"Permissionless Building with Aave" - Stani Kulechov

so without further Ado I'd like to welcome Stan to come and share some thoughts on a welcome stanie hey everyone hey cik Ashley uh yeah so um today we're going to talk a bit about uh a uh and and also permissions uh building we'll share my screen uh it it's super uh super cool to be here now uh being very supportive uh for uh for the uh it Global community and and also the the whole ethereum community and uh as as some of you all know uh a and and a used to be called uh eat land short for ethereum landing and was kind of like born uh in the born and raised in the ethereum ecosystem and uh one of the things um I I personally notice is is back in the days uh when we started to build in in uh 2016 uh there wasn't much uh uh developer tools available uh the ecosystem wasn't um this big as it as it is today uh not just D5 but in general the whole on Chen ecosystem so so definitely uh the whole Community has come up uh very far and and I'm happy to see like uh different kinds of um hack ideas um you guys had in the uh Discord and and and uh yeah I'm I'm looking forward and and for now uh we'll give a quick introduction into a and and what we're doing uh so in in general uh a protocol uh is a u uh decentralized money market protocol which which basically means that uh it consists of different kinds of uh reserves uh or actually money market and within those money markets uh you have reserves for example you have uh D Reserve uh usdc Reserve uh usdt reserve for example stable coin Reserve or uh other currencies as well that are uh listed there and each Reserve is a a a function of a a pulled uh uh kind of a pull Reserve in the sense that when when you deposit into these reserves you your funds are uh basically mixed with other uh depositors in um as a money market protocol uh you basically deposit to a to earn uh interest uh to earn yield for your stable coins or uh other assets and when you deposit into a let's say uh D what happens is that actually a credit line is granted to you so you can actually borrow against what you uh deposit into AA or you can let someone else to borrow and delegate that U uh credit line and um that's the kind of like a main functionality uh what what we have it's basically a a base uh layer protocol in the uh defi ecosystem lending and borrowing is is interesting in the sense that uh it provides the very basis yields for uh these cryptographic assets that are on ethereum network so uh um that is why today we're going to discuss about like how people are using a and and like why it's so popular and B basically what makes it so popular and why uh uh we see a lot of uh kind of like Integrations or are B part of U this so-called money Lego uh blocks uh and yeah so so we started back in uh this year with with the protocol in in 200 um 2020 January and and completely from scratch with with the liquidity and and the liquidity has grown quite substantially so in in defi those who are less familiar uh there is a metric called total value locked which represents the the value that the smart contracts of a a protocol uh has and interesting part here is is that uh as a metric it doesn't actually uh doesn't it's it's not the best metric to measure any kind of a success because uh it just tells how how what is the quantity of funds that the the smart contracts are trusted but it doesn't measure the success of the protocol uh the the Integrations or any kind of like uh volumes and and and so forth so it's it's basically thees from the idea that uh putting funds into smart contract is always a risk so you're risking funds in that sense and that is why uh it has been seen that the more people are putting funds the more people trust it trust the the the protocol it's it's not the most um convenient metric but it is it is what it is in this today in Dy um so the the morning Market consists of of different uh reserves and and and different uh yields and those yields are uh derived from the interest rate uh curves based on the utilizations so the more funds are deposited into a uh it it basically means that there's more funds to borrow and the interest rate goes down and when there's more demand for let's say different stable coins for example we see more Demand on a or or less Supply in a sorry in D and and that means that the interest rate in D is is basically uh higher U and uh those interest rate curves that that we have as a basis in in in the protocol those things can be changed CH by the governance for example to uh optimize uh the yield curves and and that is one of the most fascinating things and maybe uh less kind of like a research uh researched area in in in uh decent trans lending on how those kind of different uh curves could be optimized and and alternative curves could be created and and quite quite an interesting um hack idea and also a a research topic out there and uh as as as a is a protocol uh it also means that new money markets can create it from this protocol and we we created during this year uh Unis fop uh version one as a kind of like a proof of concept money market to uh allow unisat liquidity providers to collateralize their LP shares uh in a and borrow funds against them so they're unlocking liquidity and we got a lot of um uh positive uh experience from from uh creating this new money market and with with our upcoming version two we will uh deploy uh the support for uh latest release of the unop div verion 2 and also a bunch of other very interesting U derivative uh money markets uh what makes a quite uh special is that uh we rely on heavily on interest bearing tokens this basically means