Latest Developments in DeFi - definikola

okay so we are all set um yeah first of all I'm very glad always to see you know uh defi enthusiasts around um uh and thank you for coming I want to also um thank for the organization team of the conference for you know uh setting up up this amazing event I was uh here last year and it was you know amazing I decided to uh to come back and do uh do the talk again um my name is Nicola or if you want to hit me up on Twitter it's defi Nicola um I'm coming from uh I'm member of the block analytica team which is uh basically originated from the maker maker Dow risk team um we are do basically doing risk management for now numerous defi Landing Protocols of course including maker um spark which is a subd of maker now also more blue protocol we're doing uh risk creation there they have sort of a different approach to risk management um we're also covering uh bger Dow the the ebtc protocol uh asna asna project as well Etc um okay so yeah uh today's talk as you can see is going to be uh latest developments in defi this is actually something I've uh been covering for quite some time now um been given giving uh this talk like uh couple of years for a couple of years now uh this is the topic the interesting thing is that that the topic stays the same but the agenda uh as you imagine changes a lot because we are you know working uh in an industry that is you know evolving evolving at the pace you know only only we know uh how how quickly things evolve in defi so yeah it's sometimes uh pretty interesting to see um to compare the agenda for from let's say last year to to this one to to this year so yeah I was actually giving like the the same talk topicwise uh in wara uh last year here and the agenda looked like this so we basically covered the centralized Perpetual Futures we went uh through the different uh mechanisms and designs of um of those protocols and we basically compared uh last year the the volumes on Perpetual Futures on the centralized Exchange changes uh and the Perpetual Futures there and uh the volumes on decentralized Perpetual Futures and we basically saw there is a shift um like a significant shift of volumes from centralized exchanges to decentralized exchanges as like our industry and the underlying technology progresses uh we also covered Oracle freeing that was like the emerging topic um last year Pro the def Landing protocols that basically wanted to um eliminate the external dependency of the price feeds of the oracles and we basically covered um different approaches uh to this uh Paradigm and we covered the leveraged e staking which will this year uh be reaking with you know the introduction of the reaking project called Ean layer um so yeah comparing to to this year's agenda uh the first topic will be something um some aggregation of um the new iterations of D5 blow chip protocols um we will see that a lot of teams are releasing their new version of their uh protocols uh some are just proposed some are already live we also touch on the point of the the maker in the game uh since as some of you may know maker recently announced the Rebrand to Sky ecosystem so we'll discuss a bit the the new stable coin that will coexist sort of exist with the with the dice stable coin that is uh it's important to not going nowhere so you'll still able you will still able to to use the die stable coin um this Rebrand is part of like phase one of um the maker end game and it's like currently rolling out so I think it's uh it's important to mention that that topic then we're going to head to um the Danon upgrades which went live in March this year like and the upgrade on the on the ethereum level that brought like significant reductions in um transaction fees on l2s uh then we're going ahead to something that was definitely not um present last year it's the cash and carry strategy that has been popularized and by by tokenizing it by the Athena project um it's interesting topic I think because it's basically introduced the new yield Source in defi uh and yeah as I mentioned we're going to also so cover the leveraged e let's say staking because I think it's still a thing uh we'll cover we'll discuss a bit about the risk uh developments there um um and yeah I'll then wrap up with some defi tools I'm using uh on a daily basis and that you uh may want to consider you know using while while wandering through defi regardless of a chain of or the use case you have um while using okay uh so the first one is basically uh the new iterations of defi Blue Chip protocols uh the first one is a uh they proposed like the V4 version It's U expect to go live at 2025 now I'm going to cover briefly some of the you know new features proposed and introduced I'm definitely you know limited the scope of the presentation because of the time of course um but uh for that purpose you expect to find these kind of QR codes you can scan uh if you want to read later or you know just for further details I wrote basically uh threads about um some of the the majority of those protocols the new versions so you can read it up later because as I said I'm not going to uh I will probably not cover everything so in I4 they basically the most um like a relevant feature proposed is something called unified liquidity layer where a aims to um eliminate the need to migrate liquidity from the previous version to the new version of the protocol because th those are always like a separate uh set of smart contracts you kind of need to to migrate all liquidity to incentivize people to migrate to new version um it also have I also introduced some um Innovations regarding the peping mechanism of their go stable coin so the the V4 is going to use the soft liquidations that were pioneered by the uh curve team in the curve USD Landing protocol and they will combine it with the Redemption mechanism of liquid V1 um liquid V2 uh actually the code base was released like a couple of days ago I think uh liquid we uh we to Aims to um like introduce new Redemption mechanism they also introduced a new stable coin called bold um the main Innovation here like the the something that they are somewhat pioneering in my opinion is the user set interest rates so in liqu TV2 while opening a loan you will be able to set the interest you're willing to pay I know it may sound like a utopian uh but it actually um you're actually setting that uh interest rate based on the risk you're willing to take on the