PANEL: Mode, Qidao, karpatkey, ISC: Yield-Bearing Stablecoins on L2s

next up we have a panel on yield bearing stable coins on l2s balancing efficiency with potential risks with our moderator Ivan from Aragon we have Richard from International stable currency we have Julian from kpat Key we have Pablo from tidow and James Ross from mode perfect thanks everyone for showing up um let's let's let's start with the basics just an intro from all of you guys James you can kick it off hello I'm James founder of mode mode is a D5 Focus L2 building uh on optimism super chain I'm Pablo the Penguin and I'm founder of chow a stable coin CDP um that we've been running for about four years and launched on many l2s so kind of know the game pretty well hey y I'm Julian I work in katki as treasury manager I manage nois da treasury also working in ecosystem development for nosis chain hi my name is Richard I a co-founder at ISC it's a asset pegged uh stable currency um also we have a Solana ecosystem representative you busted me it's important is there a stable Co in Sala yeah there's a few there's a few we got PayPal USD that we we need a stable coin to buy those mem coins right hi everyone I'm Ivan I uh spend a lot of time during the day working with Julie in katki and I advise Aragon on everything ve and gauge related um so you know I'm not picking on you okay but uh all right like I can't survive I can't Sur are are yield embedded stable coins a fat of the cycle are they here to stay no I think the T Bill might the the T Bill stable coin might because if the T bill goes back to zero is like why would you hold that uh but I do think the future is non USD stable coin uh the the reason is uh inflation is only going to get worse uh over time like that's the only way like that's the only soft way out of the Deb problem that we're facing there's other like way out but I I don't even want to live in that world uh so yeah I I do think like we're going to start to come up with better currency that are not Fiat uh Peg uh that's what ISC is I think uh Reserve protocol actually came up with the the concept uh they build a protocol to build this kind of currency I do think it's going to become more and more popular and as as the t- bill yield goes down uh more and more people will realize like oh can we can we do something else in t Bill uh yeah and also people will move away from the US dollar I think so it's basically the RW aogen horse sort of situation a bit yeah I I think so especially as we're able to accept more and more currency like seamlessly uh like cons the nice thing that we have is Jupiter everything routs through this uh we have to go on other chain uh one inch but not everybody uses it so that kind of becomes uh like the mode for UNIS Swap and so on is so strong that even if you launch uh like curve then like you need to attract your own customer but thanks to aggregator uh like Jupiter and maybe other aggregator are going to come up anyone can launch a USD stable coin it's just going to route to whatever the the person receiving the payments want so you can have a merchant that wants to receive usdt and you're using uh usds or ISC or anything really because it it can all be swapped live uh at at payment so so so here centralization makes it easier yeah yeah sure I mean I mean we're just putting a stman there cuz we still got 1 in which a lot of uhab yeah cow swap we got kyber aggregator like there's a plenty of options there's open ocean on a lot of the different l2s so I think in terms of game field you got all these opportunities so so but do most people trade on those aggregator or they still trade on the agors are integrated in most of the no integrated is fine it's like like the the issue is that no what I mean integrated front end integrated like you go into Linea and Linex and it's the trade is routed through open ocean rather than the uh just the LPS within the protocol so if if someone goes on Unis swap website does it get routed to other decks no right yeah actually it does okay they have they have unisoft X right yeah yeah do people use that yeah I mean that's the that's the default mode yeah got it got it I would just bit um realignment no that's great actually because then it empowers what I'm saying uh so that that's totally fine good good to empower you yes good to feel empowered awesome um James um like is it you know we have nois we have blast um with like embedded yield is is this becoming a must for a L2 to be competitive to to have these sort of like embedded yield assets so I think blast and other like embedded yield chains I think there's like tradeoffs right so um for sure it's like pretty good ux to just bridge and you have yield um on like the base asset you bridge if it's eth or a USD stable coin um it's nice and um yeah there's obviously like a a lot of uh tradeoffs that come with that so if you look at blast uh they've done a lot of work to like essentially enable the rebasing of the sequencer level that's pretty complex um it's not just a standard op stack that's like well trusted so you know some LPS might be less likely to want a bridge to blast versus like a standard op stack chain um and you also kind of have less asset flexibility so with mode we decided to not have embedded yield and instead let users choose when they're on mode um from the variety of assets that are there so they could choose uh sde they could choose uh SDI which is now s usds um and yeah there's