when you deposit into the uh a protocol uh let's say you deposit die uh you get in return AI which is a interest bearing uh uh token uh that represents uh your deposit into a and also any interest you're earning so um it's kind of like a receipt that you get after after putting your fonts into a locker and what's what makes a tokens very very interesting and and especially recently we have seen a lot of U kind of U uh other projects uh trying to uh also kind of like take inspiration from the a tokens is that those balances of the a tokens are increasing algorithmically uh it basically means that uh when you earn interest in in the a protocol uh your your a token balance grows wherever you're storing it it can be in custody it can be in your metam mask in your Ledger uh that balance is growing uh there as long as the the uh provider the wallet that you using fetches the balances from uh from the blockchain and and and these are actually programmed to increase every second in in that sense and what it what why it's so interesting is that you actually don't need to go back to AA to to claim that interest that you earn but it's it's actually credited directly to your wallet and I could imagine that uh in the future you could uh do all kinds of similar uh uh tricks algorithmic balance increase tricks uh when it comes to payments uh if you're if you're actually hacking something this hackaton uh you could actually think about uh using something similar as a tokens in in with the changing uh balances especially it's it's cool because you save uh gas cost uh directly and and uh of course it's it's US USD nominated uh which which which means that uh you actually uh since a a tokens uh is is a um interest bearing uh token you don't actually need to deposit to a to get a tokens but you could actually just buy a tokens from somewhere and you actually have the exposure if if you buy a tokens from unisoft or balancer you basically are your you're getting exposure into a permissionless savings account and this is very cool because it creates an very easy way uh to integrate a so you don't need to actually even use the simple deposit uh functionality because you could or or repay because you could just uh uh exchange a tokens uh from one place to another and and use use something like automated Market making uh protocols and and the important part about a tokens is that uh you know and and the part of being a permission savings account is that uh it actually helps people in the sense that uh if you come from a region uh I mean this is a very Global hackaton right so if you come from a region um where the local currency has lot of inflation and and and basically there's no uh legitimate good access into USD nominated seix account in in your banking infrastructure uh this actually solves a critical problem in that sense because you actually have a s savings account and actually no one can come in between you basically hold your right uh to that so so you're not trusting banks in that sense and and anything else in in in between and and and this is like over a long term period is is quite uh Power powerful and of course like the the thing is that the balance continues to increase even if you send that a token to someone else so essentially what it means that you actually have a uh payment currency uh that that is actually all the time increasing in in in in the uh balance I mean what could be any better than paying someone with a currency that increases in value compared to a currency that has inflation and decreases in in value and this just shows like what kind of uh Innovation you could achieve in in decentralized finance uh with with the uh technology and uh then we we have a interesting feature that uh got a lot of traction in in the in in the protocol which is uh uh called uh flash loans so in essence uh what you could do and you could use this in in a project that you are building now if you need some kind of liquidity or or uh up up from Capital so how does it work you basically uh uh borrow from from a 100% under collateralized loans so usually when you borrow in in defi it's it's it's uh over collateralized so you put a collateral which is more value and then you borrow something else that you actually need so you're using your collateral there as a as a deposit deposit and and here in with flash loans you basically borrow without a collateral and you can borrow maximum amount of liquidity that there is in in a uh currently it's it's roughly billion uh fluctuates from 1 billion to one and a half and uh in practice U when the the depositors are depositing into a um only 25% are borrowing so the rest liquidity is there uh which could could be used in in Flash loans and the the the kind of like a u uh idea of the The Flash loans is that you need to return the The Flash Loan in one transaction so so if you manage to do that uh then whatever you do in between will be successful in in in that sense so um how does it work in in the sense is that the the ethereum blockchain uh settles uh every block and every block has certain amount of gas that could be spent on transactions and every transaction could have nested transactions so one transaction could execute multiple transactions which basically means that uh you borrow flash loan from uh you could basically buy a currency that is cheaper in uh let's say in Unis swop and sell the currency in uh balancer where you get better price for example vice versa and return the The Borrowed currency back to uh the the to the AA protocol and because you returned this transaction all the other uh the loan all the other transactions uh will also succeed