Redemption risk because in liquidity um alongside liquidation you also have a Redemption risk which was based on your collateralization ratio in V1 and in V2 it's going to be based on the interest rate so the higher the interest rate you uh you are um paying the the less risk you are taking the less r Redemption risk uh you are taking um Unis swap V4 of course uh relatively new but yeah there are still some ongoing developments when it comes to hooks um people trying to build some interesting things when it comes to you know uh logic between and after swapping uh synthetics V free the Perpetual future protocol uh which basically means synthetic assets that are used to underwrite um different liquidity for different markets their target market is of course Perpetual futures um curv SD I already mentioned it uh its protocol launched last year but uh the Lama land is something new uh cvsd is basically more of a CDP based um Ln protocol that introduced soft liquidations it soft liquidations I don't know if you're familiar with it or how much but you can also read it up u in more detail um like uh in in brief uh protocol basically shifts your um volatile volatile collateral to to some to their stable coin so you basically can end up having curve USD the stable coin as collateral and as Dept so you avoid you know hard liquidation and it also goes in the other direction is if the price comes up your curve usds collateral can be you know uh converted back to the volatile collateral you use let's say ether or Bitcoin Lama land is um basically their aim to um offer shorting um different assets because curve is curve USD is more like maker or liquidity where you can just uh mint the stable coin and thus long um volatile assets while on on Lama land you can basically deposit curve USD as collateral and borrow let's say ether or Bitcoin and thus short those assets um Morpho blue morpho blue is a morha team basically started uh by building the optimizers on top of uh def money markets such as compound and a um optimizing uh the rates for suppliers and borrowers by you know um taking out um specific uh positions out of the liquidity pool and matching them peer-to-peer they uh at the start of this year introduced some completely separate new protocol called morphol blue and they uh basically aim to be like the financial infrastructure um by introducing like completely permissionless and immutable core um primitive which is morha blue and then you can build on top of it you can build uh mutable uh projects on top of it such as uh let's say uh metor of vaults for U you know depositing liquidity so that risk curators can then allocate debt liquidity to some markets that are deemed not to be risky so um so users can earn earn risk adjusted uh yields um Oiler V2 also uh launched a couple of days ago Ur V3 is also something new GMX um introducing uh the V2 of their of their protocol uh so yeah I'm really uh I'm going to skip um uh this part because there's a lot of things going on I probably even missed some of the protocols but because I mean the the bottom line is that is that the OG teams are really seems that they're building probably um uh even more than than um um any you know any anyone before um and uh yeah some interesting Insight I uh you know observation let's say I had while researching all of those protocols was basically that all those teams kind of uh took the step back and introduced a more generalized version of their protocols in a sense that for example uh you can build synthetics V2 on top of synthetics V3 or let's say you can um the the avv free uh deployment can be a single Market that can be built on top of avv free along all other markets okay uh um so yeah that uh Narrative of uh building more modular and generalized versions seems to be to be coming up okay so the next topic is also um relatively new maker like a couple of days ago introduced uh the Rebrand that is like part of the phas phase one of the end game um here I just wanted to emphasize that the stable coin and the maker token the governance token will remain but the users will have the option to convert to like new uh the new stable coin and the new governance token called uh Sky uh that will be available from September 18th when uh the those tokens launch and of course your users are going to be incentivized to do so um because uh of the farming that will be available the farming of the sky token with usds stable coin and um many other things alongside that there will be a new uh savings rate which will have a slightly higher yield than the current die savings rate so there will be some incentives there too um also important to emphasize that it will be possible at any time to switch back to usds uh back to day uh same goes for for maker token as well uh the difference between these two I think it's important to mention that as well is that D will be focusing on crypto native use cases while the usds um will be used for you know Mass adoption for scaling basically and the the that maker has been uh trying you know has been doing the um allocations in and you know injecting liquidity in the real world assets for some time now and I think that is also the direction that he will take with the usds uh when it comes to to mass adoption um one concern that that was raised in the community was the upgradeability of the usds and the potential freeze function of the new stable coin um so yeah D is definitely not upgradeable and everybody is still going to uh everybody can still still use it but usds uh is appr aable sorry meaning that um at some point if the decentralized governance decide the freeze function if you know deemed necessary can be added you know probably um for the regulation purposes and such but it's uh important you know to to note that usds will not have a a freeze function uh at launch which will be at on September 18th okay so yeah this is going to be uh quick topic basically um on in March this year uh after the Denon upgrade the new data type was introduced called blobs uh that are basically used by the2 Solutions uh this enabled significantly lower transaction cost on l2s and I think this is like important in general for the for the def space because it has um very um significant imp impact on it because now you can you have no uh let's say barriers to trading fully on chain because um protocols Landing protocols as well as the per protocols um deployed on L tools after the after the upgrade