The Rise of Symbiotic DeFi Protocols - Panel with Dan Elitzer, Kia Mosiyeri and more..

this is a fantastic group to have up here so my name is dan elitzer i'm one of the founders of nascent yeah hey guys um which is a early stage investing and building group we focus a lot on defy and everything related which is really all of crypto so two years ago uh this was actually the last crypto conference i was at and i gave a talk about the coming liquidity wars in d5 and this was pre uh comp farming so there we didn't have like crazy incentives and one of the things i talked about then was the idea of these kind of symbiotic d5 protocols so combining amms and lending pools and my thesis at the time was that we were going to start to see this happen in the form of super protocols where it was all very deeply integrated what's happened is we're starting to see that but it's not deeply integrated uh it's actually happening through the composability of defy and so today we've got a number of protocol founders up here who have effectively created a d5 prime brokerage out of combining together all of their different protocols so one of the core concepts here uh was something that i i termed a while ago of superfluid collateral so the idea of being able to take say deposit tokens from something like compound and put them in an amm or use the lp shares from an amm as collateral to take out alone and we're starting to see how some of those primitives are being used here to build up to some really interesting really complex uh under the hood of financial products but things that actually make really amazing benefits for end users without having to dive down for at the retail level so first i want to introduce fernando martinelli he's the founder and ceo of balancer labs fernando want to tell us about balancer and some of the issues that you saw with amms and what balancers latest iteration does to open up more composability yeah sure thanks then um so balancer v1 we launched in 2020 it was uh it still is uh like a product it's like an index fund amm where you can have up to eight tokens different weights any swap fee you want so it's very flexible you can have exposure to 40 mkr 20 die and whatever how many tokens you want but it's not like really flexible in its logic so you can't really adapt your amm logic for specific tokens like stable coins and give more liquidity around one price one so we realize that there's no such thing as a one size fits all solution for amms it's gonna it's gonna depend on the niche on the use case on the tokens so we created balancer v2 we launched last year which really opens up the design space for amazing people like these guys to create the next generation amms on top of balancer not only emms but programmable liquidity so any sort of uh protocol or smart contract that has two or more tokens that needs to swap them under given circumstances you can do that on on balancer v2 so yeah um it's going to be fun to discuss this so i in my opinion i am biased we nascent is invested in balancer but um balancer is probably the most flexible amm in terms of what you can do with it what that needs though is a really flexible lending protocol to pair with so jay talk to us about rari capital infuse yeah i mean how i look at it is d5 is heading towards permissionlessness right it's like we started with the dexes of ether delta radar relay permissioned assets then uniswap came around and made it so you could trade anything we're doing the same with lending and borrowing right you started with compound and ave where you could lend and borrow specific assets under specific risk parameters under the rules of their token holders or their corporations right and that's that's not so dissimilar from the bank rory capital is about making it so you can lend and borrow anything on your terms right not on the other people's terms not on token holders terms not on the bank's terms but you can start your own pool with whatever assets whatever risk parameters whatever you want and with whatever assets you want right and that's what's cool about the integrations here is you're going to be able to put balancer tokens your your bpts inside a fuse you're able to do a lot of really complex stuff by enabling you to really lend and borrow anything in the world and i'm very excited about fuse and what rare capital has been doing when i first saw fuse i thought it was just going to be a more degen version of compound or ave i i didn't get it and what has clicked me is that it's not about uh somebody coming in and saying i'm gonna cram every imaginable asset in the same pool it really is about saying there's a specific focus for this pool and it's being used uh specifically by another protocol or dow in some way so uh kenton um from sense can you tell us a little bit about what what sense is and the ways in which you're making use of a fuse and also balancer sure so sense is a a permissionless fixed income protocol that allows builders to create new yield primitives um such as bond-like assets tranches yield tokens etc um they the overall goal of sense at least in the short term and long term is to to build out the pillars of fixed income and what what what we've seen until the his point is that there have been protocols that have focused on one pillar or the other but sense has is really taking an ambitious approach to capture all of those pillars the pillars are issuance and redemption of these bond like assets um the the next pillar is exchange and the third one is barring and lending of these of these uh yield priorities um when we initially sketched out the design of sense it became very clear to us that um we did not want to spend an enormous amount of r d rebuilding the wheel and it was very clear that there has been like massive value and and and and great infrastructure built at balancer and fuse that we could effectively leverage and sit on top of so that's what sense is doing we are going we have since