flexibility for the user um this kind of works a little bit better when it comes to bridging as well uh it's easier to bridge off those assets for a long time people felt kind of trapped on blast because they didn't have third party Bridges to bridge off uh so there's definitely trade-offs I I think for us like the main plus of going this route is uh when we speak to like larger LPS they're pretty confident in our security model because it's the standard like op stat configuration um and yeah that's kind of the main thing but I think we'll see uh a number of like kind of more innovative solutions appear Innovative chains but it's also very competitive right now so unless you can bring like a significant amount of yield um to a chain that launches uh you're going to have a hard time I think competing uh with what's already there you look like you have a I have quite a few things to say I mean for starters like I love I like what mode is doing but I think you're putting yourself in a corner by you know saying we we take the op stack because well then from a user perspective I can just go to Dr or optimism and do things there but then from the my perspective I think that most l2s should be treating etherium uh as their playground as they should be seen as ethereum whales and access the most native yield you can get so for example if you're doing D you get into s die if you're you doing usdc well you don't um and kind of apply that to all subsets of the applications so that they the protocols that integrate you don't necessarily start deciding well today I'm picking D tomorrow I'm picking usdc then I'm picking Axel usdc because you end up with the same issue that we had in salana like a few years ago where there's 20 versions of usdc bridged from like 20 different chains and then nothing worked so they had to go kind of shake up and change things but especially for smaller l2s that are not billion dollar sized that don't have huge market caps and Integrations with exchanges taking that yield that you can make not necessarily rebasing it to the user but providing liquidity mining incentives like even with esta you're making 5% that's you know 50k a year that's sizable for a bribing Market yeah absolutely I think for new l2s they need to focus on like one or two yield bearing uh stables and try and nail them um for us and then look at like the combination of applic and the differentiated strategies you can have on your L2 right and the yield that can come from that and the the risk adjusted yield so for us we're focused now very much on uh V drones launch Eng gauges so uh we have uh ethena uh ssde which we're going to incentivize heavily to build up that stable coin the yield is pretty high right now it's getting a lot of hype so that's like a core strategy for us to try and build up liquidity around that asset but yeah I agree like us initially having a number of assets like eight different yeld Bank stable coins meant like there's a lot of liquidity fragmentation so you can't get uh liquidity onto the chain in size right unless People Bridge it on so that's definitely something to yeah think about yeah the other side is as you're acting like a whale you can go to protocols and say we have enough liquidity you can give us better deals you can give us a cut of the profits and you're able to build more sustainably for nl2 rather than just showering uh LPS with the rewards directly yep absolutely we we we got into the liquidity fragmentation thing um is is there like aside from the you know potentially better UI is there are there like Risk vectors uh to that as a like like does liquidity fragmentation just up UI or does it create also risk vulnerabilities for for for the users and the protocols what are your thoughts guys I think uh one of the main security issues that I can find is that you end up trusting Bridges and um the more bridges you have to trust of course you're incurring more risks there have been a lot of um Bridge H hacks for the past few years and I don't see why that has to stop so i' rather have like native versions of the asset and have to rely on Bridges and 10 Bridges kind of solves for the security and and 10 based bridge where the the user just uh put an 10 it's fulfilled that kind of like zero tvl uh bridge that kind of remove the risk from the user no yeah I'm me sure in when you have the native stable yes but like if the asset are Bri you know PA you guys are deployed across a lot of networks how's that like like what are some of the unique challenges is is bridging a problem I mean it it's all it was always a problem uh when we first started we did uh like a bridge contract that would bridge for the user directly with the user so we would wrap the all the bridge tokens so we could unbridge basically undo the bridging transaction through the mint and burn Bridges and effectively get the messages across but we still controlled which Bridges would relate the message which enabled us to be safer when you know multichain um disappeared and other Bridges like relay chain like we've been able to onboard and offboard different ones but the best metaphor to look at these systems is inter exchange fees you know like if somebody's trying to pay uh a vendor in Africa and like they need to go through a specific vendor or pay through Y and there's the route the route is what's going to be the fee to use your stable coin so if you think about it as your end user you you want to make sure that the