if you fail one of the transactions uh for example uh you you don't return the the the funds back to a it basically means that all the other transactions you made to call with this used Capital will also fail so it's kind of like a u thing that relies upon the ethereum atomicity and has been existed there for as long as ethereum has has been around and there's quite interesting use cases that you could do uh you could do for example refinancing instruments where you don't need to put uh take liquidity providers Capital instead let's say uh you have a loan loan position u in One Lending protocol on on uh D and and you see for example that in another lending protocol there might be uh cheaper loan on usdc and and and and you are using let's say e as a collateral so you could take a a a die flash loan from a close the loan in the first landing protocol take the eat and put it to the another lending protocol and and then draw usdc and now you have basically cheaper rate borrow rate you take the usdc and you sell it in in Unis swop and and basically for for die and return that flash loan back to a so what you actually did is that you refinance a loan from one currency to another One Lending protocol to another and and and to a cheaper borrow rate without without actually using your own capital and this is a product that you actually build uh for a end user and and and and and it's direct value added for them because they can change their exposures without actually returning those loans and and there's a bunch of other things that you could do with flash loans I I think it's just uh imagination that is that is uh uh Li limiting and and I I'm pretty sure that uh during even during this hackaton uh as as usual we'll find some uh pretty new use cases and and something that will impress impress impress everyone again um yeah the flash loan is is kind of a serious volume uh these days uh since we launched in January there has been over half a billion for to flash loans and uh I I think defy saver is one of the most active user uh in terms of U flash loans and and one cool part is that the The Flash loans actually uh uh provides uh basically yields for for the end end user as well so it's kind of U quite quite cool another thing we have which is quite recent that we added is is so-called credit delegation uh functionality so um credit delegation means that basically now roughly uh 75 or so percent they're in in the a protocol are depositing but not borrowing so they're purely using the protocol to to to gain uh interest to gain yields for their stable quance or other assets that they're long it might be like a link and so forth and um that's that's pretty fine like that's that's a that's that's the use case we have uh but we notice that basically uh there is also demand for for for borrowing uh of course without a collateral but actually uh credit delegation is a way of of delegating your credit line uh after depositing to someone else who could actually borrow uh this could be uh your friend another per person for example you could make a legal agreement with with that person or uh might be OTC Landing desk or it can be also like a actually a smart contract that you uh delegate the the the credit line to and the idea is that the the depositors when they delegate the credit line uh they they they actually earn more and cool thing about this is that when when you deposit one currency let's say you deposit uh usdc and earn interest when you delegate your credit line uh to to someone uh that entity can actually borrow anything that is possible to borrow from a so that's that's pretty uh neat thing and and for this functionality we actually deployed uh the so-called credit uh delegation proxy uh in in uh which allows you to actually create this new create delegation walls uh and and anyone that holds a tokens just deposits a tokens into this wall and once there's a tokens it means there's the collateral and then the borrower can draw from uh from the a protocol without a collateral so uh I think I'm very bullish on the ability to lend out into to to to Smart contracts uh there there's one example uh of of WN uh ya link um uh W which actually has credit delegation activated which means that uh you can deposit a link uh into this uh ya link W and and that W basically draws credit line uh from a so it borrows usdc and and then I think it deposits into curve uh to to uh Farm CRV and and generate yelds for The UU uh for the depositors and currently they're borrowing roughly 20 million worth of usdc uh from with the credit delegation so so the the potential is huge and I I definitely urge everyone that is interested in this feature to think what kind of other use cases they could be for um delegating credit to a Smart contract that has pre-programmed functions that people can read the contract and understand that okay by reading this contract the the borrower contract only can do this particular function so I'm happy to delegate because there's no credit risk or the credit risk is very low so this is like very cool thing uh yeah aomix is interesting thing because uh we have this so-called um uh safety module uh in the protocol so one of the reasons uh uh we we have lot of Integrations and developers building on top of a is is because uh it has been battle tested and on top of that uh we have this so-called safety module where the a uh community members are staking their a into the safety module uh uh against rewards to basically s provide safety for the uh protocol depositors and uh that's very interesting uh functionality and the idea is to uh basically uh provide safety for all different money