Building the Derivative to Protect Ultrasound Money's Sweet Yield | Darren Camas

[Music] or so for like Benchmark for defi all it means is what's the cost of capital in defi today uh and as extension of that you can think of the staking rate inside of ethereum as the risk-free rate in defi so these kind of have two parallels on the data side uh and then if we look at the interest rate swap or what we'll talk about a little bit later is the stake rate swap it's a traditional derivative instrument you use it for hedging you use it for speculation and you use it for Arbitrage okay what's important is the iport index and also the stake rate indexes these are public goods so how it happens in traditional Finance is if you're building a credit product your bank is going to quote you a rate that rate's coming from one of these indexes uh they're going to say okay you want a home loan I'll give you the s for rate Plus plus 50 basis points or half a percent right and so this contract that's written on pin and paper dictates what you'll pay for your mortgage over time so in the same way we can build this in defi where we have this transparent immutable index is printed on chain and actually other builders can point to it to actually structure their different credit derivatives and deal terms and so the iport index itself is a public good that's available for all builders in inside of the credit markets so we took this Behemoth instrument that is a massive uh Trad five player it basically underpins the entire debt markets and we said okay so how can we apply this to defi how can we take something that's typically uh you know an OTC swap between two financial institutions and how can we implement it in decentralized finance so we adopted this putio model because when you're bootstrapping a market that doesn't exist you need this kind of nice bootstrapping mechanism so we built the first peer Topol swap for the stable coin pairs right so there's an iport index for usdc usdt and D because when we started this project no one was borrowing eth but a little Alpha that's going to be dropping later eth is one of the most B instruments why because you can have these nice leverage looping you can get different trades that are basis trades between the cost of capital the cost of eth and baring on the money markets the stake rate return and very soon the liquid reaking rewards okay so this chart right here is a chart that's talking about interest rate volatility so if you guys remember last year around this time you had the collapse of Silicon Valley Bank with the collapse of Silicon Valley Bank you had people cutting risk in usdc which caused the usdc uh rates to plummet uh and and you had a really nice rate inversion right here so you had a lot of people that were interestingly playing this basis trade inside of defi so derivatives are very good at either speculating on these volatile moves or actually protecting from them so if you're paying attention to what's going on and all the talk about the reaking narrative there's a chance that there's going to be a very strong premium on the staking rate but there's also going to be a lot more risk there's going to be slash risk there's other validation risk and that means that you're going to have a lot of volatility this volatility can be traded it can be baked into instruments uh the derivatives can be used for protection okay so if we look at this kind of Structured Products right if we look at the defi stack uh as as a software stack on the bottom you always have the index on the bottom you always have the data so that's the uh what's the cost of of capital for Bowing stable coins what's the ethereum staking rate what's the liquidy staking rates uh you guys are familiar probably most with this kind of markets layer that would be the AES the compounds the maker uh uh the maker Dows of this world uh on the derivative side you have something like the iore derivatives you may have uh the Pendle YT markets and then how you turn this into a structured product is actually you go through all of these three layers to create a nice product at the top okay so with the iore index we were looking at the stable coins right but we're here to talk about you know securing that sweet uh ultrasound money yield so if you look at this this is the uh this is the this is the chart of the Lio staking rate right so there's some volatility in there obviously the more the more people that are staking uh the lower the yield goes if we're in a ball Market we have a couple of uh nft minting Cycles maybe you'll get a spike on the uh execution layer rewards so this is a tradable commodity but Lido prints it once a day on chain so if you see this chart this uh the ipour engineers were one of the first ones who were able to actually get this at the uh at the epoch level so every six and a every six and a half minutes we have the Lio rate that can be now not only a tradable commodity on the long term but you can actually day trade the lto stake eate so how do we do this uh well we iterate over the list of the thousands of validators uh pay attention to the Mev Rewards pay attention to the different block rewards uh and you can see here on this chart you can see the the white dots are the Lial prints and the the blue line is the Inay print right so if you have something this volatile actually on a stake rate swap you can offer some pretty high leverage and it's actually not that Deen so on the ipor swaps uh the stake rate swaps on mainnet right now you can take up to 500x leverage and on the arbitrum swaps you can take up to 300X Leverage The whole idea of Leverage inside of uh interest rate derivatives it's a payoff over time it's not like a per so if a per moves if you have a 100 100x leverage on a per it moves 1% you can get liquidated right right on a stake rate swap it's actually exchange of payoffs over time so that means let's say you're an Institutional player right uh everyone's talking about the ethereum ETF and we see a lot of of these filings get updated where a portion of these funds are going to be allowed to be staked so this staking portion is where the institutions are going to want to hedge their downside risk on the ethereum staking rate and this is where the stake rate swap comes in to these kind of nice uh structured products okay so how do we bring these to Market again iport protocol is about data it's about derivatives and it's about Structured Products so you have to build this nice pipeline so what does it start with data so if you look at the data side you have the uh the stake rate uh data from the lto stake eth rate you put it through the model uh you have this nice feedback loop and then you launch the market uh so this actually