With that, we are ready for our next fireside chat. So, without further ado, I'd like to bring on Stani, who's the founder and CEO of A. Please give him a round of applause. Welcome back. Thank you.
This is uh a busy week for a lot of things going on and uh I want to spend this session on learning a bit more about some of the decisions behind launching a v4. You've been working on v4 for about two years now. We've had some iterations of like what the initial ideas were and things have changed and evolved. So my kind of first question to you is walk us through why it took two years to get to V4 and what exactly is unique about V4 that D5 didn't have that you get to introduce with this launch.
Yeah, I think um every protocol iteration that we had in in a uh it takes roughly like a a little bit over a year to build. Um and the reason for that is that um not exactly that it doesn't really take that much time to write the code but actually then uh thinking all different kinds of use cases and edge cases and ensuring that the uh infrastructure is uh safe and secure. Um so a v4 has been already uh feature complete last summer actually during last scan and um the important um decision for us is to also to understand and how we can actually adopt use cases beyond the existing uh use cases that a has. So the way a works is that you supply um uh stable coins that are lended out uh against let's say um uh ethereum uh like collateral or bitcoin and uh this is sort of like a one of the biggest use cases and there's uh looping use cases of u putting uh correlated assets like uh staked eat and borrowing it and leveraging that position and yield varying stable coins. Um but in the future what we believe in is this vision that DeFi could actually be used um as a backbone for all credit uh in the future.
And something that we solved really well in DeFi is that we have a extremely good capital alloc aggregation layer. So DeFi uh in DeFi liquidity moves uh programmatically into uh financial opportunities uh that are risk adjusted and even so well that there's currently a surplus of liquidity in DeFi. in the next chapter for DeFi is to figure out how to use this efficient capital allocation layer um to finance some opportunities that exist in real life um uh by issuing credit and a v4 is a modular architecture uh where you can also lend not only use as a collateral not only 20 tokens 721s but you can also create custom uh modules and lend against uh data as well. And I think that's the world we're heading where we're going to use DeFi as a way of sourcing liquidity and and financing uh real credit opportunities in in in the world. I mean, this sounds like a a supercharging kind of the whole uh DeFi economy, but I do think it's important to go case by case on some of the the changes.
So could you give a more kind of in-depth version of like what was not possible in V3 before but is now and just maybe another example of how these modules and plugins come in.
Yeah. And it was a basically a architecture overhaul. Um typically the way existing a protocol works is that um you can create a market and within the market you have different collaterals. Now each market is sort of a risk profile and if you want to create a new risk profile and a new market uh these two markets are uh fully isolated from each other and the biggest challenge always uh for any any um D5 projects is is actually aggregating and bootstrapping liquidity and the way a v4 uh solves this challenge is that uh we have a hub and spoke architecture where the liquidity is stored in these uh liquidity hubs that then allocates with credit lines into these spokes and spokes are where you have all the borrowing configuration the collaterals um and they can be also very highly customized. So the typical spokes are uh a similar lending model that we already have in in a uh v3 and and previous versions.
uh but also anyone can come and actually build these spokes with with custom implementations. Uh we've seen examples where you can use native uh bitcoin as a collateral through a system uh designed by the Babylon team uh as an example um that can be then integrated into qualified custodians and you can use a to borrow stable coins to lend to those use cases. you can build uh features like debt trading uh similar to what for example fluid has um you can build uh fixed lending spokes um and and beyond. So I I think that's where uh the the sort of next generation of innovation will come from a because now anyone can actually come and build and contribute it to the whole uh code base of a by expanding the uh the the bespoke use cases. It's a super interesting way to think about things.
So is it fair to say that what's actually happened now is that everybody has in a way a greater access to the same liquidity that's already on the pool and now you've just kind of made that unified or or is something changing on how liquidity is managed on the whole uh protocol?
Uh both actually. So um and the biggest problem that every D5 starting D5 project is is um explaining is that you might have really interesting product and innovation uh but it's hard to actually bootstrap your product. So now you can build a spoke and um then request access to these uh liquidity hubs on a and and and get actually credit lines to bootstrap the liquidity. So there's a component of actually attaching new innovation uh that is happening defy and rewarding that innovation with liquidity. So that's also a part of the liquidity management.
