about how thought about that friction like it seems like even like the KYB or kyc process from their standpoint is run by the borrower so I guess I'm curious how you think about the trade-offs of the administrative overhead that Wildcat the protocol takes on versus what you're asking the borrower to do and then and then I forgot the second part of my question we'll remember it as soon as I'm answering this one all right yeah perfect so let's start with that I I think the way I've envisaged this with the team is that we can't pretend to account know for every single like B like set of permutations for the borrower and if we did and started saying you know these are like the the

buckets that you can lend in um it may be that we end up falling into kind of like broker or advisory provid providing Services right which again is not where you want to be I think the one thing that we certainly will not do is like we will certainly say like oh this Market exists um this is the capacity this is the rate that's for it what we will not do is tilt over until you guys should deposit into X um because that then you're kind of like straddling both sides of the Divide um in terms of the the extra onus I I think any kind of sufficiently large uh entity will will have a compliance desk or they'll they'll have you know like a um any like and a legal like general counsel and you're right like I I think it's it's a decision that

needs to be made once uh in an NC about kind of where do we settle on the kyc question I I do think that a very common one that we will see is just that provided that a legal agreement is signed uh that the the only request that we have is just that you're not OPAC sanctioned right because that's that's fine really like that is that is an acceptable minimal bar you don't necessarily need to have the passport of someone hashed and sent over to you in order to enter into an agreement uh the way that we've handled this in the protocol itself is that you know uh no no personal data of any lender is stored on chain but uh someone who wants to counter sign a legal

agreement will like like they'll ecdsa hash it and say like I the owner of this address and that's worth it for them to then be like this is a binding document uh that I I can take around right so again like the the bulk of the risk on this always falls on the lender of course it does like who else could it possibly fall on whereas Wildcat itself doesn't have any kind of AML kyc obligations except to like making sure that the borrowers that are deploying markets on it are actually like you know they that excellent entities they're legitimate they're not Lazarus or they're not from kind of any of the other Myriad countries like Cuba or Iran or what have you but we don't want to say beyond that that like this is what your policy must

be what we can certainly do is say like here are some like um some ideas for the for the parts that you could choose provided that your council is comfortable with them and like effectively provide templates uh and so these templates can then be be cloned and deployed on chain as well but I think that you know even regulated entities you know assuming that they all they'll pour in may find that they they're actually just fine with making sure that sanctions are the thing that are that are dealt with as opposed to perhaps having to enter into an agreement with say suub and have you know kind of um a ping to to Legal uh every time going you know like from an API that says okay yeah this this address is just passed like a successful check which may also be enough and is

also possible to do yeah okay last last question for you on this and then I want to move to we haven't really talked about some of the initial use cases that see and I want to end uh the episode talking about those but the how would you one of the um like on the one hand I do I I see the value in letting borrowers and lenders just come to an agreement in terms of what makes sense for them I am curious how you think about like there are many instances of you know what I'm thinking about right now is uh a in the curve situation where you know that at one point at one time looked like a quite safe Market it was very over collateralized you had the founder himself that was involved but you know no Market is really safe if the

value of the collateral plunge is 80% in a very short period of time and it was risky for the whole protocol and so how do you think about allowing the free market to kind of come to their own terms versus protecting the you know brand or or safety or whatever of Wildcat the protocol I think what what's that quote we are selling to willing Market participants at the current fair price Jeremy Irons been Margin Call that movie has held up so well it really really has I do watch again every year or so yeah um I I I do think it is inevitable that there will be a default on worldcat like I I I think you know there is no point in pretending otherwise because again like it is very much it's it's it's for free market participants and again it's very much

the difference of the scale of that is down to you know like a who is it that defaulted and B like why did they default um I think it's more a think like I I try really hard to kind of just treat everyone as a rational participant in a market that you're like if I'm lending to someone that is doing high frequency trading I should perhaps expect that at the event of a black one I will not be as protected as I want to be now that that may jar I think with the idea of um uh you know kind of like protection that exists but I also do think that like people are sane enough kind of on the whole especially if a Market's configured with say like a particularly large minimum deposit limit to effectively bar these people out uh that you know kind of like may just be making