uh this product pipeline will ow us to launch uh you know other derivatives around other liquid staking tokens uh and eventually I think one of the ones that you guys might be most interested in are the liquid raking rates okay so if we look at 2024 maybe we're out of a bare market and there's a lot of things that are converging right now okay so if we look at the macro we have tradire rates everyone was going crazy about rwas everyone wanted treasure IES last year but now we're pricing in rate Cuts maybe mid this year so treasuries are going to be a lot less sexy but we already have an inversion in defi where the stable coins they have a much higher rate of return between 8 and 10% so that means we may have a lot of capital flowing into defi in stable coins in dollars from traditional Finance from traditional fund structures inside of defi if that happens maybe we get a lot more speculation on the assets inside of defi maybe you get a lot more gas fees that are paid maybe that puts the execution layer rewards up maybe you want to go leverage long on the stake rates so these are all kind of interesting dynamics that are coming in so this is like this wave of capital that can come on from traditional finance and actually enter inside of defi uh the other major play from last year was the ethereum borrow to the stake rate uh leverage looping right we we had entire funds that were structured on this borrow get access to ethereum staking rinse repeat but we already have people that are talking about this liquid reaking returning 10 to 15% right this is going to change the Dynamics of the cost of borrowing ethereum if it changed the cost of borrowing ethereum it could actually change the entire interplay between how many people want to stake why would you stake for a 3% yield when you can actually get either liquid eth uh what could be up to 8 10% or uh reaking reward at 10 to 15 so this is going to change this Dynamic so I think we're going to see a huge shift between this leverage looping between the ethereum borrowing and the staking rate and there will be a nice trip party balance between the staking rate the ethereum borrow rate and the reaking rate okay you guys may know this guy this was uh this is what a podcast from a little earlier this year I want to see how the Deens are going to speculate on interest rates I think everyone is trying to find that native expression of an interest rate Swap and that's actually what we've been building here for the past two and a half years so we launched the stake rate swap uh back in the second week of December uh since then it's underwriting I think right now around 80 million in open interest and over the lifetime it's underwritten over around 4.3 billion worth of notional swap volume so this is important to see actually you have the the stable coin swaps down here but people really care about protecting that sweet eth yield and I think that this is going to be a major driver for the IPO protocol it's going to be a major driver for the next narratives and especially for these uh nice Structured Products okay so again we're going to have this kind of trip party uh trade so the trade of the future is going to be what is going to be the risk on not just the igen layer points but the different validator sets across reaking what's going to be the rate of return how are you going to H your downside risk in case of a massive slashing event so for example in the stake e stake rate swap you can think of a receive fixed position or basically shorting the rate as protection against slashing right so will we see these actual interest rate derivatives these stake rate derivatives will the reaking derivatives will they emerge as some kind of insurance will they emerge as some kind of fixed rate protocol I mean this is something that is yet to be seen but I think this is the nice interplay that we're looking for in I think the next 6 n months when these will go liquid okay so in the iort product pipeline we just launched the arbitrum WAP Stak eth uh pools and the stake rate swaps on arbitrum so it's the first time that you can uh you can trade create these instruments on a less gas intensive um uh layer uh right now actually just past governance is an e pool and so this e pool is the iore uh the iore protocol's first step into liquid reaking and this will underwrite the ethereum borrow rate so if you look at this the ethereum borrow rate and the stake teeth stake rate Swap this is the leverage looping protocol that will be able to underpin these nice Structured Products and then in the future there will be other pools that will be underwriting different reaking uh different reaking rates and then again the usdm is a sour swap so we see this sour swap which is a trafi dollar Index as the conduit by which uh liquidity enters from traditional Finance into Defi and so this is setting a a little bit of a a little bit of an example of I think where the major narratives in 20 4 are converging where the capital will flow in from the outside into Defi and where inside of defi that you can really look to get these nice interplays between different yield uh profiles uh so iport Labs we have a sizable team very deep uh background in entprise software development uh a lot of mathematicians people from hedge funds uh myself I've been building in crypto since 2011 uh my co-founder since 2016 so we have a very long view to this industry uh it's not an easy project to deliver uh but this is something that you know if we look at the importance of interest rate derivatives in traditional Finance this can be something that the credit markets you know not just next year but 5 10 15 years in the future can be built on the other thing is if you're interested in the iore community we actually have a very strong Community uh that's already active we have three protocol uh three governance proposals that have gone through in the last two weeks if you guys are interested in getting involved uh there's the aoran group which they've worked their way up uh and these are really kind of the uh the um the community stalwarts there's an economic work Group which manages things like Dex liquidity it manages things like um uh ISS uh emissions of rewards you have the governance workg group you have a Marketing workg Group and pretty soon we'll be setting up a market and models workg group which is really focused on the quantitative modeling uh and risk parameters of the ipor protocol if you guys are interested check out the ipor app you can scan here go to app. I.O uh all our documentation is on ipo. iio uh and yeah I think that's it I'm very quick over time so if you guys have any questions uh I'll be down here at the stage afterwards thank you very much