markets there are and if there's some ideas to hack around the the uh kind of like the safety module and how to use it because it's uh Insurance in in one sense and and I think Insurance uh is something that is uh highly needed in the defi space but also where we will see a lot of innovation so that is an area to to take a look at uh quite closely uh yeah so uh the the actual topic here uh permission is building with a uh I I want to actually uh discuss a bit about uh like what is permissionless uh and and why it matters in a sense and and just uh show a bit of like uh the key components what goes to the permissionless um kind of properties such just the the compossibility and and how some of the projects that are building on top of a or uh have been built previously in in this uh it Global hackaton um has actually utilized and in like why it actually is is is is very big value proposition and and and for for the whole ecosystem and whatever we're building so uh in in in very uh normal sense we we all know that uh permissionless means that anyone can access so those developers who come from the web 2 world uh you probably pretty much know how it works there in the sense that let's say uh if you want to build a product uh that interacts with other let's say software uh uh you you basically need to obtain an API key so you need a permission to use that other piece of technology uh you need to subscribe to terms and conditions um that that fit uh so so basically whatever you're building has to actually uh be in the line of what the service providers is offering and and accepting and providing in terms and conditions and and then once you get the the API key then you can build uh different things and that API key can be revoked as well so uh that access might be granted for uh temporary uh period and and and basically in in the uh in in in the permissionless uh find well let's say just like building permissionless applications it's it's basically means that actually uh you don't need any kind of a API key and and all the uh components usually are pretty much open source on on ethereum so that means that anyone can build anything uh anything they like and and for the users it means that anyone can access those things that you build whether directly or through smart contracts so permissions technology doesn't uh discri discriminate the backgrounds of of uh of the users or the the developers and and it basically means that uh wherever you're located um in in the globe uh you have the ability to build whatever you want in the whole ecosystem system and it's just not only uh decentralized Finance but for example you might uh build new games you might build some other functionality and take advantage of the whole ecosystem you could take advantage of of decentralized Finance interact with with uh those uh protocols I interact with for example um nfts uh and and cryp uh crypto blockchain based games and a bunch of other stuff so so the whole think about it as a as a internet where everything is accessible you can use everything that is uh put into the this uh internet this this uh decentralized Network and it's that all data is usable for you and also all the interactions is also something that you can uh partake in and and and usually you can also build things on top uh so so if if there is a lending protocol like a you could actually build other kind of functionality that is needed or or then you could just use AIT to something else and use all the different protocols and all the lending protocols that are in uh uh in in ethereum and even bridge to other blockchains and that is like the the idea of like that that that the permissionless uh means not just uh permissionless access for as as a user but also uh the permissionless building and that is like what these uh hackaton are all about um uh to me and of course like uh it means that no one takes permission on your funds that goes with the noncustodial aspect and that you can see what's happening uh in the whole ecosystem you can see and you can audit anyone can audit and what's happening and this is like big big part of part of the the whole uh permissionless uh value proposition and I could uh maybe say that uh you could compare compare like the the permissionless uh um def fire premiss of Technology as as a ocean in in some way so I love this picture in the sense that it really uh shows kind of like uh what you can like like what what you are actually um access accessing so in in this case like if you if you think about like ocean like it's all connected with each other and and in Ocean you have different kinds of life in different part of the world and and you everything is accessible in in in ethereum it's actually accessible by like you know with one function in real life probably in oceans you need to travel long distances if you if you want to see like what's happening the other part of the world uh so imagine how it reflects in in decent Finance uh is is basically you see this kind of like liquid liquidity pools in different places you have a you have for example uh un Unis swop U uh Market making liquidity balancer and whatnot and and all all those liquidity pools are accessible to you it's a big big ocean that that anyone can uh join participate and and no one is rest restricts your access so so there's no one coming to you and saying that you can't swim in the ocean uh because that that kind of thing doesn't exist it's it belongs to no one and that's that's basically what it is and I I really love the the the uh this uh comparison and in in practice uh how it works is is for example I was brainstorming with uh Mariano