space um it's an amm pool built on top of balancer p2 and then we have the sense fuse pool which is essentially a it is a fuse pool that sense owns that enables permissionless onboarding of these yield primitives thanks and and wendra uh also a kind of a brother in arms with uh with kenton and sense uh taking a very similar market um with with element and you've also made some similar decisions in terms of composing with existing protocols such as the ones up here tell us a little bit about about elements and about uh how you decided to partner with others as opposed to building certain things in-house yeah yeah of course thanks for having me um you know i'm at element and i lead growth and strategy over there we you know we decided to create this fixed income protocol because as jai said you know we wanted a way for users in the network and a permissionless way for people to create fixed income products in the past you've seen it's all government generated fixed income products the yield curves all generated by the government we want a permissionless way for people to design yield curves for people to design what those yield curves look like the interest rates and the long term look like as well as what assets should be offered in terms of fixed income the reason that we went with balancer was because you know they're specialized in that field you know we want to be a value-added protocol in the space you know we know where our restrictions are and where our main focuses are in terms of creating these new fixed income markets you know we've been live on mainnet for about seven months now build you know with our amms live on balancer and it's it's been great you know users are getting a really capital efficient way of buying fixed income and we want to continue to push that forward very cool so sense and and element i think are both pretty complex protocols for retail users to understand on their own and then you layer on these aspects of we've got this amm we've got multiple types of pools multiple durations there's going to be lending and borrowing on there how do you think about making it understandable for for the average person do you do you have to do that all in your own ui are you working closely with interface partners or wallet partners on top of that to make it easy how do you approach that so you can go first so we we actually do work with a lot of distribution partners you know we think that there's a lot of different layers of our fixed yield source that needs to be abstracted away for that for the retail investors to understand what type of positions they're getting into and what they're investing in you know balancer you know for example we can create those markets on top of balancer but we need like an easy one-click solution for users to know what rate positions they're in and how much they're earning you know we believe that those products are being built are going to be built on top of us and some of them are already starting to but you know we want to stay as a as a protocol that still encourages composability people to build on top of us and that's that that layer of distribution i think is very very important that's one of our main focuses and kent one of the things related to that is understanding you mentioned the rates like what is the actual yield being earned how do you look at that with with sense uh when you think about i know you guys have done some work around rate feeds and aggregation um how do you think about how that can be clearly communicated to users i think that um just constantly one being close to the users and then two building products from first principles has already has always been like a a very clear playbook for for most projects in general regardless of if they're if they have a complex product or not i would say that fixed income is likely one of the more complex systems in d5 to date and so there are there is a learning curve that that that needs to be traversed um one thing that that i like me and the the various co-founders and the entire sense team consistently remind and remind ourselves is that ultimately like we are building infrastructure that will sit under the layer of like end user applications that will actually touch um the mom and pops the bobs and joes et cetera and so um everything that we are doing is is just there to demonstrate the the power of fixed income the power of the of the of the products that we're we're building with the eventual goal that we won't with that we won't effectively touch the ndq's or in the end um and then broadly i think we always want to keep education front and center and so as long as we just have that as one of our core principles um that will allow sense to be used by anyone so well so i i think this gives a great idea of like how you're approaching making this usable for people but then there's also there's risks associated with this and fernando i know that when you when your team was working on balancer v2 there were some trade-offs that you had to make in terms of certain token types you could support versus not support to be able to give kind of certain safety guarantees and let people know what to expect can you talk to us a little bit about how you decided what to support what not to support and very specifically what are some of the risks of people trying to use non-standard assets on low layer infrastructure like balancer yeah so we were optimizing first for security and also for gas so we had to to make a bunch of trade-offs and the most important one was i think to only accept tokens that are like kosher or vanilla like everything you get there's no tax upon the transaction there's no rebasing so a token like adai has to be wrapped to work on balancer but ultimately it was i think the right decision like it's it's really hard to um yeah to attack a system that keeps things simple right as soon as you open up you want to like treat too many cases you're not good at any of them and