How Fixed Rate Primitives Work in a World of Degens and Rugpulls_Will Villanueva

awesome uh thanks for coming everyone to the talk uh so my name is will i'm with element finance and uh i'm gonna tell a really cool story today and connect that to sort of how the market reacted to it and also how fixed-rate primitives sort of are involved with that and part of that so how fixed-rate primitives work in world of degen's and rug pools i'm gonna go into the story of xerox sifu what happened with abracadabra the entire scandal that you know went there with wonderland sort of use that as a premise for this talk and then connect that to see like how did that affect the markets overall uh so let's begin the story so quadriga cx was an exchange that was in canada had a lot of volume it was one of the biggest exchanges that was operating over there and the ceo at the time was a guy named gerald cotton so joe cotton was like this happy guy smiling people really liked him he garnered a lot of trust from people he was sort of for a while like a poster boy in in canada and people sort of looked up to him and uh it just so happened he went on a trip to jaipur india and what actually uh died according to the stories and this this part of jaipur india is actually been famous for there's sort of like a cartel there that gives death certificates to people for you know a certain amount of money and so a lot of basically theories and conspiracy theories and different things came together as a result of this so quadriga cx right before he went over there right before he died they were actually using people's assets funds in the market to long short trade they were buying up a bunch of different assets they actually ended up getting a balance sheet to be less than the amount of assets that were put into quadriga cx from the users um so they were already close to insolvency and uh could not pay back people's funds so it was sort of this interesting you know coincidence that as he went out there um he you know died and he was the only one with the access to the keys and therefore they weren't able to give people's funds back so there's currently a mini-investigation that's going on regarding this so uh before i you know go deeper into this talk and talk about everything i want to give a disclaimer so i'm covering theories that people had the concerns uh what you know a lot of people sort of speculated on this may not be what actually happened this isn't necessarily my opinion i just want to share what people sort of you know took through this and how they reacted to it so michael patrion was also co-founder of quadriga cx close to gerald cotton one of the founders very very involved in that um as well so michael patron we all know um as xerox seafood so xerox sifu and i'll go into this was sort of you know involved with wonderland which is basically a part of an ecosystem of a bunch of d5 projects there's three in particular that i'll talk about in specific so when xerox sifu is doxed this is sort of one of the threads that went into this as that co-founder of quadriga cx it ended up basically creating this cascading effect because he was involved in wonderland he was on a multi-sig for wonderland and the treasure there treasury there had basically access to the funds there people really really started to be nervous and worried so let's let's dive into that a little bit more um daniel uh basically was you know co-founder of these ecosystem projects so there were three ecosystem projects that sort of made up this entire system uh popsicle finance uh abracadabra mim spell as you guys are all very familiar with and then the decentralized wonderland which is sort of where this entire you know scandal controversy everything began so i'll kind of go into what each of these were real quick and then we'll dive in a bit deeper so abracadabra um basically allows you to men mim which is a stable coin pegged the dollar uh using interest-bearing assets so there are urine assets that you could use and some others particularly one that comes from um that specifically came from wonderland so get into that here the wonderland was essentially a fork of olympus some adjustments some different changes that was operating on avalanche and uh within the wonderland ecosystem there was an asset called wrapped memo and wrapped memo was an interest bearing asset that was taken as collateral on abracadabra so you could take the rap memo that you got through the wonderland ecosystem on avalanche you could take that you could collateralize it on abracadabra and you can mim from it and again you know xerox sifu who is sort of involved with wonderland a very active contributor he was docked doxxed as michael patrion the co-founder of quadriga cx and thus there was a large reaction and a lot of people started panicking so everyone started freaking out they began worrying and then a lot of theories began coming to fruition um so one one of the hugest criticisms and how you know daniel and these other peoples responded to this is when this came out it was clear that daniel you know at the time knew who xerox sifu was and the project wasn't super responsive they were quiet on the discord when people were asking them and this put a lot of uncertainty into this ecosystem this sort of cascaded the lack of trust and the lack of you know confidence in these systems as a whole so people started freaking out more and more this is sort of in contrast to wormhole finance they had a 220 million dollar hack but they responded immediately uh they weren't on top of everything and they actually used it as an opportunity to gain trust from the community and they actually built a lot of goodwill so in contrast with that uh you know essentially they were not responsive people started freaking out and so i'm sure you all saw the twitter drama all the threads everything that happened that was involved in that so the theories began so xerox sifu co-founder of quadriga cx he had multi-act multi-sig access