Fireside: Aragon x Status Network

Hey everyone. Um, I'm really excited to talk about this stuff with you because we've been talking about similar things for quite a while. Um, so um, just to get started like like why I mean we're at the stable coin event like like why are stable coins so important from like a role perspective?

Yeah. So um, as [clears throat] a quick context um um, we are at Statis. We're working on a on a new L2. Um, and that L2 is natively gazes. So, there's literally no gas on the L2.

It's all replaced by a reputation based system. And we also allow people to uh shield their assets natively and earn yields on those shielded assets. Now, the question we get all the time is like, oh, so if the rollup doesn't charge gas fees, how do you make money? Like, how do you actually operate the rollup? Well, we started to think about the uh business model of roll-ups uh about like a year and a half ago by observing how like which rollup were actually profitable and can anyone know here like how many rollups are profitable at the moment?

Three. No, not even three. Two. Uh basically based on arbitrum. Um and that's it.

That's that's it. everyone else is losing money. And why? Because gas fees are going to zero and you need to have massive volume just to make up for the fees to operate the network. And so we looked at that problem be like okay so we can't do it as other rollups do.

So what alternatives do we have? And so we started like thinking about like okay as a new network how do we you know uh kickstart the the the growth of the network the liquidity and so on. And one of the first I think uh clear view was well we need to have a native yield. We need to have the roller being able to have assets that earn yield and bridge that yield to the L2 and use that yield to basically operate the L2. And this is where stable coins come in because for us originally we didn't have any stable coin plan.

It was like yeah we're just going to use I don't know bridged USDC or anything like that. But the moment you adopt a non-yield bearing stable coin, you're basically leaving money on the table because someone else is earning yield on your deposited TVL. And so this is where we started talking with Aragon initially um on hey so we have that idea we have some you know bridged stable stable coins what can we do with them and um yeah I think I think it's a good segue for you to kind of introduce a bit the idea behind it

yeah so so you know as as Argon we've we've worked with a lot of projects and and you know quite u so Argon traditionally was doing governance over the past two years we've started doing a lot more tokconomics and value acrruel because um the governance cop out of like why would anyone hold this token. We we saw that that's going to be a a dying theme and um you know we started pivoting more towards like okay well you know like what is something that is actually valuable that you can give token holders control over and the inevitable answer there is capital flows. Uh so we've been building a lot of [snorts] gauge systems and and VE systems. Um and we're going to get into like how Karma works as well. Um but the thing is like for a lot of teams this was oh like like we have this inflation schedule and we're going to just be pumping incentives out and token holders are going to decide on where these incentives go.

Um which is kind of a like like it's it's it's a it's a downon design, right? like cuz because you're just paying people to come use your network with something that the only thing it does is control where the inflation goes. Um and there was this demand of like okay how how does the network make money? Where does the revenue come from? Um and you know that's that's how we we we started you know looking at okay well there's idle assets that sit in a bridge.

Uh can we do something about it? Cuz generally networks do pay for people to hold assets on them. Um something that is uh increasingly getting phased out as well is networks were just paying for people to just hold assets there to pump a vanity TVL metric and like like status is doing some interesting stuff to avoid that sort of like dead weight that other projects have been paying for. By the way, I'm actually surprised that Arbitum is making money because they are spending a lot of incentives as well. Also it's it's good to know that there is like a second project that is making money.

They just have a massive amount of uh volume.

So so maybe you can you can chat a bit like like how is um status sort of making the liquidity more productive and concentrating it. It's

yeah so um this is part of um if if you want to do it at the a theoretical level um it's basically curve and applied to a wall chain. And so for those here that are not familiar with curve, um it was kind of the OG protocol that started thinking about gauges and how to incentivize liquidity in specific pools um and to have more concentrated liquidity there and uh the way the goges work is people vote on where the rewards are going to go. The problem with curve was that the rewards were made in their own CRV token. Um, and so they had like a whole system to then lock up the token and so on and so on so that there's no like not everyone is just dumping all the time. But what happened I mean just look at the token people have been dumping because they receive incentives that are not they're just governance tokens and they just dump it right away.

So we look at it from a network perspective and and the way we we think about it now is we need to have deep liquidity on the network. we need to have incentivized liquidity, but we are I mean S&T has been like our token has been around for eight years or more. Um so it's not like we can just dump some S&T on everyone and be like hey come to the L2 and you'll see it's fun because we know that this is a net negative for the token. It's ultimately it's a net negative for the network. So taking it on the other side was like how can we provide a yield that is not in a governance token but that's actually in ETH and a stable coin.

Um I'm I'm going to double click on the stable coin. So, so, um, basically everyone is doing a tibial wrapper, which I think is just boring, but also like the yield on that is going to go down as the Fed lowers the rates and and you decided to go with something that's natively on chain. Um, why is that important for you? Like like like what how did you go through the trade-offs of like do I do I want like a a natively on chain asset? Do I want a a TV rapper?

cuz like the T wrapper is is much easier to explain to people as well. So it's there are some trade-offs. So so how have you thought about those?

Yeah. So the problem with the TB wrapper is I mean I think there's a couple problems. Uh the first one is as you mentioned um we are basically based on the rates of the US treasuries. So they're going down now. So your yield is going down and you have literally nothing else to do.

It's like you you're a passive actor here. Um second problem is uh with everything that is going in the US with the genius act and so on you need to make sure that your wrapper is actually compliant. Um and then that adds a lot of kind of overw weight and and like management to the the whole thing. Whereas if we have an a stable con that is natively emitted on chain and that earns yield directly in a decentralized way from in our case it's going to go through moro pools. um then uh so more for volts um then you don't really need to care about that.