stupid decisions it's it's again like and it always it always feels like a copat answer to say things like I I don't feel like I should be the one making this decision because as soon as I do we're in the mix I understand that it's not a copout answer honestly it's just I'm curious how you guys think about it all right I want to I want to talk about the use cases here and you've outlined a couple of very interesting examples one is market makers and I want to start with the market maker use case and then I want to end on the Dow use case and so could you just describe a little bit about how you envision market makers being like a good fit for this protocol I mean I I think this is like it it's almost fairly self-evident right you know the the reason that market

makers kind of exist and they make profit is because they're managing to like win to mute is just like the good example here right the thicker their liquidity the more Capital they have to offer the better their bids and asks can be like the smaller that their spreads for whatever you I think one of the things that I'd always thought about when we were first designing it was that if you were a party that really wanted to Market make for a new asset like worldcoin I think um had just come out when we released V1 um or like arbitrum or what have you your options really were to like borrow some Capital uh you know in USD or whatever swap it somehow on chain or enter into an OTC deal to get this token hope that you would be able to Market make enough

of it to like a like cover like um the amount that you were willing to offer as well as any kind of negative price impact because these tokens tend to be quite down you know when you launch them and then convert back into stables and return them um this is one of the reasons why I fundamentally think that actually the the things that you would see being borrowed are just things like stables and rties and repap Bitcoin where there actually is like kind of existing liquidity uh that's like really thick and perhaps it's just a market maker that wants to uh that Recons that they've got a better handle of it than anything else because like better liquidity just generally makes for smooth the market right it's wd4 on the wheels um of course then you end up with a situation where you may like Elevate

one to being like in a critical position and then as you pointed out earlier you have a party that has like insane leverage over the market right but again i' I'd imagine that you end up in a situation where people kind of would hopefully ring sufficient Bells especially if there are things like telegram bot Integrations that can track how much is being loaned where they're going to that you know maybe someone will finally listen to one of the doomsayers and be like yeah you've given these guys3 billion do like maybe you shouldn't do that well you know what I like a lot about what it seems like your philosophy is picking up on the the wild cat white paper is you want to bring the stuff on chain where it's more visible all else equal and this is something that you see I think in a lot of uh

protocols that have especially constrained environments is that you end up just moving a lot of stuff offchain right and so you know there's a larger meta conversation that we could have right now about like ethereum versus other high TPS chains and whatnot but I I I've noticed that this trade-off is the more constrained you make like the execution environment it the more you encourage people to just do stuff offchain in general and so I I really like that aspect of the Wildcat protocol about some of the stuff is just human issues that we're going to have to deal with the lending markets are always a little bit tough but I think I completely agree with you that bringing stuff onchain is better than having it offchain did did you when you were thinking about this use case you know because I this is so far away from my

world but I kind of I hear these things about like these OTC deals and you know market makers you know uh you know providing spreads on different coins that may or may not rip and did you kind of look at that market and you were like hey first of all this might be a good Market to attack and a lot of it's happening offchain was that the sort of Genesis or did you start from it was it was a Genesis idea that I'd observed and and so this was one of the reasons why wild cat like permits any asset to be borrowed this was thinking that you know let let let's take an example right someone goes hey uh I want to borrow you know like if you guys lend us like x% of your token and will Market make for it if it goes on to an exchange then at the

you know at the end of like a year or so whenever the maturity is then like we we may have like um a strike on it where we can actually just agree to buy it off you instead and one of the very first prototype examples of Wildcat which was the one that I'd written myself before my co-founder Dylan Keller looked at it and said absolutely not and threw it in the bin because my code is rubbish um that was kind of what we'd thought about doing like it would basically be a facilitation for these kind of like OTC deals that you could kind because normally you would see like every time a token launched you would see like a huge bulk of tokens move from like a foundation address over to um to to some wallet that was like hither to unknown and everyone on crypto Twitter would

just immediately whail and Nash their teeth she was like oh what's happened you know like what's going on oh yeah like the uh the twap engine's been turned on again um that is something that I I think has has fallen out of favor now that that kind of deal um but I will also confess that I I do not have an eye into the kind of inner minations of like what it looks like now to to Market make um a token like like popcat I I have no idea I have no idea because I don't have any popcat so I haven't bought to look into it yeah you take my point um I I I think that was something that's you know having spoken to to people uh such as Evy at