because the the fees are very low so you can basically open uh leverage position let's say on a or on Morpho blue on an L2 in one click at you know below below $1 which I think is really cool as um now people um that you know said I'm using centralized exchanges because it's much cheaper and uh it's not that I don't care about cell custody do not have that EXC excuse anymore I think Cash and Carry um strategy is basically as I said relatively uh new yield Source in defi um the yield source is basically capturing funding something called funding on Perpetual exchanges uh so to break it down briefly uh let's say that you have 10 ether um you want to open delta neutral position now what that is is basically you take nine of that 10 ether put it in some learing protocol let say a um to earn some yield and use the remaining one ether to uh open a 10x short position on some uh decentralized Perpetual future exchange um so that means you basically have 10 e spot uh and you have basically shorted um the same amount of ether on the Perpetual exchange with the the margin the Cal of that one ether so basically you have no price exposure of the collateral you're using in this case ether while you are uh hopefully earning some yield why why hopefully well because on AA you're actually earning like the supply rate on that N9 ether while on decent decentralized Perpetual futures um you may be paying or earning something called funding it basically depends you know on um on the open interest on that uh Perpetual future exchange historical data shows that uh people who are taking the short size of the trade are most of the time earning funding rate okay but uh it's important to emphasize that this strategy can you know is of course uh bear some risk uh for example if funding goes negative for a prolonged period of time you may experience losses and maybe even Liquidation on on the uh the peral Futures exchange that's why it's important to diversify um in both uh uh in um terms of both exchanges what you use and the collateral allocation to to lower uh this kind of risk now if you if you are uh not familiar with the perss and how they function I basically also wrote a a thread about those um so you can then um read on also about the delta neutral strategies which is necessary for for this kind this kind of cash and carry strategy now this year we saw a project that basically tokenized this kind of um uh positions so you don't have to like um open multiple positions on multiple protocols manage those positions uh when it comes to risk try to avoid liquidations try to track whether you are earning or paying funding Etc um if in a project came up uh they're basically uh doing all that for users and just minting the token that is that is um actually backed by the delta neutral position under the hood meting the token back to the user so under the hood uh how how the flow uh looks like is basically use you deposit some uh let's say usdc uh Athena uses that to to open the delta neutral position the good thing um or the bad thing is that they can use both the centralized and centralized Perpetual Futures and then um when they open a position they mean you uh the token called USD um that as I said is backed by by a delta neutral position to actually earn yield um this way you need to stake uh the USD uh let's say stable coin it's a it's a token um it's a synthetic token um so by holding just by holding s usde you basically can uh capture the in on various uh exchanges that basically Athena is using so they they made the process of capturing it uh much easier you know by just holding some token not uh having to deal with uh multiple positions and managing those but of course um it you know um I wanted to again say that here especially in the Beer Market it's uh very important to divers ify as I said in both in terms of exchanges and in terms of allocation of the let's say unallocated collateral or or the Insurance Fund that uh that Etha has uh you know to to avoid um having to pay funding uh you know in case of a negative funding heavy to to pay funding on the short side you are taking if you tokenize something of course that enables leverage so s USD as as you may uh assume uh is used as collateral now on basically every major defi learning protocol um it's very let's say similar to D because it's a yield bearing asset it's it it constantly um increases in in value um looping uh is possible like on one click already in uh various lending protocols uh to maximize the apy so basically as long as the yield that uh ethena is generating by this strategy the yield that Su the um um the apy of susd is greater than the borrow rate on the underlying protocol that you are using to Loop um uh for this kind of position you're basically maximizing your your apy but of course as you may assume this uh is a whole another level risk another risk level because you are uh first using some additional lending uh protocol uh to to do this um second you you need to follow the borrow ratees on the lending protocols in defi that are usually you know variable so you may end up um having negative apy Etc this is uh actually something we are that is part of our um uh work for uh for morphol blue protocol and risk creation there we basically are injecting D liquidity into one of our morha Walts which is basically uh underwriting this kind of U these kind of positions so you can open let's say a leveraged susd die position on on Mor for blue if you uh uh think that it'll be uh profitable currently I think that ethena yield uh is actually lower than the borrow rate so it might not be profitable but there are also other incentives such as uh incentives from ethena the points Etc okay so the next one is lever e staking this is actually a topic that was mentioned uh last year as well but I uh uh left it here because I believe it's it's still a thing that were many um U important developments like from last year when it comes to to this strategy uh in theory if you max out in terms of average you can um still have like 20% apy on e um the from risk perspective there there were some changes um we basically at block analytica did the analysis of uh comparing uh using market price versus the exchange rate for the staked e tokens let's say rocket pools are e or lios state e Etc and uh we basically decided to uh switch to the exchange rate uh used as an Oracle in defi learning protocols that sort of um enable the looping of um