fees are low for the majority of them and you got to incentivize that so that you can maintain low fees whether like you got a lot of PayPal users maybe interconnect some liquidity for py USD or base we we've been really hammering down our base strategy just cuz a lot of usage a lot of tokens it's able to attract a lot of users um we've we're also kind of working on mode at the moment uh launching with our v v plans but yeah like at the end of the day metaphor is the inter exchange fees for you disable coin cuz you can have the best liquidity like or I don't know CRV USD but if you don't have liquidity for users to transfer um it's useless Julian um nosis is the OG of of native yield I mean it's it's Unique in like choosing a stable coin as the base token and then the the you know ASD uh you know can you talk share with us some of the some of the learnings from the and like what would you do different if you know if you if you have to think through this today yeah so um I think like what we did at nosis was um a long time ago not even nosis right X die initially started having d as the native asset um uh when when maker raised the DSR it was a no-brainer for us to deposit the bridge funds there um because it were like no risk attached to it no additional risk if you're already holding die depositing in s die is is a no-brainer um but now we are facing an issue which is that uh maker is migrating to usds and yeah they they said that they would maintain the re the the yield for one year but they're already like uh widening the spread between SD and S usds um so now we are facing an issue if we should migrate or not and uh it has a some some technical complexities uh we need we going need to upgrade the bridge and uh we're going to need to let the users choose if they want to do that or not it's not just the Dow right it's user funds and well it's the same entity issuing that you uh tokens it's it's already the same right because usds is upgradeable um so anyways I could say that um the number one thing is um to have some more flexibility uh to be able to migrate um if if we have to um maybe creating some sort of basket that allows that uh for that flexibility um and yeah and and and secondly something that I think it's quite important is never sacrifice on on the risk right like put put users first because users um on boarded on die not on uh usds or other coins so take that into consideration I think you should yeah I think you guys should like because you if usds dies same way for maker I think they're hand in hand right now they're conjoint twins but again yeah people will complain and you shouldn't let a small like loud minority to stop you from improving your protocol and making the hard decisions that can help you survive I think like it's it's uh it's complex because um we don't even know if uh usds is going to stick right like was just about last week if maker should actually move forward with the reuning or not the rebranding but not necessarily the infrastructure I I think of course not making the decision immediately and like making sure it's good but in the favor giving users too many options you might end up you know getting beat by another L2 that decides to do the same Playbook and we're not going to give too many options to the users like I don't think we're going to have both uh usds and and and die um and they were certainly going to take some time and see how things evolve before actually making a decision uh that going to take uh quite some effort to implement yeah um so it seems like Julian and James are are more on like give power to the users and P is more on like like make make the tough decisions Richard where do you do you think like this decision should always be optain for the user and and and for for them alone or should you as a network decide to like take advantage of better negotiating position and and and you know move forward no I I'm kind of aligned that if you give too many Choice uh the user will walk away with not knowing what choice to make and therefore like being phasically leaving because it was too complicated so I I think uh being opinionated is generally better uh and then it's it's your job to essentially figure out what's the right decision for and that applies for I think any product just just not just stable coin uh you got to be opinionated uh and and hope that you make the right decision for your user uh and the the user keep the flexibility that they can pick another product uh and then you you have to reevaluate from there like why are user coming and why are they leaving and then you readjust your decision based on that uh yeah if you give too many decision they I think they'll leave I think um it depends right because in the case of uh D it was like pretty clear that we had to uh deposit in this die but it's not the same to uh deposit deposit us C sitting on the brid in AB because you're clearly taking more risk R and you can say like oh yeah a is like secure or whatever and what if uh if there's a downfall a takes bad dep there's a hack or whatever like you are taking that decision on behalf of the users and you canot do that users were uh on boarded because it was usdc Vanilla USC not deposit in a so it's different if you're if you're clear uh from the beginning right like if you create a new bridge and where the US this is possi na okay users knew what they were doing but you can just like YOLO the users funds yeah yeah so so that yeah