Future Finality [LIVE]: The Next Growthpole of DeFi - Xin Wan

thank you yeah let's get started all right um welcome everyone thank you for joining the panel on the next growth spaul of D5 I'm Stanley from mellow web so this panel um is part of a mellow up research initiative called future finality which consists of a series of panels interviews amas and research articles on the most trending topics in crypto the project for my voice this through season is really not kidding um so I'm super super honored to have our panelists here today we have Kim from panoptic we have Laura from Ledger Prime where I've seen from uni Swap and we have tarun from content Network I think we should um start from Maryland if you see themselves uh let's start from you yeah all right so hi everyone I'm Guillaume Lambert um I'm currently the founder of a options protocol called panoptic where we do Perpetual options on chain based on uni swap V3 crime we see focus on derivatives hi everyone my name is shin I'm currently a researcher at unisoft labs hey uh I'm prune uh founder of risk management if I um yeah um all right let's get started so actually I want to you know start with a more broader question so obviously we know D5 has seen exponential growth since 2019 and 2020 but also the grocery slowed down a bit after the market downturn and if we look at it right now FIFA still dominates crypto Trading so my first question is what's stopping D5 from getting bigger in terms of liquidity and volume and also we know that institutional money is the biggest player in both Channel 5 and crypto and in order for D5 to get bigger we need institutions so how can we accelerate the onboarding of institutional money to defy in order to get it bigger um I think we should we can actually start from from Tyrone to this question yeah yeah I mean I think uh the number one thing is we probably need more actual stable coin users who are who are you know using stable coins for for things other than pure Leverage um I'm not sure if that means that you need non-usd stable coins but very clear that stablecoin velocity dropped a lot in the last year versus where it was maybe two years ago uh and the money velocity piece is actually quite important to keeping defy flowing the second thing I guess is privacy although I'm I'm still not convinced uh that the average defy user cares that much about privacy yet but the average institutional user does and so uh somehow Bridging the Gap between custodial solutions that do offer you trade privacy at least partially versus you know fully decentralized things that don't I think that's going to be a big portion of where D5 goes over the next few years probably mainly driven by NPC and NC case Innovations uh I think the largest driver of institutional volume at least in fat fights is actually probably speculation and uh the default infrastructure is just not made for institutions to speculate on price returns and so I'm not sure if that's something we should actually be building for you know like like okay rebuilding the system to be the best casino for institutions um but that's kind of what I see like the fundamental driver of a lot of the volume is institutional speculation and Defy is kind of not made for that so that's a very practical view all right uh yeah Laura yeah I just wanted to add um I think you just brought really good points um to the point where classy moms have been thinking a little bit more about this like why do we created this why do we come here at first was to remove the central player as well as to provide Financial access to everyone right and uh with the incentive through tokens and stuff over the past few years everyone getting greedy with with plus that part a little bit and to play a little more like Devil's Advocate on the institutional side there's a lot of people are not gonna like what I'm gonna say but there's really no way to get more institutions without some sort of like permission protocol or more regulation kyc around it right and uh I think that if both sides work together the crypto native and Regulators we can find a middle ground that everyone will be sort of like okay with you can't have it's not black or white even with any Topic in life it's never one thing or the other one right and we've been playing this war of like I'm right you're right when nobody's right we don't know what the right thing is and working together is the only way to figure this out and to add on this I do feel like the current D5 protocols we see may not be attractive to institutions 100x leverage the uh swaps you can get are okay if you're Degen but if you're managing hundreds of millions of dollars this is not the way to go they have they need other tools they need other approaches and I think as you say we need to meet in the middle but also we need to upgrade a little bit or Elevate what we can offer the the the bulk of the institutions aren't interested in 100x leverage they just want stable secure yield if you look at it from the outside the blockchain may seem scary and dangerous but it's the safest thing that exists it's cryptographically secured so it's safe it's just the perception is not that it's for the larger funds or those that may seek a more risk-averse yield yeah great so so Tyrone mentioned stablecoin and privacy and Shane uh mentioned that you know proud you know probably institutions would just speculate exchange and and and and both I think both Laura and guilm actually mentioned that you know institutions may want something else something you know we probably still don't have right right now in D5 so I think so personally I'm more Curious on the infra side right so um things I think you know uh some of you mentioned you know probably we actually