you open up a can of worms and your risk like to be to be hacked so we like spend a lot of money in audits we have one of the biggest buck bound is a thousand eth so if anyone wants to get rich and try to find a bug in the vault of balance with v2 feel free to try so yeah it's it's always trade-offs i think you gotta you got to do something uh simple and and well and yeah yeah and so fuse is also fairly low level right and there's a lot of ways that things can go wrong in a fuse pool what has been your approach in terms of having this truly permissionless infrastructure how do you approach making sure that your your guiding teams or users towards things that are safer versus less safe and setting the myriad of parameters that are possible in any given pool yeah i think that there's two pieces to this right there's the financial risk a and b the smart contract risk right we'll address this the second one first right smart contract risk we're doing everything we can right we're we're going to do audits we joey joey who's in the crowd here even wrote a new token standard erc 4626 that makes it so that we literally own the standard that our fuse pools are using we know that the tokens that are being in the protocol are safe because we wrote the standard ourselves can we just like pause there and everybody is everybody on stage on board with with 4626 yes awesome any developers out there get on board eip 4626 this is how we're going to do vaults all right sorry back to you yeah so smart contractor is we're doing as much as we can right that's that's all development work that's what we're doing at the infrastructural level in terms of risk on the financial side of things that's where things get really really interesting because you have this you have this trade-off in educating and protecting the retail user while also ensuring that these systems are completely permissionless right and how we think about that trade-off is fuse at its base should be completely permissionless we should never tell a user that they can't borrow or lend an asset or else we'll turn into the banks of of yesterday right however we do need to educate them and make sure that they're staying safe and not getting rugged in in our platform because that's bad for us right so that's where the things like the rari risk score comes in and we do our best to educate the users and over the long term i imagine that there will be many many platforms that come along to educate the users right that are just independent platforms on risk analysis of various different fuse pools so how much work uh did it take for for uh i guess elements i think was like first out the gate with with some of these uh pools on balancer what did it take to do that integration how much work did you need to do your development team working directly with folks from balancer labs or the balance or dow versus they've got great docs and you just like picked it up and did it yourself we we really heavily evaluated some of the protocols that we wanted to work with at the beginning of course balancer was something that we saw took proactive and high measures to ensure that security is a primary focus likewise did yearn so we were extremely comfortable with having them as some of the first initial launch partners but even then you know when we have conversations with institutions the number one question is other than custody it's always about insurance and when we say okay well what kind of insurance smart contract insurance they say it doesn't matter all sorts of insurance you know when when we have mim markets dpeg insurance was a big thing like how do you default insurance from credit loans is a big thing so they don't care what type of insurance is being offered as long as their principal is protected and if it's not protected and if that level of security or risk isn't absorbed away they'd rather just not participate at all so you know that's something that we put a lot of focus on because we believe that that's one of the big paths to adoption for 4d5 and what do you think about for all for all of you right you've all worked with with some folks on the stage to do integrations to build products together when you think about like what comes next you all have an immense number of things that could be built on your protocol what are you excited for like laddering up to what what are the next types of integration partners that you're looking to work with i think the biggest thing here is is what joey brought up earlier in his talk right and that's that's tribe launch right this this idea of a one-click dow is extremely extremely powerful right you have all of the different d5 primitives on this stage you have an amm you have a variable lending borrow and you have fixed lending borrow right so the future is leaning into that composability even further right a new project wants to come along they'll open up a website and instantly have liquidity through faye they'll instantly have a place to lend and borrow they'll instantly have a place to exchange their asset and it really becomes the d5 prime brokerage right that's that's what we're building together by composing this stack is you deliver everything a project needs and more and you make it so they don't need to go anywhere else right they have everything they need up on this stage all it takes is somebody to come and build a nice interface and it's done so when you say like one click down we're not talking about like deploying like compound bravo governance or something like that we're talking about one click full stack financial services when you launch your protocol exactly okay that's pretty cool so what what are what are other financial services that you can see becoming a part of this right we've got a few things here but it's a pretty broad universe of financial products that you could build on top what are some of the other things you might be excited to add to that stack i think that there are a few different