that's very important c yeah that you you cannot uh it say like take take users funds or shift users fund based on like they made a decision assuming something and then you just change that something and you just keep going and that I don't think that's correct you need to allow user to essentially migrate more or less uh otherwise I think it's IM more so I have a fun one I I don't advocate for this one but what if a sequencer or bridge and L2 decides to take part say 50% of their usdc which could be like 500 million and putting them on coinbase and earning like 4% kind of like what maker did with the PSM so I I think that would be okay if they give time for the user to like leave essentially like we're going to do this in two month months uh you have two months to leave and then there like to to your competitor or whatever I think that then it's okay like you you can move forward with a business decision that you need to do and the user have the flexibility to leave yeah but if you just do it like suddenly uh of course yeah yeah uh then then you have to take the regulatory risk right of ceasing the user funds depositing in now in in coinbase where you have to KC mhm I I don't think it's that simple of just like okay let's get 4% right right but with the increased regulator uncertainty now we have more certainty in regulatory actions and we might be able to potentially pursue these strategies so all of those have like plus and minus you just like you got to try to pick the right right sets of uh of like advantage and disadvantage but yeah of course regulatory certainty it's like we're crypto founder like there's always regulatory uncertainty where regardless of how far we go decision uh like just making no decision is not really going to actually protect us uh so so there's like there's a gauge there I think and everyone has to especially Founders need to navigate that um so so I mean the example was like okay we forgive people two months but um like what happens with redemptions and liquidations if the assuming like a CDP sort of design like like if the under Ling asset and and the stable coin are living on different networks like like do you guys have thoughts around unique challenges related to that scenario I think it's about liquidity right like uh if can be very liquid throughout different exchanges or chains but if there's little liquidity in the layer two then you have to be more conservative setting up parameters yeah are you talking about about like cross chain lending particularly yeah that one is crazy cuz I don't know right now if you tried I tried bridging from metis and anything over 10K and I was getting 9k on ethereum which not good to bridge out of an L2 and losing 10% of your funds um which then translates to if there's a loan and someone wants to bridge into metis to liquidate it and then bridge out and they lose 10% they're not going to do it so then it opens up a huge existential risk for any protocols built like a which have not fixed the bad debt liquidation issue where if you liquidate further down than say 10% um it's just going to continue eating in your collateral until there's that but no collateral and yeah big big no good I think an example of uh it wasn't a dpeg because easy eth wasn't Peg to eth but um there was a drop in the price of easy eth and easy eth was across like a number of l2s I think there was like a 100 million on mode at the time and all the l2s kind of reacted differently or people had leveraged their positions um on numerous lending protocols it's probably integrated with like 20 different protocols across like five different l2s um and yeah there was a different impact across all of them um and it was pretty bad on some so yeah again it was it all came down to like the liquidity and The Leverage being used in the system mostly thanks to the fact that they picked connect as their main Bridge so instead of you having to bridge into every L2 which means if you want to AR addit anything you got to move out of the L2 which most of them seven days which again not good um but you're withdrawing s days and then you're getting your money and then you can swap it out so there's a lot of risk they they were able to take advantage of all this L2 liquidity thanks to taking the risk of using Conex as their main Bridge yeah and I think connect had like I mean the connect Bridge had a router right so like as long as like there was liquidity in the routa there was I don't know 10 minute 20 minute like withdrawals um otherwise it' be like up to a day uh but yeah obviously like there wasn't enough in the routa to have these fast withdrawals so that was a pretty big impact it also comes down to like are yeah people managing liquidity actively on your chain as well so like rebalancing assets on the Chain um is that something l2s need to think about yeah the crazy one right now is like Linea where you can just go on De screener and look at the price and it fluctuates a lot you can buy usdc at 102 sometimes and then in the morning it will be 98 cents and so that needs to be fixed somehow because Linea is kind of an isolated chain it's not built into like super chain or ckvm chains almost like metis so they're running into these issues where liquidity is not ample and it's not self arbitraging so there's probably a better solution for liquidity in these chains particularly maybe not requiring Arbitrage maybe putting oracles within the LPS so that the prices can remain