On-Chain Undercollateralised Credit: Banking but Worse | Laurence Day - The Wildcat Protocol

[Music] CEO of the Wildcat protocol give it up for Lawrence everyone hello ah it is working I'd like to start by uh registering a protest at making Europeans come to a city which is this high and I lose my voice it should be a crime so if I do crack my voice please laugh that's absolutely fine so I am going to be talking to you about credit as was just suggested um we've gone through this in a couple of Cycles in the past the way it was done how we're looking at it now is it a good idea where are the problems so yeah um normally I go on a full-blown rant for about an hour when someone says a word that's associated with this The Matrix is attacking me and constraining me to 15 minutes so I may cut a bunch of things out please tap me on the shoulder I will talk to you until you are sick of me at the end um if you want to chat about it um so look around you right here we are in this wonderful Stadium none of this would be built if we did not have credit rails uh we have even for events for parties that you're going to deposits go down and then you pay later um anyone who's suggesting that like the fate of a blockchainbased economy is that everything should be paid for in credit uh in full is delusional this is it's an engine for growth it's it's weird my take on defi has always been that we should be taking the bits that work in the traditional Financial system and replicating them on chain and the most powerful engine that the traditional markets have for growth is fractional Reserve banking which you could consider credit to be um I do think that we need credit mechanisms and base level privacy as the things that we really do need to solve for in the next couple of years if we are going to be taken seriously at all and not just a niche little project um wind back two years when all of us had money although actually if you look at prices things still were doing pretty well um Celsius blockfi Genesis they were all around they were doing absolute Gang Busters Celsius 25 billion 10 billion in blockfi and they were lending stuff out you're getting 8% some where have you and the desire was wrong people were pouring in to deposit right that that's where the lender side of things comes from it's the desire to seek risky Capital they will perform their risk reward analysis and go here you go fine um in defi we've been inculcated to believe well not believe to follow the you know everything needs to be over collateralized don't trust verify but you know we have AR we have Oiler we have compound wonderful wonderful protocols that allow us to perform these things but they're not lending they're margin platforms um and yeah cdy did so well two years ago because it's easier for people to use usern names and passwords for things instead of you know having to have responsibility for the eoas or safes that they're uh they're performing things in the trusted platform pitch worked really well uh people you know like liked the like the charismatic posts bullish posts of like Alex mashinsky and so on and then we got to the middle of last year and the Widowmaker ARB closed 3 AC didn't meet its margin calls and everyone pulled out of cd5 and went right where should we put our money oh here you go Mr bankman freed and lo and behold 35 to $45 billion of lender credit evaporated um this is the only meme I have in here um yeah there I'm assembling a team right the uh defaulting pages of all of those platforms in the past um and these protocols still exist there are protocols that will support and enable under collateralized credit already there's Maple there's clearpool there's Sal there's others like at lendis ribbon finance and what have you the model that they generally use is that they will collect willing Capital that Capital that's willing to be deployed off chain or perhaps you know for Market making or trading or what have you and then put delegates in the middle of it um who will perform a risk analysis that will look for longtail risk or you know something in the documentation or into financials that suggests this is what they should be getting or what have you and they will generally dictate you know you should borrow at this capacity at these rates and that's what they'll allow um over three years we saw5 billion us doar being extended in credit that way which is a lot of money but when you consider the size of the Global Credit markets is but a drop in the pond um again like I just said I that's 20% of what Celsius had at any one time in in user deposits and my thesis and the reason that I'm wearing this hoodie and this shirt and uh I'm tired all the time is because I believe that these existing platforms made it difficult to become a borrower so people who did want to borrow money like usdc or rap eth or or whatever were forced to paper it up off chain so that they would sign an agreement it would get papered away and no one would really know about them until something went wrong until a margin call went wrong or something unraveled um I do believe that the promise of defi is visibility into things you know we we have June dashboards we have a series of people who will do nothing but post about any slight deviation from expected Behavior I think the way that you treat credit mechanisms and their visibility on CH it's a really good way of seeing are we overheated in terms of Leverage how is the General Health of a market if people are starting to default on things this this is fine if my Prop Shop melts I'm not important the only people that are angry at me are my uh my LPS if a market maker melts that's a big problem for all of us