to 400 over 400 million dollars in treasury for wonderland um a number of transactions they had seen xerox sifu was sending through tornado cash which again started creating a little bit more worry and a little bit more concern through the whole situation um so what were people thinking was happening why did the market start freaking out so uh daniel and also xerox sifu had you know a connection or the theory is they had a connection to bitfinex where funds were being cashed out and so people began believing that actually abracadabra this entire ecosystem was actually created as an exit strategy for 0x sifu and a number of other characters so what they saw was xerox sifu was able to take this wrapped memo that he had from you know wonderland he was able to mint mim from it and then basically through mim on curve there's a mimpool which is balanced with 3pool which is a mix of dai usdc and usdt and so the theory is they were using the abercadabra ecosystem to mint that mim convert it to dye usdc usdt cash it out on bitfinex and then exit and have funds in their bank account and so again this was this is what people were worrying about people started freaking out they lost confidence in the ecosystem of all these projects they lost confidence in daniel at the time um and they were extremely worried and so the the market started speculating that mim was going to break peg so essentially breaking peg is mim supposed to be equivalent to a dollar they were expecting through all of this to sell offs the scandals how legit were these ecosystems that it might drop down to 80 cents 75 cents go down significantly and people would freak out there'd be massive sell-offs and the whole ecosystem would crash and so this created some very interesting results so some of the degenning began so there's a concept called folded borrowing so folded borrowing is essentially and i'll use it you know in this example essentially you take let's say you know you're in usdc position you collateralize it you mint a bunch of mim and it's at the dollar peg in this moment um then you go you sell it for three pool usdc die usdt you go back into that interest bearing asset you collateralize again you mint mim you do this recursively a number of times a bunch of times and so essentially what you end up getting um and the speculation is that if you do this over and over and over again um let's say you accumulate one million dollars in collateral the peg breaks it goes to 80 cents you basically make 200 000 profit instantly like super simple and so people were betting it was gonna go down they were doing this folded borrowing even more mim was being sold on curve at this point and it ended up causing this massive imbalance in the curve pool so the currency reserves at the time ended up getting to an extreme level so the pool in and curve at one point was at 95 percent mim and only five percent three pool so as it started happening people sort of took two sides right people freaking out that it's gonna break peg held a bunch of mim they started panic selling their mim um and then you also had the other people who are speculating that it was going to you know go to that 80 cents because people were panic selling they were going to make a ton of money on this and so they ended up you know doing this folded borrowing which ended up making it so everyone's selling mem you know the balance in the curve pool ends up being you know 95 to 5. it's crazy and this is what ended up happening this is what was going on so it turns out you know curves stable swap algorithm is actually pretty strong even at like a pretty high imbalance um and so some people sort of saw it and they were like okay uh the curve stable swap algorithm is going to be pretty like solid here even at this like you know this pretty big split it's probably going to like still keep peg also mim was highly collateralized by a bunch of interest bearing assets not just not just rap memo so a lot of people were like okay so even if we have these issues with rap memo mim has amazing collateral probably going to be okay it probably won't break pegs this is sort of the other side that people saw so again i want to give a disclaimer covering theories concerns people had the going ideas that were on twitter the going theories these don't actually represent what i believe necessarily because i don't know what's going on behind the scenes so just want to give this you know clear disclaimer um so let's connect this to fixed-rate primitives and how it created this really cool effect in those markets and uh i want to show you guys like how fixed-rate primitives are actually a lot more interesting and they can work um you know they're not just simple fixed-rate uh tools so let me dive into that so first i want to talk about what you know element does to sort of explain how fixed-rate primitives work um so in element we have you know this idea um if you have a hundred eth and let's say you know there's a yield position let's say you're an eth i'm using numbers here that make it easy and there's 20 20 apy what you can do with element you pick a three month time frame or six month time frame you deposit into that yield position so you're still getting the interest everything else and you get two new tokens out of it so one represents the principle so you put 100 ethan your principal will always be 100 eth you get 100 each back right the other one is the yield so you get 100 yield tokens and that's the interest that you gain over this time period so essentially over three months you put 100 eth down 20 apy in that three months you get 100 each at the end for your principal that you can redeem and then on your interest to separate representative of the interest that you have in the three months at a 20 average you can redeem that for five percent apy um so what we you know have done and what what you can do which is really cool is we have basically a constant power sum and variant uh we you know built this into balancer