Conti uh from from from U uh used used to be a developer in in Makow and and and and does a lot of things in in the defi space about uh maker w walls where basically when you create this maker world uh it it basically means that you collateralize ether or something else and and and and print uh D the the stable coin now uh there's different variations you could use ether as a collateral you could even use usdc as a collateral and but you cannot swap the collateral in between so let's say even you ceriz eat and then uh you print die but then you you want to change it to wbtc you can't do it because uh you need to close your CDP and and there's various reasons for that to keep the system simple and more secure for example and as a usability it's kind of like a difficult and and I ask in in Twitter just publicly like is there anyone who actually wants to build this thing because this is very good value proposition and very useful for many and uh person that I didn't previously know uh David wrong actually uh wrote in a few hours that uh I actually created this now I I read the tweet I created this small of concept so you can now swap your collateral from eat to b b to eat and and that was like pretty pretty cool and then just another person from somewhere else uh around the globe came and and and basically tried to swap the collateral and was successful in in in this and and David I first time met him actually in one of the the E Global hackaton in E London where he was hacking as well and now now he actually uh works at a and helps also in this hackaton so so if you have any questions uh feel from David need any help so uh feel free to reach out but this just shows you like uh you can be anyone and and and from anywhere and and just start building participate and and just create products that you you think people need or products that you care about and and no one is restricting you to do that once you deploy into the main main net uh first test net of course like you you you need to be responsible but the end of the day uh they will live there as long as the the blockchain is is hold hold up and uh and and there there's comp compatibility in the update so it's you could create uh virtually uh applications that will run uh for the rest of the their existence imagine imagine deploying a a completely new bank that will just run as long as there is uh demand for it the the side effect is of course that it's uh it might be quite competitive because if someone deploys a new bank that is slightly better than than your bank then the liquidity might go partially there but it's of of course not the full story and and and competition that Rives Innovation and so forth uh in terms of like compossibility uh so permissions building also means that anyone can build on top uh so if you build something on the uh during the the hackaton on a I might not even know about about it unless you you you you basically come and tell or or uh I read the submission uh and that's that's that's the beauty out of it because you can build something uh fairly quickly and and use liquidated that already exist uh in in in a or the whole def ecosystem and and now the whole the the the the AA ecosystem for example there's um I think 50 different ways to to access a with with different um browsers or or different Integrations and and also pretty pretty cool projects that has been built on on top um in a and I I think this this really shows like what defi is it's actually not not only it's not about one particular project it's actually the whole ecosystem when we started in 2017 the beginning uh before etland there was one D exchange and you couldn't do much uh in in that environment but now when where you have different kinds of liquidity pools Landing protocols options platforms uh derivative Futures there's so much you can actually do and and also the other parts of the onchain economy nfts and so forth are growing as well so like it's just expanding so much there's so many things to to to to build uh one of interesting projects uh that are are now uh in terms of compossibility is being built is aachi so aachis are nfds so non-fungible uh collectible uh Collectibles um in in the shape of uh ghost so you have this kind of like a ghost characters and and they have variables uh consumables and and you can connect different kinds of Brands into the this ecosystem and uh what what's interesting about uh the avoip project is that um the developer the idea came from last hackaton in in hack money in in terance of uh directing interest rate from one place to another uh one of the founders that uh basically created this yield hero where you can redirect interest rate and from that idea he came up with the aoi idea and it works in a way that uh you basically get this ghost Collectibles and you can unlock those ghost by based on the interest you earn on on a which basically means that uh the the the the better you are at saving funds the quicker you lock uh the the Collectibles and and also there's this kind of Rarity farming that uh that the better the better you save for example the the more rare stuff you can get and uh yeah teaching people to save that's the objective of this particular project and that is why it's it's very uh remarkable as as for example the a tokens a way to get Grant uh uh premiss savings account uh globally this is a way to teach people how to save so there's very interesting uh mechanics behind of uh this project and it's uh Dao which is a the the actual real Fair launch um to to launch project so it was interesting because there's not many of those and yeah it started in hack money as I presented