stable without needing an extra me layer or somebody swapping or an Arbitrage Bridge and then then you're talking about Integrations and market makers and trying to get across and it's the whole thing yeah I think also blast saw a fluctuation in the price of usdb because yeah it was more difficult to uh essentially run Arbitrage strategies on the asset so yeah that's definitely something l2s need to think about like the General market structure and if like for some reason the price of usdt drops like how quickly is that going to be Arbitrage back um we were running some tests with like an onchain agent and it decided to swap usdc to usdt on like a yeah a really small pool that wasn't really used um and yeah immediately lost like 20% uh because yeah I don't know why it did that but like yeah usually that shouldn't happen right there should be an Arbitrage bot running across that that pool Julian you got some Alpha on managing liquidity on L chain not really not much to add to what they said um okay um I mean you you U James you mentioned like oh like Easy E being on like 20 different protocols across five different networks so it like stable coin space is crowded LSD space is crowded rollup space is crowded how do you from from your specific Vantage on like like how how do you pick partners that would be a live for the long run sorry can you repeat the last part so sort of like how do you pick the winners uh how do you pick a protocol to partner with uh that is not going to die in six months cuz Founders vested and moved on or whatever I think you have to look at what users want right so most like initially when we launched mode we were focused on uh yield bearing assets because that's what users wanted users wanted to leverage those assets um and they wanted to farm specifically like IG layer points at the time um so it's like okay we can help protocols building on mode create like a good environment for that um and so yeah we're really looking at like what do people want in the market like what do our users demand uh and what kind of strategies are they looking at and what can we uh help provide them with for this so I think the last few months saw uh people start to move to like y Bank stable coins so I think this is going to continue to be like a big Trend like a lot of people are moving from holding eth or BTC to yield bring stable coins maybe that will change I'm not sure uh but yeah I think for us we look at things like you have um the applications and you have the assets and users are often looking for like an ideal combination of those two things so uh it's like you have they might be holding um um usdt and then like what application do they want to utilize the asset with I I think the the rest could answer that question as well because it it everyone would have a unique perspective like how do Peak winning Partners in in a crowded space I think um on on one side I agree you let users choose um it's uh it's hard to predict what's going to happen in five years like uh I'm sure that with the regulatory change that we see in the US we're going to see uh some um trufi sharks on boarding onto Defi and bringing under solutions and uh they might bring more liquidity and they might uh end up winning um I do think that um yeah I I agree yield bearing stable coins are are here to stay and um users are going to look for that um especially when it enables people from different parts of the world to access yeld that otherwise they couldn't and enabling EC access to that it's for me it's it's important yeah uh I I guess there's kind of two types of decision one that like you get to only pick one kind of like which chain you go on uh and and the other is like which one do you partner with uh because you you can partner with multiple protocols for example so how do you the way we selected s and I I'm sure like there's you can select the L2 is like you need to look far in the future and think what do you want to build and and what will Empower this because you can chase the narrative and be I mean either you're super fast and you always manage to to grab it while it's still the narrative but most likely by the time you finish building the narrative is gone to the next thing uh or you can just use the narrative whenever it passed by and then you keep building towards that Vision I think that's that's probably the better way to do it um so I I would be worry of like incentives any like kind of points uh that tries to attract you have to be very careful because that will probably eventually stop and you unless like you you see that like it's good because it's just going to boost straap and that's good like boost trapping is good but it needs to like remain when finally it stops and the user are still there and so on so I I kind of have big hope for base because there's very very deep integration so even if there's no more incentives like it will I think it'll continue to succeed same with with s little bit dubious withu and optos but that's that's just an opinion like other people have different data point and I'm just saying like that's how I would make a decision uh but otherwise like the shorter Partners I I mean pretty much like if that works today you partner and then you you move forward um you said you know you have to look into the future so let's spend the last few minutes looking into the future um you know five years from now five years from now um how does that look like like like is it all