Um there's another feature called uh reinvestment uh feature which means that uh if there's any float liquidity left in the pools that can be reinvested into lowrisk um uh uh opportunities like for example uh black rocks bidding because in a way just all of DeFi not even V3 specific liquidity has always been on the protocol. But you've now kind of created a bigger side for the the demand and it kind of balances the the the utilization ratio so to speak may not be the best term um and kind of simplifies a lot of this by enabling new set of economies. So how do you think about just better demand coming in for that liquidity and does that unlock something new as well? I I think now what's going to change quite a lot is that the equilibrium is so that there is a lot of liquidity in DY and I think a lot of the opportunities are very commoditized meaning that you have to come and find new collateral and that is what we're also focusing on the um Alb trying to figure out what is the new type of a collateral and I think um there's a lot of value already on chain and uh native crypto assets will keep growing. So, Bitcoin is going to keep growing.
Ethereum is going to keep growing um and and even more new types of u uh economical native onchain primitives. But there is going to be a lot of value that is uh entering into the system outside of the blockchain and that is going to happen in with three different ways. So one is um tokenization um with RWAS. The second is yield bearing stable coins and the third is then true data. And what I think is going to be uh exciting is to see uh a lot of the tokenization take off and being able to use that as a collateral in a more um better risk tooling that we have with a V4 with the um segregations of uh spokes and reusing liquidity by liquidity hubs and a new feature we call uh risk premiums where you can price uh the borrowing cost also based on the collateral composition of the users's uh positions um and and and then the last piece of actually um the data piece is interesting because um I think a lot of credit opportunities will exist without the tokenization and not every single single opportunity will be tokenized and this allows a to actually then extend credit uh facilities towards lending uh to consumers uh to businesses and also to institutions.
And I mean this is awesome like this is like actually kind of fully unraveling and unlocking like a whole new set of uh it's like a new map that just opened in in a video game. Uh how has the reaction been from some of the other kind of institutions and just bigger companies that are trying to think about using uh anywhere from these spokes to just be for liquidity and is there something different about what their requirements are and how do they think about kind of tapping directly into a D5 protocol? Yeah, I feel like institutions always have a particular requirements um and they want to they want blockchains to be in a certain way even in a way where it doesn't anymore feel like a blockchain and I I think we've been doing really good job as a you know as a community and and an ecosystem where we've been able to actually uh convince a lot of the uh institutions to to to use Ethereum in a way that it's built, designed, and and and the purpose. I think uh a biggest um moment a while ago was actually Black Rockck issuing um their token assets directly on Ethereum on a permissionless network and and that's huge because before that moment most of the uh tokenization and institutional initiatives were happening on private blockchain. So we we we sort of uh got past that point.
Now sort of the idea is that um using a uh public blockchain but fully permissioned uh protocol uh or using a uh some sort of specialized protocol that um has privacy but then u isn't really a blockchain and is tailored to institutions. So I think we we still need to work towards the way where institutions get more comfortable on open finance. this whole like idea of permissionless transparent infrastructure that they can use for open markets and I think uh it's really important to to keep to these values while still being able to experiment and build um some of the permission uh permissioned uh infrastructure that can be later uh switched into a permissionless. So I think uh there's different requirements and um my sort of a path uh where I want things to go and hope will happen is that we're institutions will just get more comfortable on the permissionless world and I hope that and I hope that happens. Um, one other quick one is you've also been doing a lot of work on making it accessible on mobile and there was an A app that just came out about 6 or 8 weeks ago and I'm curious to understand what was the motivation behind that and who is that designed for as an experience?
Yeah, a app is um a very simple experience. So you download the app on your um mobile, sign it with email, phone number. Um once you do that you have ability to recover your accounts with biometrics. Uh you still you have full control of your assets but you have ease of access. Um and then you can link your bank account into a and then deposit directly into your uh into a directly from your bank account.
And this is a a huge um progression of how we interact with DeFi today because it feels sort of like a a fintech like experience with a fully non-custodial access um where every sort of a technical aspect about blockchain is uh fully abstracted away. So you don't see anything about wallets uh gas um different networks, you don't see anything about um uh stable coins. All of this is abstracted away to a a very simplified experience. And for us, why it was important to build is because we've noticed that DeFi is is sort of has a sophisticated user base. And uh a lot of the DeFi integrations happens through exchanges.
For example, you can use a through uh Crocken as an example. But we really want to move the space forward and actually build DeFi for everyone. That was the main um um motivation there
and looks like it's working. I see a lot of people just go directly into lending markets through uh through the mobile app. Um I want to change the the topics a little bit and um kind of reflect on what's going on this year. Um you've seen many cycles in this space. We've been around for for a while.