win mute that like I did say like is this something that appeals to you and they're like yeah maybe like notionally like or a little bit but I I think like The Wider like desire is for things like stable coins or what have you I I think if if you wanted to come back and kind of deploy a market for what I envisaged it to be like you you just want to borrow my lady for whatever reason then you're you're still capable of doing that that's not a problem the only constraint is that the token that you borrow can't be rebasing um just because that screws up the internal math but that is a point that like no actual user cares about and if a borrower is like oh yeah we'd like to borrow steak teeth we'll be like can you do WRA steak teeth

instead and they'll be like okay fine no difference to us right yeah um that's kind of the extent of it I also I I I'm not saying we do the uh we close two eyes thing because we don't like I'm very interested in like the what people are interested in using the funds for but you you do see that like it's it's kind of a mix of like we we just want more liquidity for XYZ or it's something like we have um we've established you know some kind of like um fixed rates arbitrage strategy um as a fund so you like you know someone wants to do the Yen carry trade back when the Yen carry trade actually worked um that that's possible as well with V2 but you know that's a

kind of like thing that I would envisage a fund making use of um something like this or just because they they reckon they found some kind of hyper powerered defi strategy and they're just looking for some Capital because they can execute it but everyone else can't either because they haven't got enough infra or or what have you even like really on the kind of exotic tale of things I think I've even thought about you know what would it be like if someone like an me solver an me Searcher or like an intense solver uh wanted a bunch of capital as well for like private inventory because they knew that they had this like gang busting like solver and they could go into cow Swap and just absolutely clear the field against like winter mut's resolver like that that's something as well that I'd be like really excited like to look into

like not like well facilitate if that's possible yeah now before we jump into Dows though there is something else that I I I think like the dream right I talk about these hockey stick moments in terms of um like like debt instruments and using onchain to facilitate it I mentioned this elsewhere recently but I would really really love it if we could somehow get into a position where we could say like oh hey I have a bakery in Chicago and I'd like to establish some debt for that on chain like so that you could actually see that you're you know you were facilitating some real world Goods because there is a very potent argument to be made that like really all we're doing is we're just slushing money

around in the same pool uh by by keeping it all onchain right it's just all in the service of markets and uh and like chasing liquidity and like Arbitrage or what have you as soon as you can kind of bridge that off into something like centrifuge do this um as as do others right like they explicitly lend to entities that are um um doing real world stuff and I think maybe a bakery in Chicago is probably a bad idea but I think you take the point you know something in aomo stockh home yeah completely and there's a there's a great if you just look up the amount of all right here's some a a big area of the of the lending Mark in the US that I think is open is that Banks just don't lend to small businesses anymore and actually the reason is is

why there's there's been massive consolidation around commercial banks in the US you can go back to go look at charts going from the 1930s and 40s and it's like a one way TI it down and you know if you talk to someone in banking what they'll tell you is that's good because Banks go bad and then they get absorbed you know their balance sheet get absorbed to bigger healthier Banks okay I understand that from a managing the financial infrastructure of a country standpoint but what what that means is that there's a there's a hole left there's a gap in the market for Lending to smaller businesses that are are meaningful to smaller lenders and just as blockworks was bootstrap for five years I'm so familiar with this this paino there's just no credit available it's crazy yeah I I would really love I'd love to see something

like you know the next block works that appears and was like you know we're looking for bootstrap Capital yeah perhaps our fixed duration is like a a very long amount of time or you know one of the things that we handle in our agreement is like you know someone may be insolvent by taking on the debt but it only actually becomes a condition of default if the lender agrees that it is yeah and I think anyone that's willing to kind of bootstrap that kind of thing says you know what this is fair like you know we are like trying to watch someone create something this this long tale of kind of like undeserved customers you really see like I I studied quite a lot um I i' worked on a a credit startup before in about like 2020 using AIML networks before you could raise $50

million for just saying all of those words together and you saw this in the history of things like gamine Banks um and this kind of like social like kind of like Community credits that existed in places like Bangladesh and India uh that like it is actually quite profitable able to to serve the long taale because that's that risk for credits and this is a line that I use in the white paper like that that demand for credit is is generally elastic in the in the face of real interest rates but it's always there right like even if you're at like the tippy tippy end of like that underserved curve because everyone else is being served by like some massive conglomerates that's still there and they're still credit worthy I

