Revolutionizing Security and Transparency in Institutional DeFi, Lukasz Muzyka | ETHSofia 2025

[Music] Uh thank you everybody. Thank you. Uh welcome and uh nice to be here in Bulgaria's office. My first time, but I already feel at home. Really re reminds me of my home country.

Um so I don't want to bore you too much uh today. I know there is lunch coming. I just need to figure out how to change the slides. There you go. And uh I just want to start with the fact that I'm very excited because we look at DeFi today and we observe that we started to build a banking system of the future.

So we actually see a lot of things in in DeFi that enable us to build things that been built in Trafi before uh but with a twist. So there is a there is so much happening and I'm excited to be in the first innings just like you uh of of DeFi building a new financial system of the world. So let's let's first look at what really works on blockchain like you know because we have also sorts of different applications of blockchain our NFTs and this and that uh uh but what really works like why do people actually come to blockchain um and what what sort of things work sustainably reliably and you know predictably you know so the NFTs don't count um so first of all I would say the first thing is is our indexes. So the way for us to transact to swap currencies and you know some people have issue if I say equities as well. Um so this is very well understood very well uh tested it's uh you know we've been using it's a it's a foundation of DeFi.

The next thing our credit markets the credit markets really do provide the lifeblood of the system. um they enable us to do things way beyond simple speculation on tokens. You know, token go up, token go down. With credit with credit markets, we we enable so many more products in DeFi. So I would I would say that those two make our banking infrastructure and everything else is built on top of that.

So if we look at the traditional finance uh we see very similar products right we have our fixed income uh these are our bonds our term deposits uh we have margin trading uh we have insurance and this is something that in DeFi we haven't really tackled yet uh of course we have products there's many attempts to do insurance but those products are not meant really to work on their own just like derivatives And uh I speak out as a part of the team that built one of the most sophisticated interest rate swaps in DeFi. And the product is so sophisticated is just impossible to use almost. So we noticed that people use it for like directional trading and speculation but it was intended as a part of to be used as a part of a structured products. So I think this is the gap really that the TRFI nailed is is bringing everything together and in DeFi right now we're very separated. So we do our dexes, we do our credit and it's not often that we see things brought together and this is what I'll talk about.

So let's look at what sort of advantages DeFi has as compared to Traty. the things that trifi won't do or doesn't want to do or can do. Um there's I would say there is two and these are my opinion happy to uh to discuss this uh after uh after the presentation. The first one is transparency. So this is something that uh in trfy is very rare and often leads to a lot of issues.

If you remember um can I see show of hands who know what library is? Libor you see not many but libore. Yeah thank you. So the LIBORE um as an index uh is um it really defines the cost of your mortgage is extremely or used to is extremely important index is the index that the banks would say oh this is the price at which we borrow money to each other and it affects so many other things but we observe the banks collude and they would uh you know modify the libore and then tons of money on uh on derivatives. So the transparency has always been a problem of of Trati.

Uh but in DeFi, we have a superpower. We can do everything transparently and we don't need to trust each other. The other thing is simplicity. Um and for those who sit here and they're developers, just use imagination. How much resources would you need to build a bank from scratch in trfy?

This is hundreds of developers and multi multi-year development. In tr you know depending on how complex you want to go maybe in weeks, days, months uh but much much quicker. So those superpowers uh you know we have in DeFi. So why would we hurt ourselves and try to replicate all the mistakes of TRFI meaning be more obscure and more complex? So let's let's use the composability and use let's use the transparency uh in in DeFi.

Um so now I want to transition to asset management because really let's face it most people that come to DeFi they want to they want yield. They're not coming because there is a new fancy product that uh you know can do things that no other product has done before. Majority of users they come because they want to make some money. Um therefore we see um an advant of of asset management products. So these are your vetas, your ierfusion, uh your urine.

There is quite a few and I would say that there is a scale how they work like we could draw the scale uh going from I like to call it trust me bro to onchain orthodox. So trust me bro. So, I don't know if you're familiar with this, but there are actually people they have wallets and other people transfer money to their wallets and there is a spreadsheet on online that says how much money everybody has. I swear there their there are strategies like that and they have a lot of advantages. I don't make no mistake, but this is a trust me bro kind of end of the scale.