have to build something else right for institutions for them to actually come to D5 so what type of you know infra either trading info or as um you know Laura mentioned you know uh permission protocol what type of D5 in first do you most expect uh to emerge um you know in the near future that can really accelerate you know this whole this whole process um yeah maybe we can just start with uh Tyrone again yeah yeah I think um you know if we take a like more historical look at how crypto financial markets develop a lot of the early centralized players actually came out of fine giving miners excess financing right so a lot of people were barring against future block rewards they mining pools came about to try to lower the variants and expected rewards for each Miner and in a lot of ways we're starting to see the same thing happen for staking the fact that you know liquid staking is now larger than D5 the X the rest of D5 sort of tells you that people really want financial services around validation and that's going to be the native infrastructure type of piece that that people want I think as people start to build more things say like eigenlayer where you know you can build more complex restaking logic that type of infrastructure is probably going to be what drives the the crypto native growth over the next probably one to two years I think another thing that probably will be a form of of you know sort of natural demand that D5 is going to be uh data availability and people basically paying for data that's on a foreign chain so on the roll-up data that's on a foreign data availability later like you know Avail Celestia eigen da Etc so on the native side there's actually a ton of infrastructure that should be driving natural endogenous demand that doesn't need like external institutions I see I think it's interesting that you know you are saying those more I would say more fundamental blockchain influence like Risk taking and data availability and using you know those I would say you know blockchain architecture level Innovation will actually drive uh you know more demand in D5 I mean liquid staking is the greatest example of this right like the market growth there tells you that people who are staking want Financial Services much more than almost everyone else in on chain right now Factory yeah that's interesting um and then maybe we can do you have anything you want to say uh I don't have a systematic view I I just anecdotally have heard that um a lot of concerns related to compliance regulation kyc has been you know one of the obstacles uh I don't know if that's that's solvable at the infrastructure level or that's solvable through more clarity around some of these rules or something else yeah I think um but yeah that's just my anecdotal I think those are definitely part of the inference too right Laura I guess following up a little bit with my previous response to what needs to be built in terms of infrastructure um a lot there's a lot of projects that after the FTX collapse have switched more towards like hey let's we actually need to bring code into law right so for instance in derivatives bringing easily into a smart contract or finding another way to like build this like bridge between both sides the weekend in that case like Regulators will also not have a say right because hey this is your piece of plot that we're putting into code right now so what do you have to say to that right with that a lot of exchanges are also moving into like the central early Central slides in the the custody side it's very interesting to see what some of the major ones are looking into so I think this year we'll see a lot of development in that that's then and I also want to add that this is a panel on derivatives and a lot of what D5 has been doing quite well thanks to UNI swap of course it's the swapping you can spot trade very easily you don't have to worry about the price last order this is a piece of infrastructure which I believe has been solved this you can improve a little bit but the spot area of Finance has been more or less solved we still need stable yields so the liquids taking derivatives the uh tapping into the yield of sticking is one way to create something that's stable per Futures is another layer that you need the perps allow you to access leverage they allow you to hedge your positions this is another infrastructure that people have been working on and what I see that's missing as a core infrastructure that's huge in thread five which is options and options derivatives whether it's exotic options or regular options we don't quite see it yet in D5 and that's kind of the missing piece of the missing pillar if you want of Finance Futures yield spot they have their own role to play options has its own role to play as well so even if institutions don't necessarily come in for yield or spot let me come in for options and do again what they do best so I feel like the the slowly but surely over the past five years we've solved some of these issues and maybe options it's the last one that's a little bit tougher to crack but that's how you can create the more complete infrastructure that can satisfy everything that happens in traffic a good options offering thanks yeah I totally agree that you know we definitely want I would say more sophisticated universe and that can cater for more needs you know from both in front and Retail size so I think you know we we've talked about you know inference we talk about institutions I think I want to switch gears a little bit because I know you know we definitely have a lot of D5 DJs here so I really want to ask a question that you know many D5 DJ and then retail users care a lot about and which also actually you know how to triggered