think the reason that they're not served is a because of the power law and like you know where like 80% of your profits come from 20% of your uh um of your effort but also just because it just doesn't scale right it's it's it's actually exactly the same reason right like serving or handling like 150 200es doesn't get you nearly as as like handling one branch like one massive Bank totally and so I I think there is potentially the opportunity for something like Wildcat or you know like a competitor or or something in the vein to to facilitate some of this you know because like a huge amount of the the administrative efforts is is alleviated by putting it all on chain um again you you do similarly have these like legal

agreements that you could Chase someone down to but you know of course depending on like jurisdictional things you may get like no luck yeah but that's the game you play right it's you know there's a you can see you can see that there's market demand for this but another another Market that you could look at is this explosion in private credit and again you can kind of see these is lining up and it's you know they don't they don't like uh big Banks or GBS or whatever taking on a lot of risk and so a lot of the lending that banks used to do it's it's the power law that you were mentioning in terms of the 8020 the kind of parid of effort but it's also this is viewed as more risky in terms of lending Regulators don't want Banks to do it Banks don't want to do it and so there

are all these things that are lining up and and also the other thing about Banks man is that it the ux it the the pain of going through the process that these people is it is immense it is IM I I've talked about on the podcast for you I hate interfacing with our bank I hate it we switch we finally switch I like I have these stories that I could tell you about JP Morgan next hour of content it's just yeah next yeah yeah this now a two hour like hate podcast just rage rage about the banking relationship that I had but yeah it is it just feels like one of those areas that is really ripe for disruption so yeah here's the hoping that Wildcat does find a way to fund or to like I it's I've had this seed

planted in my mind many many years ago that you know we well five I'd always been kind of interested beyond that kind of reading like Deb the first 5,000 years and so on but um you know there's kind of we need more open Credit access networks but i' never really placed it in the context of something like oh it's about serving the long taale or it's about making things easier I I worked in a bank for four years four and a half years in Risk reporting so I you know I got a real look behind the curtain even though like this was just more on kind of like the the national Bond scale side of things um that yeah like the these entities cannot serve the they both like won't do it for risk reasons like you know because of like you know basil um

or what have you or it's just it's not worth the effort for them but and then this is where gine Banks pop up um and I think the but I think the the consequence of like a gine or a Community Bank is that you know if everyone's really like like collocated really closely that these things generally kind of devolve into mobster like tactics uh quite quickly um it ends up like veering into usuri like very fast um which is kind of a a tragic but altogether too predictable consequence of like Community credits kind of in like small ecosystems where trust is such a fundamental part of things um I think I realize this may just be ideological cope that you know kind of

bringing some of this stuff on chain where there's a disintermediation of location between people that are Lending um may help alleviate some of this yeah I may well be proven dramatically wrong and and which Cas then fair enough I took my like hardest swing of the bat at it because yeah that's all you can do that's true what one of the things that I've been saying is like I said like all of these exent under collateralized and secured lending systems on crypto they work um like for their purposes there are people using them they clearly are like filling the purpose but in terms of a a truly kind of abstracted version that can scale um if not this then what and I maybe this is just the lack of creativity on my end but like the way I kind of envisioned it was like if Wild

Cat's not the solution then I don't see how this gets solved well cheers to hoping that it is my man um cheers all right I want to end on talking about Dows here and and walk walk me through the the use case that you see for Dows and Wildcat sure so invariably like I I think this all depends on the type of Dow that you're that you're dealing with right so if you are a entity that has so you always see this right a is newly created and they have a bunch of um their native tokens sitting in a treasury often governed by you know Governor Bravo or something of the sort which then becomes like a real pain to like uh dissipate or sell um anyone that is you know kind of like

initially like present or has a bunch of the unlocked token will create a liquidity markets or like a uni pool or something of the sorts and that's generally quite thin because what they're doing is they're hoping to profit off of LP fees from like you know kind of really early burst of interest if you don't then like subsequently have something like a market maker agreement with bance or whoever which I think is like often quite a toxic Apple that a bunch of protocols take because they feel that they need that to survive uh you know like they need the attention they need the liquidity for their token but they do have nominally at least kind of based on the Unis swap uh like pool if one exists or anything that exists on chain quite a lot of wealth that that sits in the treasury now