And the fact that we separated the yield from the actual coin also makes it very attractive because it means that you can have a stable coin that you can just use as a payment system as a collateral and so on. But on the other side you can also use it to earn yield without having to do anything. Um so so that's the cool part I think. Um and and you mentioned concentrated liquidity before and I think this is something that is super interesting for us because we have that native stable coin that is going to come from the bridge um and that is going to leverage bridge yield. But then we have also um a stable coin that is based on a liquidity v2 fork and that stable coin is fully decentralized.

And we think that having the capacity on the same network to have a coin that earns bridge yield and another stable coin that is fully decentralized and have a very deep liquidity between the two uh unlocks a lot of new advantages for DeFi applications mostly because of the yield differences uh between the two and because of the potential looping that you can do uh every time the rates are different. Yeah, I think I I mean I spoke with with um Charlie from Felix that is building a lot of interesting stuff on the hyperlquid network and um you know it's one protocol and they're doing they have like a morpho fork and a liquidity fork and I was like aren't those cannibalizing each other but like there are basically different use cases and different actors and the the trade-offs look different for them and potentially you would want to have products that meet the needs of different classes of users. more directly while not compromising and you know like having having uh deep enough liquidity between the assets uh making the you know the experience more composable and and avoiding the liquidity fragmentation that the previous panel was talking about. Um and speaking of deep liquidity um and different use cases. uh talk to me about a bit more about privacy like like why is it important to have a private stable coin as like a like a first class citizen on a network and how are you how are you achieving that?

Yeah. Um so we haven't talked about privacy much so far. Um I just mentioned

yeah nobody on this conference is talking about it's not like only the biggest theme of the past month

right. Um so so the way we handle it is um we have a privacy layer that is native to the chain um and where people can basically deposit funds and then use DeFi apps regularly as they would do with literally any like normal EOA or smart account multi anything um but from a shielded account. And so the main issue we have from start is like how do we make sure that the privacy sets or the anonymity sets is large enough. And um if you look right now uh you can go to um shielded.com um it's a new website uh that shows you how much ETH is shielded on the network and it's ridiculously low.

Right now the largest protocol that is real uh that is tornado cashache has roughly a billion dollar of ETH which first of all is kind of nothing compared to the size of uh the ETH market cap but second it's mostly legacy it's just like people who left it there and didn't move Joe and it's not very active anymore the second one is rail gun and do do you know how much rail gun has do do you have an idea

90 million 50 million it's nothing like $50 million of privacy pool it's it's it's not a good privacy. Um so I mean and and they're the best in the game right they're like the the top one right now. Um so we think that we can bring something new with that um with that stable con approach where one of the main reasons why people don't shield is first not everyone wants to shield because they are you know US citizen or something. It's fine. Uh but second is because shielding assets is not profitable.

It's not easy to get yields on shielded assets and it's not composable. Meaning you can't you can't use your shielded shielded assets as collateral to you know borrow on it or to uh uh get healed on it to lend it. This doesn't exist. So when we started thinking about the design of the stable coin, uh it was very important for us that we have natively high liquidity on the chain and to concentrate the liquidity towards the privacy pool and um one of the best use we see of the native yield of the network. So the network produces native yield.

So one of the best use of that knee yield is to incentivize people to deposit into the privacy pool and we want to make privacy profitable because we think that this is how people will actually get interested not by the kind of cipher punk or freedom arguments but just by hey I'm getting a good yield and on top of that it's private.

Yeah. And it's um I think like one of the the things that we we've noticed in our experience is also like um you you need to give people something interesting to do on a network. Um like a lot of a lot of u the ROS that have been coming out in the past couple years. They're like okay we we have um we've raised at a pretty high valuation. We have a lot of treasury.

We're just going to like spend it on attracting users. And then they are somehow disappointed when users disappear as soon as the aird do comes. And it's like well yeah there's nothing to do on your network except farm incentives of course. Um that's you know like like that audience is just going to depart. Um so when you are enabling privacy like how does that play into a larger context of like okay well I mean status is going to do well but like it's not going to be the only network right like how does that work in a multi-net network world?

So, um, very interesting question because this is, of course, when launching an L2, there was a joke like last year, which is, uh, hey, uh, it's like, oh, uh, they broke into my car and they left another L2 in it. Um, you know, that's like the the whole meme around. [laughter] They didn't take anything. They just left ETH ETH and an L2. Um, so so that was the main issue like there's a lot of L2 in the market.

um and and other networks of course other LT ones and etc. So how do you attract liquidity that sticks around? And we think that first having those privacy pools is a very sticky mechanism. Once you're in it, you want to stay I mean privacy is literally a function of time spent in the pool. That's it.

That's literally like the best you can do is stay there and do stuff. So most of the privacy pools don't allow you to do stuff. So you have nothing to do there and at some point you will just withdraw. Here the idea is that you can actually have your whole DeFi experience from the privacy pool. Now where we see a very interesting use case is because we have a network that is native

15 seconds. Um we want to enable solvers to basically use the network as u jumping board to go to other network leveraging the privacy pool the yielding u stable coins and e into that privacy pool and the gasless transactions meaning they can do gasless interrupt between different chains ultimately meaning you will be able to have uh shielded bridging of private bridging.

That sounds awesome. Thank you so much for for this chat. It was way too short, but still insightful.

Thank you, Ivan.