of um Stak teth having it as collateral and e as a depbt asset so it's basically the strategy called Leverage e staking uh I also wrote a full risk analysis if you um want to to check it out um so yeah now majority of Protocols are using Exchange such as Morpho blue A3 spark uh this basically the main you know argument for doing this is to prevent uh sudden to prevent liquidations if there is a sudden uh small uh price drop for any reason um of the the the stake teeth uh derivatives that are used as collateral in those protocols because people tend to you know um max out uh in terms of Leverage and then if you see some um even little and slight price drop they can get liquidated and being liquidated you know it's paying liquidation penalties and it's not good um the minimum spread actually between the eth staking yield and the borrow rate on the underlying Landing protocol uh went down to 0.2% um if you want to compare if this strategy is more profitable than simply holding um some of the e um eth staking derivatives such as Lio stake teth and on the graph I don't know if you can see but on the graph below you can basically see the like the historical comparison between the Lio yield and the a um borrow rate on on ether uh what also um has been um developed is that the new interest rate models when it comes to the borrow rate of ether in the underlying protocol so let's say a and Spark are basically making sure setting up the interest rate models so that make sure that uh the borrow rate will always be below the the staking Guild so this this strategy always basically stays stays profitable okay yeah so uh to wrap up um I just wanted to um leave some tools here that I'm using on a daily basis uh and that you might consider if you're not using it already um so if you want to avoid being MD um consider using Mev blocker and Flash Bots rpcs if you need gas on basically any chain you can use the tool coming from the amazing guys at def Lama called the small refuel um simulation is something that I um usually recommend especially to people that are new to the industry simulation in terms of transaction if you want to uh you know see the output of the transaction how it um like what happens within the transaction Etc in general you can use the rabby wallet um and for like U defund Landing protocols and that specific uh use case you can try out the defi saver they also has like uh simulation that you can basically turn on and then um check out the the whole app when it comes to loan management to minimize the the liquidation risk uh yeah please focus on protocols that are ble tested that are doing proper risk management uh and yeah ideally uh try out some automation features um and you know um try to use uh multi signature wallets for for various reasons for swapping um what I Al also usually recommend is the meta aggregation which uh kind of lam swap does without any additional risk uh if and if not that just uh you know consider using the the aggregators themselves okay I think that'll be it thanks thanks for [Applause] listening now if you want to step over here Nico we can take one or two questions from you while the crew is setting up for our next panel so crew can we start setting up for the panel thank you thank you if you want to just come right here so you don't get a chair dropped on your foot does anyone have questions for Nico he just gave us an amazing presentation from what I am understanding and I'm putting this very basically you can make your crypto work for you while you're I don't know going to events or going on a vacation to Italy so does anyone have any questions about anything you heard yes please guy with a cool hat yeah uh hi uh you've mentioned that um you can use like per trading platforms to create this kind of delta neutral portfolios but isn't it better to use like dated Futures and dated options for the same date to create delta neutral portfolio and there is like not a lot of tools like this on the market but like perps in this scenario I think not an Ideal tool uh I would I mean I would actually agree but uh I think that options like as a type of a derivative and especially I agree that definitely can be used for this purpose I think they're not um lived up to their expectations especially compared to like traditional Finance and compared to Perpetual adoption of the Perpetual Futures in the def space because of the the complexity I think that's uh you know people uh if you're using Perpetual features you just pick leverage and you know one click and that's it for options you really need to understand um uh in in more depth let's say you know how that all functions and uh it's I would say for sophisticated Traders and of course you can do delta neutral uh and it may I I would argue maybe even easier but you know people are just used to this kind of type of derivative at least for now in defi so yeah but in general I would I would definitely agree yeah great question okay fantastic waiting for one more chair do we have one very quick question yes please and what about funding because if we're talking about per Futures it means that you have to pay funding and you know like what comes from my research it make such schemas not profitable yeah because all the percentage that you get from the def you have to pay as a funding uh you asking about funding in in a sense of uh options or because in sense of Futures like future trading you have to pay funding you know or someone pay funding to you like exactly uh there is definitely a risk I mean uh the Athena project that is like tokenizing disc strategy uh has like um established risk committee committee just for this purpose because they don't want to end up paying funding for a prolonged period of time because that will end up them losing money right that goes the same for like individual Traders so it's definitely more risky and that's why I mentioned the diversification right you you need to you know use different exchanges and uh because funding is different uh on different exchanges of course uh and yeah like the whole strategy is based on a historical data that shows that funding was um usually and like most of the time positive uh and if it turn negative it stay negative or like some uh insignificant let's say uh period of time great question sorry we don't have any more time but if you'd like to speak to Nia that would be amazing if you guys can talk outside thank you so much Nia thank you