a bunch of uh a bunch of analyses generally tend to mark these down to zero when they look at the the wealth of a treasury and I I I think that's probably fair but I do also think that there's a lot to be said for saying okay well if the alternative to just taking these tokens and just like trying to run a um uh a governor Bravo vote to sell a bunch of it in order to do things like Grant programs because inevitably you see things like this right grant programs get spun up and like they'll they'll pay people in uh the native token or like contributors to a protocol will often like they'll sit there with invested tokens or whatever and some people for whatever reason may just want Fiat or because you know you have something like

you you need to spin up like some banking rails or you need to pay some vendors you just you need Fiat or or you need like stable coins or something and often some of these DS don't have them like it's just not there for whatever reason often fault of anyone's own it's just Dows can often be quite insulate I I I think very like self-protecting way where they go well we don't want to sell the token that's in our treasury into the liquidity pool because then I can't exit which I I think can often be quite self-defeating if like the reason that you want to like sell some of this stuff is to do something that actually makes things worth a lot more in the long run but I think you often find that people will just kind of look like six inches in front of their face about like what

does the exit like look like for me right now totally and it's so it's so I really don't appreciate this attitude because it's really shortsighted I mean the the whole point of what you're trying to do in these protocols is value creation and the question isn't hey you know should I sell or not sell my my token into the market it's what am I getting for that sale can I can I use the capital that I get from that sale to produce more value for the Dow that will offset whatever Supply is going out into the market it's a super simple you inevitably find some true blue believers who like will like genuinely engage with this and like wild cat may end up a dow in the future um I I I truly hope it does um and I think that nature of that uh you know the nature of what it is is

very much like you would imagine that people take it quite seriously because like if it's aiming to be like a settlement layer for credit then people will like take it what it is um but in terms of like so so let's say that I am I don't know burn not yearn burn and I am like I'm a new DA and I I just want one or two million dollars I think it's very feasible and possible to effectively just like kind of have a dow say um you know establish as will will Empower some address to act as a borrower um you know kind of on behalf of uh this doubt either through a foundation or just through some kind of like legal entity that's set up in its name um this is becoming easier to do

the one thing that we do do right now is that and this is something that we we can't subvert is that a borrower does have to have a legal entity um in order to engage with wild cat because something needs to be the counterparty of a legal agreement so like a true da would really struggle with this but you could see like you know some kind of Corp being spun up elsewhere it doesn't cost a huge amount uh to do um and and allow a dow you know or party acting on behalf of a dow you know with some cants that I'm not just like cutting and running with it to go yeah hey we're looking to borrow two million usdc or what have you I think uh you may end up in a situated like you know kind of over and above you say okay yeah we'll dump a

bunch of a token into a into a collateral contract attached to it but we're not fundamentally selling it um I I I think that's exciting but as I said at the start I think that also really just depends on what it is the Dow is trying to do right you know if it's if it's Ave then like you know it's a revenue Money Maker so you know they're going to be good for it if it's if it's like rugby Dow then you're like maybe not like it like that really kind of depends on what it is that you're doing totally I think this was one of the challenges that I was thinking about even when we created this season on on this whole topic because on on the one hand you it's it's pretty easy to at the the challenge of look Equity financing is much more expensive than that

financing right so all else being equal when you're looking at your mix you should take that into account so only having this very expensive Capital raising option is is less than ideal that but what you need like that doesn't Mak sense oftentimes for very early stage startups that don't have predictable cash flows and so I think one of the challenges in general for this has been where are we in the market but or just the life cycle of most of these protocols but now is different even from two years ago because yeah if you look at the earnings of something like a or maker or whoever I mean there are protocols that this makes a lot of sense for yeah I would really like to see Wildcat Labs dog food wild cat itself that would be awesome huge fan of the dog fooding yeah yeah yeah yeah yeah

here's a wild cat market for wild cat Labs yeah you know we'll see how this goes for us yeah that's awesome man I that I I mean I suspect we may do even if it's just kind of like for a notional like amount just that we can say that we did it and then like scale as needed because you know we get to adjust the capacity of how much it is that we're seeking to borrow I've had another really really like good idea that's come through to me which I I'd really like to help with people are generally not philanthropic as uh as a rule you know obviously people are and it's really heartwarming when you see but one particular um case that's been pitched to me a couple of