And then you have onchain autodlocks where everything is hardcoded. Okay. So I would say majority of of the asset management they kind of fall on the spectrum from trust me bro to on onchain orthodox. So for example your veta that's kind of I would say that's way left to this to this chart because it's not very transparent what can be done on the strategy. You have to trust your validators.

And then on the other end you have urine where everything is transparent the the the transaction like you know when you deposit assets you know exactly what's going to happen your harvest. Uh so when you look at the disadvantages of both trust me bro and onchino orthodox you will see that when you have trust me bro approach you're very quick to react because it's a ea so you can do whatever whenever okay but then there is there's several problems they're mainly related to human factor you can get you know you can get your keys leaked or I your guy may run uh if there is enough money to justify that. Uh and but most of all there is there is a reg regulatory compliance issue. So if you're institution you cannot work this way or you can do it yourself but you need a license for that because you always take custody of the of the funds of your customers. And I know we actually work with several uh organizations now they actually work this way.

They work in a trust me bro because they're custodian custodian and they're fiduciary of the funds and they have the necessary licenses. But if we want to democratize it, not everybody can be regulated. But so many people we notice want to become asset managers and they they're not banks, they're not brokers. Um what are the disadvantage of onchain orthodoxy? Because there is couple disadvantages as well.

Your structure is rigid. So your response to change in the market is very long or sometimes impossible. So if you change your strategy, your customers need to migrate your funds, need to migrate their funds. And I would I would say that they're limited to ser like certain simple strategies, you know, maybe credit allocation or maybe compounding rewards. Um so if we ask ourselves what sort of good things we want um we probably you know would like to have transparency uh so it's easy to audit and it's uh permissionless uh we need non-custodial approach so you as a asset manager if you want to run asset management for your customers or maybe for open public you don't need a license for that uh you want flexible approach obviously I mean this is coming from trust me bro but you want it to have it in um in the onchain fashion uh you want to protect your IP and this is very important because if you onchain orthodox your IP is out there on chain everything is transparent so everybody knows how you run your strategy and trust me bro nobody does that nobody knows how you run your strategy so there is a you protect your IP this way.

So I didn't mention that but this is important. We want that. Um and uh you also very efficient, you know, so you don't spend much gas and you know you don't run transactions that are not necessary. So in other words, we want it all. And this is why I'd like to introduce Fusion.

So Fusion is uh is an asset management uh platform where um well how it works, right? So it was built to it was built by us to essentially uh alleviate the problem that we had with asset management and our previous platform where it was very rigid very hard to change. So we decided to go allin to make it as flexible as humanly possible yet running on chain. So I would venture to say that anything that you can do with your EOA you can do with fusion. Um so some of the examples of the strategies are currently run on fusion and some of them are operated by upper labs uh some of them operated by our partners I'll show you some of them uh later on uh we do for example uh credit market allocation so we build so I just want to preface this IRFusion is meant for automation first so all the vaults are meant to be automated so we have one manual uh vault the customer and assisted on everything else that you will see is automated.

It's all running on autopilot. So we do credit market allocation. So we have automation that you know deposit assets to the um to the vault and the vault will spread those assets into multiple credit markets searching best yield. It knows its own impact on the market. It can look at the trends.

It's impossible to outperform that allocation manually. It's impossible. I wage I wage money on this. Um we also do leverage looping uh with staking with you know tokens morpho aa uh oiler uh we pro we also have with our partner uh do dex liquidity and ranges and so this is not us but you know clearar if you're familiar with with that um asset manager they do that on fusion. Uh rate arbitrage is another interesting case and this is just a sum of examples.

So you can take your bitcoin, you can deposit that on the credit market, you borrow against that and then you have US dollars tax-free because you haven't sold them. You only pay interest which is your right write off. And then you can use that to get 20 30 sometimes percent yield annualized. Impossible to do with just Bitcoin but possible if you use Bitcoin as a collateral and this is running protecting you from uh liquidation and so on. So how does the vault work or how does the up your fusion work?