and might be indicative of rot somewhere else like we need to be deleverage our systems I do think we really need to be encouraging as the hot ball of institutional money starts rolling in the next cycle that these all these mechanisms we reject cd5 platforms and we start putting things on chain we should be encouraging them and so yeah why not invert the model of the onchain credit that already exists right the you've got a pool of capital and you select who your borrowers are why not attempt to bring borrowers on who you know appear Sayan and you allow them to just you know create a market parameterized however they want I want to borrow dog with hat I will pay you 30% interest at it it's 20% collateralized and I have a week to pay my uh my withdrawal requests so on and so forth the promise of defi is that people are self they're making their own analyses about what they are doing with their funds they're being responsible and react like my voice is going I must apologize they are interacting with each other like as rational actors if someone creates a market that's a desire for credit that is insane no one will react with it I do think there is a potential for if we start driving the desire for credit and its settlement on chain we do start getting ideas about this is how much risk your uh you know your big parties in crypto are willing to accept how much rate like the rates their exposure um it's straight we do have some existing stuff that accepts permission list deposits um I do think the future of credit just because the nature of like the trusted bulk of the relationship should be institutional um but yeah the two years ago we didn't really have platforms for like kyc Registries or being able to geofence on chain we do now so we could do these kinds of things every every Market M every trading firm some real world like companies they want to borrow uncollateralized why would they not you know presuming that they're able they believe that they're able to meet their obligations but whenever you speak to people they say oh we're really wary about getting credit on chain for several reasons right so the one which I'll talk about a bit more is the legal certainty about settling on chain there's the smart contract risk you know we have had a TD couple of years it is a um an a Robos of us chasing things and repairing them and learning our lessons we don't have incredible mechanisms yet for really broadcasting the financial health or how much we trust a borrower to make good we we can have some summary statistics there are some Serv out there that will allow you to kind of dig into some financials but beyond that a lot of it people are working on this are mechanisms that say you know oh trust us or you know high level uh stuff we need to fix this as well and the great Paradox of unchain funds is that if you're borrowing from a bank account from JP Morgan you can't realistically check every serial number on a note but if you can if you can look at stuff usdc on chain some borrowers will feel an obligation to go right where did this go is this within eight hops of something that's ofac sanctioned and it can be a nearly impossible bar to clear it really depends on like the risk appetite or like the nature of the borrower um and then the nature of credit is that it is a trusted relationship there is trust involved here and you do need legal underpinnings I am not of the belief that said we can subvert Banks we don't have to involve Credit Unions but fundamentally if there is a default you do need a legal underpinning um for this uh all of the offchain stuff that exists already we have Master loan agreements we're working on some stuff that are kind of Savvy to the fact that it's onchain that you're settling that aprs might be liquid uh the risk of where things are held but again the opening the ability to to lend to institutions um as retail is quite dangerous I believe if you lend 50k to someone and they defaults it can be really expensive to go through arbitration and a court and then collections the hardest bit um but with that said whether you bring this on chain for visibility and like of analytics this is not a problem that blockchain can fix you blockchain can fix many things um but not this not not the legal aspect of things much the cherin of some codes law Believers um I've been speaking to many people over the last couple of months who believe that fundamentally regardless of like whether you do this offchain or onchain there is no desire to lend but if you consider the capital that is willing to lend is just being I'm I'm looking for yield I don't know how I I don't care how I get it um it's slightly unfair for me to mention igen layer here compet blast but there is money sitting around willing to be deployed if you look at platforms like institutional credit marketplaces like the hidden Road platform they are growing like you you can start borrowing tether at like 18.5% but it has to be fully collateralized it is going to come back I've been working on this with Wildcats supported by winter mute um for the last couple of months we've deployed recently um while I've been here I've been having several interesting conversations of people that are looking to start bringing capital on chain to lend to market makers to l2s to protocols it's it's it's nice to hear um this was a 12 minute talk but basically if you want me to give you the full hour version of how I think about credit on chain and where it needs to go I will happily talk to you wildcat's there on Twitter and the website um I will be hanging around for the next two hours please DM lunart for points um regarding this uh thank you very much everyone