And uh the kind of question I have is how do you think about staying motivated and being on the mission during uh a time where the markets are not reflecting the excitement that some of the true believers have?
Yeah, I think the markets are something that you have to sort of put aside and and you know also a lot of the noise that happens in the discourse um in online and u crypto Twitter. I think um building DFI or onchain um has never been as as great as today because you have a lot of uh baseline infrastructure that already exists. You have uh protocols like a you have other D5 protocols um that provide the the base functionality. Um and I think that there's a lot to do on the access layer agent agentic uh layer as well for for DeFi. Um and I think that um now we're sort of uh in a space where we see uh institutions uh more um adopting the technology and experimenting.
Almost every bank at this point has a uh digital asset team building custody um building out of this infrastructure. You have better access with these embedded wallets. um you have uh ability to secure your wallets more in a in a better way. So everything sort of has been built for this uh mainstream momentum and and I think we're just moving towards a world where um uh you have basically onchain and you have um AI agents um and you know they can they can't create uh bank accounts but they can create crypto wallets. Um, DeFi is a perfect substrate to to financial uh transactions.
Um, so now it's actually a incredible time to actually be a builder. Um, even though there's a lot of noise uh everywhere, um, Ethereum itself is uh most resilient is it's ever been, it's a really sound infrastructure as well. Um yeah, I'm I'm I'm basically quite uh excited where we're going towards because DeFi itself is uh 120 to 200 billion size. Tokenized assets are between 20 30 billion um and when we look at the size of the whole financial industry,
it's trillions. Yeah, it's we're still a drop in the ocean and you know we know that everything will move towards this direction because we get more transparency, better execution um and it's it's a it's just a more resilient financial infrastructure. So it's it's extremely early and stable coins are uh a big thing at the moment.
On that note, how do you think about Ethereum the chain? Do you still feel like Ethereum is the place to be for DeFi and that's where DeFi will stay or does it not matter anymore and um kind of what's your not obvious specific for which is generally how do you think about DeFi and Ethereum association moving forward? Yeah, I think there's a couple of reasons why DeFi will exist uh on Ethereum and one is obviously the the liquidity network effects um in the system and obviously there's a lot that we can do to actually create better integrations and movements of uh capital between uh L1's and L2s. Uh the second thing is uh which all of uh your your builders know is the the tooling is much more better than anywhere else. And I think that uh when it comes to DeFi, it matters quite a lot because we have to build safe and secure uh systems and that requires a lot of the um infrastructure and tooling around that.
So there is a um uh a a history of of building DeFi on Ethereum and on EVMs. uh a lot of things are known and for example roundings is a great uh example how peculiar that topic is and and to uh get it right. So I I think it's uh much more harder uh lift to build anywhere else and I think we have a really good security community as well and a lot of uh builders to to actually um uh get support. So I think it's it's been the definitely the uh uh it's the strongest network to to build. I'm excited to hear that keeps us in business.
Um my kind of final question to you is more on the prediction side. So um V4 is obviously a big moment in kind of how we think about liquidity on chain and just letting anybody come in and and sort of create their own uh side pocket. Um, if you were to kind of fast forward five years from now and kind of look at, hey, the institutions are finally here, they're doing things, they're comfortable with being on chain, what would you say would be the turning point of like what made that easy for them to kind of come in and um whether that's something that's already happened or do you feel like is going to be a moment that will happen? Where do you feel like is the the day where after this it's only bliss?
I I'm afraid it's going to be a long journey. I I think this is going to take like maybe like a decade or two uh the transitioning because we're we're effectively um transforming and replacing the the whole back end of a financial system. Um and that is you know in in different parts is as dated as it goes as back as uh to the 1970s. Um so there's a lot of infrastructure that is going to get replaced and uh it starts with um defy it starts with organization payments fintex that can be faster uh moving and obviously banks will uh follow as well. um these are large or organizations that will take quite a lot of time and I think being able to build a lot of uh tooling around that um where it's D5 or RWAS is going to help uh a lot of this uh transitioning um and I think specifically regarding transparency for example in RWAs you want to understand a bit more um you know how the RWAS are custodied adding more transparency and ensuring that we have a verifiability on chain.
So I'm all for uh seeing more assets coming on chain uh but we need to do it in a way where we actually uh understand what is the type of asset onchain collateral and and risks involved.
Amazing. Well, looks like there's a lot more work to still be done and um I'm glad that uh V4 is already hitting amazing milestones. So congratulations on that and uh thanks for an amazing chat. Please give him a round of applause. Thank you so much.
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