a a very lengthy debate on Twitter and that is you know amm LP liquidity uh no no MM liquidity provision profitability um debate so uh for those who who don't know um you know there are there are some intimated researchers you know who actually their research on you know LP uh uni Swap and made the conclusion that you know LPS are losing huge money by providing liquidity to MMS uh and of course you know there are there is another Camp uh of you know Builders researchers um FIFA users who you know who have a different view so for me I really want to hear your take on it because I know you know like Professor guilm like you know like shin and I think uh Toronto I think you know you are actually actually you know evolved in this debate so because you know amm is such a fundamental infrastructure for D5 right now and I think it's probably the only protocol that everyone uses every day and you know if LPS are losing money and then you know that actually makes you know things look worse on D5 right so how should we actually perceive this question and if it's true then you know what things should we do to actually improve the experience you know of retail users in mmm and you know to maybe help them earn more money or at least lose less so I think we should start from a professor Gil this time yeah yeah sure so again the argument goes that amm is difficult it's reserved for the sophisticated players the retailers users that will go in these pools will lose collectively millions of dollars every year and to some extent I'd say that some of it is true when you let P into uniswa you choose a pair that you want to LPN to most folks go Force eat stablecoin eat usdc is the most liquid pair because everybody is lping there but it turns out that you also have to be smarter as to where you deploy your liquidity there's six or seven eight stable coin pools they don't have the same yield some of them have low lower liquidity some have a lot more liquidity but they all follow the same price fee the centralized exchange on coinbase for the eats price so the analysis that looks at e2sdc which is the over liquid pool everybody participating the return per unit of liquidity is lower than 8 die for instance or 8 usdc and if you go to the E token pairs I'm a huge LP myself I have hundreds of positions I've managed I never go in the eight stable coin it's too boring you will go eat Shiba eat uni eat Ave all of those that have some volatility some activity but that are deemed too risky for liquidity to go in this is when you can be a bit more successful so at the end they would say these points are well taken that it's difficult but you have to be smart as to where you want to go if you want to LP I'm going to ask you back a question now um because you mentioned a lot of things that the average user just doesn't really know about if you want to get more towards adoption of uh a regional user right so these are things that are they are pretty sophisticated if they get into a low liquidity High volatility pool the impermanent loss there I mean how many of us have software permanent loss right so how can we teach newcomers about it or how can we get them to you know think about all these things there's a lot to learn here yes exactly and I think I'll give you an anecdote but yes Implement loss is then you start with a token pair one token goes to zero you start with the token that has lower value my view at least in what we do in panoptic is that providing liquidity is similar to selling options it's not Market making it's not passive yield it's actually selling options and antidote I want to tell you guys that I trade options in tradify this morning I had a short put in silvergate Bank the bank that went 60 down overnight and I suffered Implement loss that's awesome but I know there is I know how to manage those trades when it's options I would do the same way if it was an LP token but now people come in it's like level 400 trading when you come in naked puts very very dangerous when you do it in trade fire you have cash secured put you have you can buy protective Wings you can create a spread to limit rest so the the key point is that vanilla being is difficult but it's not impossible folks in options trading know how to manage these positions and Improvement loss there's only way you can beat it is to have a smaller size I had one contract in cell gate I lost 600 per contract but that didn't bankrupt me if you put all your funds in this one pool and it goes down you can go to zero so that's kind of the the thread but yes the key Point ambivalent loss is manageable if you think in terms of options as opposed to just passive let's put my money there anyway all right so Sheen you're from uni Swap and you heard what hum fat right so is it the vision that you you know you personally agree with on or you know let's say in the future right so all LPS um basically just becomes you know professional option Sellers and you know what what's your take on that well first of all disclaimer that all opinions on my own and not stats of the labs uh I think uh so the debate has been going on for a long time and I think the consensus is uh as an LP or amm at least as of right now uh you do leak some value to Arbitrage flow compared to sort of a hypothetical scenario where you don't right uh exactly how you achieve the scenario that you don't leak any value while being LPI amm is still I guess a very widely researched topic there's being proposals for dynamic fees for example or for um for auctions at Block Level uh etc etc uh so so I think that's kind of the consensus is uh you do leaks on value but your alternative is hypothetical right now and there's no you know exact thing you can do to achieve that that alternative