times now through various entities is the idea of donating the yield so you end up with something like I don't know giveth or something like gith is not reached out but like I'm just I'm just naming them as an example like a charity or what have you where you could envisage something like an entity like that creating a market that is 0% APR so you know you're not making any profit off of it but the party that does get receed the funds uh can can then put it into RVE or or something something else and then the yield from that can be used for charitable purposes um so you you still have you know you still have a legal right to like the face value of whatever you put in because that's not going to

change e usdc whatever you may end up like incurring a weird tax no I don't think you would incur a weird tax event if it's a lending uh thing then you know you could imagine being able to gener like kind of Shuffle out five six figures of yield every year on something that just like goes to good causes I'd love to that happen so like for example anyone watching this if that's the kind of thing that you'd like to facilitate please get in touch you know what that honestly L this is you've already been super generous with your time maybe this is the good time to start winding it down and you know word has it word has it that you are speaking on your birthday at Dev am indeed my condolence is there although with that said this is the uh I I will not be talking about worldcat

because you know Defcon does not have a um doesn't have a D5 track and I I try to adhere to kind of that don't make it promotional yeah um e Denver has this as well where they say like don't directly shill stuff so I I went up to to Denver in February this year and I gave like a kind of really nuanced talk about kind of like why we need under collateralized credits yeah you know without expl I mentioned Wildcat like two or three times but without like showing it and then I sat down watched two people just be like here's my protocol you should use it I was like what I didn't so my uh my Devcon talk will be a talk entitled how to destroy a network which is the uh kind of some some thought

experiments on what would need to happen to offboard the institutions uh you know I I I think this is a you know something like does Biddle need to fail does there need to be a failure in Lio do we need to start seeing like tether like get ofac sanctions in which case like everyone just needs to put their cards away and go home yeah but then like there's also some other kind of interesting ideological questions there such as you know if if we siede too much kind of Demands like or interests to the institutions like Black Rock and so on and so forth does inst does ethereum change from what it was meant to be simply by virtue of the fact that like a bunch of these entities suddenly have a bunch of like POS ethereum and can exert control over the network so it's not going to be a talk

about credit although I will be then for the I will be there for the rest of the week talking BD and what so if you're interested in World Cat please approach me just on my birthday I will either be talking or I will be drunk that is that is a very fair uh state of being possibly both at the same time I cannot predict how that day is gonna go yeah I I saw that that there's a West Ham party this whole podcast actually the ulterior motive is just to get an invite to that party you you you now have an invitation to the West Ham party let's go locked it in baby that was actually really heartwarming we we' said like you know we can just fund it ourselves because events are quite cheap to do in Thailand by comparison we did one in Denver that

ran us 12,000 us and so we we budgeted about the same for this and like we could have covered that ourselves but we thought you know there are a couple of Brands and entities which are we consider aligned with West Ham to the degree oh God that's an insufferable sentence to say but like you know we like them they like us and so on and yeah within an hour we we met that goal like pretty quickly which is nice so uh so great we still don't know the okay that's details those are those are details detail is fine um awesome this has been a ton of fun and yeah anyone listening out there who's going to be at Devcon you know definitely go chat with Lawrence but also if folks want to find

out more about Wildcat the protocol that won't have the ability to see you in person they want to follow you on Twitter or learn more about you know potentially being a borrower lender once the protocol goes live like what's the best way to do that yeah so the Wildcat site itself is wildc cat. finance that's easy one uh Wildcat Labs is available on Twitter Wildcat fi Wildcat F beyond that I am function zero on Twitter uh both of the O's are zeros because I'm an insufferable man and and and I I think that's it like um I often talk about kind of my my thoughts about Wildcat and under collateralized lending when I'm not posting like a like someone with rabies Wildcat itself is a lot more kind of

this is the progress of the protocol um and so on and so forth but again uh chat to me in the DMS uh hunt me down on telegram if you wish you're not getting that one so easily and just ask whatever you wants um my my time is yours anyone that has any questions excellent well Lawrence thank you so much for coming on the podcast man congrats again and good luck on on the launch when that happens and uh to have you back on sometime soon brilant thank you very much cheers everyone all right cheers