but essentially allows a market for people to take the principle that they're doing um and create a market out of it where people can sell buy the principal and it sort of as a side effect creates these fixed-rate primitives and i'll talk about that in a second and this this specific invariant is optimized for fixed rates which assume that over time that hundred each will be uh completely exchangeable for 100 each so it essentially works as a stable swap at the end and in the beginning it allows for a variant in in the price and the rates that you see so uh the best way i can describe this is uh you know if i have a dollar and i say hey you can't use this dollar for three months um i'm going to give it to you uh well you lose like an opportunity because you can't use that dollar you can't put on a yield position so you you know what is it worth you for you to take that dollar so it's like saying i'm gonna give you 90 cents for this dollar right so i'm gonna buy a dollar for cheaper but it's it's locked up and at the end of the three months i can use it so we saw this really cool thing in our platform when we first launched we were in a market low uh the market was sort of you know yield rates had gone down significantly at the time and we saw something interesting through the markets where our fixed rates were actually higher than the variable rates on pretty much all our positions and the reason why this was is people were speculating that the variable rates were going to go up this is a temporary market low and it was pretty cool they actually made a lot of returns by doing the speculation because they were right the rates went up pretty quickly and uh so what people do we call the seal token compound and it's this like recursive game that you can do through the fixed rate marketplaces we have where you can like six 10 20 x leverage into variable interest um won't go into too much depth here but the idea is you start off with 10 eth variable rate's 20 you speculate the current fixed rate is 10 you take 10 eth you mint the principal and the yield tokens you sell your 10 your 10 principal tokens at the discount now you have 90th in liquidity you re-mint now you have 19 exposure to the variable interest you sell your principal again at the 20 discount you have 8.18 27.1 in exposure the variable interest repeat rinse recursively i can end up at the end nine cycles i have four eth in liquidity and i have 65 eth exposure to variable interest basically giving me a 6.5 x leverage into the variable side and so like if you follow these rates and what's going on essentially at the end of that time my final redeemable balance would be 16.

9 eth that's a 4.98 gain i got 69 percent apy on a position that was going for 20 so this is this is like mind-blowing it's cool this is some of the things people do with our platform tons of other things they do but um so let's connect this um the mim scandal and everything that happened so people started believing that the uh essentially mim was gonna break peg that that way the variable interest they were gonna get was gonna go way down people started basically taking the market where the fixed rate ended up shooting up to 100 130 percent uh because they were panic selling a bunch of the a bunch of the fixed rate mim the principal tokens we ended up having a hundred and thirty percent apy on mim on our platform at this time it was crazy um and a bunch of people uh got a lot of returns through playing with this market so first it went up to 130 percent a bunch of people bought it up brought it down to 50 went back up to 90 percent a bunch of people bottle bought it up and normalized back to normal value so basically one of the things that i'm sort of you know getting to and what the these markets and fixed rate markets work as is there's sort of this highly liquid arbitrage market that actually lets you look at where variable rates are going to go are they going to go up are they going to go down you can play with these there's a ton of opportunity and it's so liquid because if you think about it the principle if i put a million dollars in principle down and there's 10 percent apy interest is only 100k but my principal is a million so i have 10x the liquidity on the principle that is still following the variable interest this is like a cool cool secret cool trick and you don't even need to play on the specifically variable side because they sort of converge to the same thing and so it acted as this arbitrage the sentiment market people got this opportunity and it was really really cool so one of the things sort of what i you know want to draw from this talk is that fixed rates these markets they're way bigger they trickle into so much more they let people actually see and play with variable rates at like a much higher liquidity a much higher degree leveraging into this and fixed rates aren't just just this boring simple concept it's actually a wide market there's tons of use cases and these use cases like increase even more and more as these fixed-rate primitives become collateral in different markets and you can sort of supercharge these opportunities even more so uh element finance we have a ton of really cool things in the work we're doing a bunch of awesome things um perpetual exposures to uh fixed rates some really cool amm designs we're launching a new governance uh primitive it's a protocol called the um it's the council protocol uh which we're doing a bunch of innovation on um there's some other cool things that we're bringing to the market you guys are going to see we have an amazing team innovating at like a really really high level and it's really really exciting and that's how i want to essentially conclude the talk there's a lot that you can get in the fixed-rate market so thank you uh will villanueva element finance if you guys have any questions just come ask me and most of my team is here we're all here at east denver and we're going to be here for the next few days so thank you