on the other hand I do think the The Proposal Baguio is uh somewhat valid like the payoff represents or is similar to that other option at least for some pair and for some specific implementation right if you read the white paper of panoptic is it out it's out okay yeah so it shows you how you can replicate a Perpetual option with out of range LP positions which I think is very intellectually interesting um and then there are people who uh LP on unit Swap and actually make money I'm not saying this is you know xnt true but the fact there are people doing it means look you have to be competitive if you're going to LP right like uh the difference between being a unit of LP versus transfer is you don't necessarily have to start with 10 million dollars you just have to be smart but it doesn't mean you can just deposit money and enjoy High return no risk right so I guess the the main difference is now you just have to be mentally sophisticated yeah so you know you hear Shane so you know you need to always just a platform and I'm pretty sure everyone here is smart enough you know to make money LP unit and and you know tarun I know you are probably the best modeling expert in D5 and you've been you know working with you know top D5 protocols and you know you are more or less you know a I would say you know a more objective Observer here so what's you know what's your take on this question yeah so I think there's like a benchmark issue so like let's actually go back and look at the history of passive investing so this is like an epistemological fight that's been going on for the last 30 years in almost all of Finance which is does it actually make sense to have large pools of capital uh allocated passively into things like ETFs into things like passive funds or does it make sense have active funds and it's actually been a very cyclical thing in you know the 2000s um active investment fund active investment funds were like the highest performing asset class by a long shot all the passive investment funds didn't work but after the financial crisis people just started plowing money into ETFs and then suddenly ETFs became a much larger portion of the overall equities market and then took over in some sort of Bizarro fashion and then of course we had sort of like the retail boom from 2019 to maybe last year which also sort of became active again we kind of went back from passive to active so there's sort of these Market regime shifts historically where a large portion of the investing Community decides that actually passive Investments are easier to deal with because you know like maybe you you're actually sort of optimizing for for like long-term Returns versus sort of you know immediate cash on cash measurements and so I think a lot of the the Twitter fight is sort of people spending a lot of time arguing about two very different benchmarks one person's Benchmark is the infinite time portfolio value of a liquidity provider which is the long time limit of like what you know the value of the portfolio should be the other is sort of like the the rollout markout type of thing where I pick a pick a finite observation window and I say this is how much I should expect to make right yes those are two very different benchmarks and it's exactly the same distinction between people who believe in passive investing versus people who believe in active investing and at the end of the day there's no real true passive investing because like there was ton of there are a ton of people who make money off ETFs because ETFs are inefficient they don't track their indices perfectly but yet people still want to buy them because it's a much easier place to park their money than actually having to think a lot so I think you have to like understand the utilities of all the different participants and the fact that we have these secular shifts between passive and active investing that that change over time yeah I agree I mean I think that's a very very good point um especially you know the comparison between passive and and active and also I think you mentioned that you know obviously people are arguing about two very different things right and I I think I've I've seen arguments on that you know actually you think you know Mark out to Market as the methodology to evaluate LP pnl on uni swab it's somewhat you know Irreplaceable and I think that's probably like a point made by Professor Kiln so I I think you you once that like you know LPS are not really Market making or uni swap it's the protocol right it's the small contract was actually Market making right on unit swap yeah I think that's that that doesn't make sense and I I think we can see that you know even even amount of a panelists you know um they're still not like a like a real real consensus you know among our for parents so I think it's a really interesting question for us to you know further dig into well today I'll just stop here and I'll ask my final question and that's gonna be about derivatives because the reason why I asked about you know ammlp is because obviously that's the first way almost the first way that D5 users start to generate yield for themselves and also we know that GMX has led the trend of the so-called real yield recently and it's been um you know obviously one of the top trending Topics in crypto right now and obviously in GMX the real yield is provided by derivative Trading and Kim you know you're you're working on your derivatives uh in crypto like I want to ask everyone you know how because I know Laura your super knowledgeable in derivatives too like you know because like in D5 everyone loves passive management everyone loves passive liquid provision they put it on a park of money there and that's it like in GMX you will