uh another project uh which is pretty cool uh and and and um uh fascinating in the sense that uh is is that uh they they focus on uh providing uh stable coin swaps with with low uh low slippage which which basically means that they're uh rewarding liquidity providers sufficiently to provide enough deep liquidity for stable coin swaps if you want to swap large amount of stable coins which used to be very Pro problematic because uh the lack of liquidity and usually you didn't have stable coin to stable coin Pairs and this is what practically curve solves and and to optimize those yields uh curve uh especially the Y pole curve uh deposits are going to a uh which which means that they're optimizing their yield and and they're storing the the collateral the deposits uh in AA getting the AA yield and the liquidity bar is also getting the trading yield from from curve so it's a nice way to um kind of like a a um increase the efficiency of the uh the the uh the the product that you're creating for example I could imagine um I could imagine for example a scenario where if you're creating a payments project and you could create some sort of like a pulled pulled model where liquidity is stored and and in that way uh uh you could store that liquidity in let's say in in a and use those yields to pay the gas fees and enable free transactions to some extent and a bunch of other stuff so it's an interesting thing and of course the wirn uh ya link World which I mentioned earlier is is pretty cool uh way to to uh uh to to use the uh credit delegation uh function uh directed to Smart contract so so so so the the the cool part is that uh why a link Walt is a deposit Walt and it has a strategy and since these two things are kind of like uh deployed deployed code you basically can read the code and and see what that strategy can and can't do and and based on that you can understand okay this strategy doesn't increase any credit risk so it just borrows from a and then Farms um something and brings yals for the Y link depositors so in in Simplicity link depositors are receiving a link when they deposit into a they take their a link and deposit into the uh ya link Walt uh to earn more and and and the Walt itself with its strategy borrows with credit delegation uh from a so the a ya uh a-link depositors are actually ones who are delegating the credit uh to this uh uh places uh to to to to to the uh strategy and uh yeah and currently they borrow usdc uh and that's that's pretty interesting to to to basically farm and and we have a uh another interesting project called U defy saver that's actually utilizing the The Flash loans and and this is pretty cool uh in the sense that they they are closing automatically cdps in in in maker system before liquidation so um in essence uh they're they're borrowing uh die from from our protocol and and they close the CDP with the die take the eer sell the eer return the uh die to the a protocol and and return rest of the proceeds to the user so that the user doesn't uh uh kind of like pay the U uh the the uh liquidation kind of like incentive for the Liquidators so they're saving funds uh that way and one uh particular interesting U project is called photo combo and I I think um this is interesting in the sense that it's a way of no using no code so uh aim to non developers uh to to to basically uh create different kinds of uh defi transactions uh and and you could basically create a flash loan deposit into uh unisab Deport liquidity and and swap between unisab kyber and do bunch of other stuff so it's it's it's really interesting interesting that you could actually create products that are not like targeted to developers but cre functionality to non-developers because that's a big crowd that that that could be um uh satisfied and then we have BL Blazer which was in in in e e London and and and and uh this project uh offers fixed term loans they deposit into a and then with their own interest rates calculation they they offer you a fixed deposit rate and also um and also give give you the future earnings for you for a fixed time period and and this is quite interesting and I think the fixed deposit is a is and also fixed borrowings is is something that is still uh uh unsold and and could have a lot of innovation in the space and if you want to get started uh yourself on on on building permissionless Le uh with a u there's developers docs docs. a.com developers um uh about the a tokens and and how to do a flash loan so so there is an actual example on how you could Implement a flash loan uh with a flash Lo receiver contract and and try it yourself out and it might help you on whatever uh you're building uh in in the project in your project uh that's all about it uh this is our our team uh The Avengers and and there's a QR code to our telegram if you have some some questions we're here uh we have the the sponsor channel uh in in the hackaton Discord so if you have any questions uh but besides that uh this was the the presentation from my part today and I hope you guys had fun fun following and uh yeah thank you thanks so much Danny that was great um I was hoping we would have a little time for questions but unfortunately we have to move on to the next one but I just wanted to quickly add um that if anyone does have questions you can go ahead and put them in the chat sty I think there were a few questions for you so if you want to hop back in the chat I think uh everyone's very excited that you're that you're here so there might be a few things if you want to hop in the chat to answer them um thank you so much and thanks again for sponsoring the event so cool um and