So in the middle you have this vault you see 4626 vault. Uh it's a very standard interface. Uh so the liquidity providers provide liquidity into that vault and then from this point onward it's uh it can be controlled by array of people that have certain access rights to that vault and um I'll show you a little bit uh how that works but um so two main roles are the atomist so the atomist think about it as administrator of the vault they decide what can be done they decide what the boundaries are and That's all onchain. And then you have the alpha and the alpha controls the execution of the strategy. So this is when and how and those are offchain.

This is your IP. So when you when you come and you build your own vault, they are permissionless. You can build your own vault. You can run your own alpha. We can help you, but you can also do it yourself.

You decide what this the structure is and then this is what your customers see. But how do you when do you execute? How do you optimize for gas? How do you analyze the trends? That's your IP and you can totally do that without anybody stealing it from you.

Um so the vault then connects to external markets and this is done through fuses. Okay. So fuses are think connectors. They're very small stateless contracts um that can be shared by multiple vaults. So when there is integration for say morpho used by one vault all of a sudden all vaults can use it there is no cross-pollination you can use it for borrowed positions and there is no there is no um combining of multiple credit positions of multiple vaults everybody has their own silo but the fuse allows you to connect to the market now it's it's very val this approach allows us to build automation and deliver the the strategy in matter of hours.

You know, we started maybe was first of all we took maybe three weeks uh to automate. Now it takes us maybe couple hours for each strategy and it's mainly because of testing and uh and we have couple uh couple uh partners that they build their own alpha and we provide SDK for that and tooling and you know and right now we're building also CLI. So if you're a developer uh and you want to write run those strategies, help the asset managers, please approach me. We can talk afterwards. So some of um some of the votes we're running and this is a screenshot I took last night and so does actually a the actual APRs and some of the partners uh we have uh Clearstar um Clearstar runs their own uh their own automation.

Tankan runs their auto automation. Um, so some of them they do it uh for you know special like their own niches. All right. All right. So if you look at the there's a sneak peek at the administrative panel.

So um this is actually a page where you can see all the access management. So it's quite granular. So what you can do can be very granularly um uh set so that your automation will have access just to certain subset of your vault like for example allocation but often what we also do we give a right to manage rewards. Uh sometimes we also give it rights to manage fees because in some cases the fees like the withdrawal fee or deposit fee for the looping positions are um dependent on on the markets that we go to because there's some sometimes there's a cost into to build a position. So we also allow that to uh for the alpha to to do.

So the access management and I want to stop at that for for a second is built really with the assumption that different parties that control the same vault like the alpha and the atomist don't they're at odds with each other a little bit because we assumed that the access the the management of the vault the alpha role will be outsourced because what we see very often is the access the assets managers They don't have very deep knowledge of of of coding or or running those strategies. They're very good at writing Python scripts and and doing all the quant analytics, but they're not very good at executing the code. Like they can click and I'm talking like organizations have hundreds of millions of dollars. They can click, but they cannot write their own scripts. They have no capacity to do that.

So diffusion allows you to outsource that and make and making sure that whoever does that does the automation will not screw up your strategy. It's not legal to do you know to handle tokens that you haven't whitelisted. Um and again I don't want to keep you too long. The launch is coming. Um but um so some of the things that you may want to check out is the website.

Uh we also have quite extensive documentation. Uh there's um there's a the SDK that we provide u on GitHub is it's a Python SDK. So if you're quant you can already start using Fusion. Um that's the link to the SDK is also in the documentation. And I would like to invite you all to the workshop tomorrow at 10.

Um we have a little bit more time and if you have any questions we can you know we'll spin the vault. I'll show you how to configure it, how to build your own connectors, um, and you know, answer all your questions you might have. So, if you're if you're asset manager or you're a developer and you want to work with this, uh, this toolbox, um, approach me afterwards. Um, so, thank you very much and, uh, have a have a good lunch. [Applause] [Music] Heat.

Heat.