just buy GOP and you know and then and then 20 apy in ethereum that's it so how how compatible do you think derivative is uh you know with this D5 sort of uh trend of passive investment and how far do you think derivatives can go in B5 let's start with the kill yeah I mean my thesis is that derivatives will go in D5 because they are needed you don't this you need stable yields you need Futures like product in the trading you need options the the users may think they need something but for the rest of the world you need some like core Primitives to work with and the point about being passive it's you think of it as a risk-free Endeavor you don't even manage your trades you'll get a risk-free rate which is the basic basement level you can get if you want to take more risk you get more reward but it's it's there's no free lunch to some extent I think I mean with jmx there might be a point where what seems to be risk-free may be exposed to some level of risks if you want to be extremely risk averaged to go on staking yourself your own node if you want to be extremely active you go trade on the Futures exchange but it's a spectrum and again there's no one place for all if everyone wants to be passive you'll get the risky rate and that's what you have to kind of the common term for it because you cannot beat the passive rate by doing something that doesn't require any work Laura I think options is right up in your Valley so I agree um there's definitely no free launch and with this I also want to add that there's no no opening a position and hoping that another day you're logged back in and then suddenly find thirty percent there or whatever um I last year I was a big supporter of defy option Vault and the development of those because I think that's a really great step towards adoption of increasing volumes right there's no Market that if you look at like fratby and uh and crypto markets the ratio between spot and derivatives is very different right and uh in crypto you have that options are like a few basis points of the total volume herbs account for like 50 or like more and then the rest is like between spot and Futures right but we need more derivatives to be able to replicate this risk and uh and then I personally like optional because it's easier to kind of determine uh risk in terms of like the breaks and expirations but for instance one of the issues with the dovs is that it is supposed to be a retail product but then you're loading your user on Delta as it didn't know how to manage and the day that there's the market there's a little bit of like Market volatility all the gains that you've like been piling up for the past few months are gone right and that will push people away so we need to get more we need to engineer better products within uh derivatives and D5 and that will I think that's the next step that we're missing cool thanks um I know you're from a spark exchange but you know tell us about derivatives uh I I feel very strangely about the Earth is because uh or at least the framing of the question because I don't think anyone in like D5 derivatives is in pursuit of like real yield it's more like in pursuit of 10x tomorrow um so I think the feature set that you optimize for is different when you build a product but yeah I don't have a good view on where the real yield is in in D5 so okay that's fair all right through yeah so uh I think there's a couple things the first thing gets back to what I was saying earlier which is validators actually need a ton of derivatives in the same way that miners were the number one consumers on the sell side of a lot of derivatives both on purpose and in options in the early Bitcoin Market we see kind of the same thing and and staking derivatives are just one way of of kind of providing some of those I mean that is a financial that is a derivative it has a sort of very weird uh construction it doesn't replicate something that looks like a normal traditional Finance uh Market but there's a sense in which that is the number unused derivative and that's the thing where people are really you know that is real yield right it's people who have eat staking yield and wanted to exit and in crypto that probably is the only real fundamental source of yield that exists right now that's tied to transaction demand um but I think another thing about tradify that you have to remember is that in the normal market large institutions are the large-scale buyers of options and Futures so you know there's sort of the sense of like big ETFs big commodity houses people like that they have a ton of risks to hedge and they're willing to take huge transaction costs for for like long time derivative exposure in D5 we don't have that because farming doesn't have anyone who has long-term long time scale exposure and is willing to put extreme size and I think the the key of the next cycle is that Dows are going to be the biggest part need to become the biggest participants in this market because they are the equivalent of uh you know large institutions and traditional finance that bought take one side of the large derivative trades that we see so I think you're servicing two people if you're if you're being honest it's validators and it's Dows and that's it and you need to get them buying a law derivative okay we hear you clearly spiders and doubts all right so we are already running out of time so I have to you know wrap up here I want to thank you everyone for uh for joining the panel it's been amazing and thank you for thank everyone here for listening and uh don't forget to follow Melo web on Twitter and medium for the latest uh latest update we're gonna write an article on this so yeah I think um this is it for today all right thanks everyone thank you