abstracted away like do people care what what stable coin they hold on what network like what what what does fiveyear down line look like and I would like to hear everyone's perspective on that I think that we'll see pretty much everything abstracted away apart from like wallets so potentially even like more centralized Services uh or like uh non-custodial wallets uh giving users like much easier options and these options on yield being managed uh by like kind of like mini funds um yeah Maybe by like onchain agents Maybe by like strategists I think the like vots haven't seen like a huge amount of traction yet or they should see a lot more traction in the next few years so I think most people are going to manage assets through votes in the future through votes vaults like like a vault like a Yar Vault or something similar to that uh it depends I think those are kind of taking ideas that are currently being implemented in yield farming strategies and in General we really have to look at what people are doing today which is they get a Weiss card they get a revolute they get a Robin Hood they get a PayPal they get a venmo and the integrator the bank that's providing the wallet or the bank account it's probably a stable coin for you guys if you think about yourselves as a platform you've integrated the maker bank and XI is the token but it's more analogous to USD so most people just treat it as USD and I think users whenever they're using a protocol they're going to log in they're going to have money somewhere on their VMO their Dao or metamask they're going to move it around they're going to pay for things but it's going to be abstracted away but it's just going to be treated like a bank account and people can have a bank account if they want or they can hold it on some wallet service that's why I think like for example with Revue it would just be a vault or a product on Revue that has yield bearing stable coins as as like an option seem to like an ETF right yeah I think that could work it's just I'm having a hard time finding like my parents my my friends who use wallets that they'll trust something like that and then you have I mean we already had the first stage of that so probably we'll have some providers that will do it like I remember y combinator had quite a few stable coin companies savings that would use Luna I mean yeah just put my 5 million of seed into Luna right and chill yeah which is insane I think I think we're going to have a mixed world I think we're going to have some some users that are going to be apps where everything is is obstructed away and then you going to have some other users that actually care about uh the Central decentralization and sensorship resistance and um they going to be using either St hosted clients or uis that are actually sensorship assistance and we're going to have both yeah it's kind of like here like you guys might use Visa or use grab pay or line pay like you can use your card or you can pay with the app um so it's going to I mean it's up to the end user and the connections that we can create in the next 5 years that's a good point like who like which which app would uh or mother use eventually and then that's more likely to be revolute style where they don't need to worry they don't they don't even need care to care about decentralization uh I think the only piece that we really need to bring is the ability to leave that system the ability to wire out your money uh out out of the system and as long as this is maintained it can be 100% a centralized service I think telegram Bots are are getting there like centralized exchange I've always been super centralized but they allow you to withdraw anywhere that you want it's starting to be ER yeah it's starting to be I mean it's been eroded uh throughout time now travel rule uh is eroding this but yeah that that that might become a great area where like it's not even perfect because if if we deal with centralized service that sometime is always going to be real especially for real crypto user uh for us we might need to remain way more decentralized but if we want to bring the m usage they don't necess need to care and they won't be blocked necessarily yeah like the the bnot guys on salana are doing amazing work with CK to be able to execute transactions that the user wants while still maintaining some level of security because at the end of the day if you did it built it wrong it's just a honey putt of everyone's money trading as far as I know it's like a added feature after they they they're moving away from a centralized custody into okay let's try to dis centralize this user experience I think P key wallets are the future of non- custodia wallets I think it's great but we got to really look at if the pass Keys is the final way or if it's just like a credit card number but then right now it's very cloudy in terms of what wallets can integrate which node can you use uh there's too many question marks on around that to be able to say like Aragon had it right a few years ago until they went CK crazy and then they stopped kind of innovating in that space But being able to approve a pass key to do something without just taking all your money like I know in Europe they do the tap to pay but it's like you can only do $50 a day something like that yeah so on on the note of the future is uncertain I would like to take our panelists and thank everyone in the audience for being here today it's a wrap thank you thank you