pieces right you look at it you look at a doubt today and there's three key pieces that leads to their success and it's it's like a feedback loop right it starts with capital then it's that leads to more contributions that leads to value accrual and then it starts all over again right so i think that we're all in the capital piece right as being d5 primitives but i think that in the in the future as we head to this one click down model we'll we'll start addressing the latter two pieces right what does it look like for decentralized contribution management tools what does it look like for there to be communication platforms meant for dows these are all part of the one-click dow we're focused on the financial side right now but it's only a matter of time before all these other pieces are brought into it one of the one of the interesting things i think about this group on stage is all of you did not like rush into having a token and heavily incentivizing use of your products you you've really focused on the doubling down on integrations and saying can we find natural demand for this and and real sources of sustainable yield but at some point right it feels like to be competitive there's going to need to be some token incentives because if you don't your competitors surely will so how do you think about making that transition and and whose responsibility is it to incentivize growth of some of these things that are you know layered two or three protocols deep are are you guys talking about jointly incentivizing stuff is it the top layer of the stack that's responsible the bottom layer who who takes responsibility here i can answer this one here um so i uh sense is actually the only pro to call that that has not launched yet here on this stage um we're launching very very soon so if you're interested in following our development twitter is sense pro at sense protocol um so we've we've thought long and hard about incentives and and growth and we've made the intentional like decision the deliberate decision to ensure that pmf product market fit has been achieved by whatever metrics we have set um before thinking about incentives and like hyper growth i think that there has been some chatter about like hyper structure like systems and i think that that there is there is value in having a token and and ensuring that the token is released into a properly decentralized project and that control has been distributed as well um but i think that it's just vitally important that pmf has been hit first and then and then scale uh comes shortly thereafter anybody but different opinion about where where incentive should lie i could take this i think incentives are overrated uh very very much right but you need them to compete right as you alluded to right so what we've developed is an easy way to wrap incentives inside of fuse right that makes it easy for other projects to come in and start offering incentives right if if balancer wants to add incentives they shouldn't have to go and write their own incentive mechanisms instead they could just take the bpt tokens or whatever tokens they want dump it inside a fuse and suddenly they can instantly start rewarding incentives right fuse is a liquidity incentive manager essentially or it can be right that's one of the many many functions of it but over the macro right i think that we can we're going to start moving away from these incentive modeling or at least they're going to evolve in how they work right i think we'll start seeing more escrowed escrow like deposit rewards right we're going to start experimenting here because i think what's going on right now isn't sustainable for most projects not all projects and i think that you'll start seeing rise also of pcv base as a replacement right you don't need to go and spend hundreds of millions of dollars on liquidity mining rewards if you can partner with somebody like frax or faye to come and provide counterside liquidity to your to your token right and you partner with us and that's that's that's much better spend than than useless liquidity incentives that attracts mercenaries so go ahead i'd like to to make a quick comment on um incentives so everyone when when incentives are discussed everyone is thinking about juiced yields air drops liquidity mining etc i think that um one core incentive that exists that does not include token incentives is integration incentives so balancer infused they are incentivized to work with sense and ensure that the integration follows through and the reason for that is because sense is penetrating a market that is going to pull in more capital more vol volume to to fuse and balancer and so this is really it touches on this symbiotic relationship that that had dan coined many years ago and it's actually amazing to see it kind of unfold um so so really heads down and integrations i think it's the only self-sustaining moat out there at this time so i i want to quickly touch back on one of the main things you mentioned jay about being able to use something like fey uh as a liquidity partner uh and bootstrapping and doing that on balancer and i think one of the one of the things that i got most excited about with balancer v2 was the use of your vault architecture which this is something that we don't really have in other mm's where it makes it very efficient right fey is not the standard like usd stablecoin that is being used most broadly but if you've got a fey pool that is paired with say usdc and dye and others that are a little bit more widely used and then you've got a fey pair with some other asset people can very efficiently go from usdc through fey to the random other asset that's paired with faye and that's not something that other amms are set up to be as composable in that way knowing that you're going to want to frequently be doing multi-hop trades so when when you're out there after this panel talking to folks who should come and talk to you so if you don't want to spend a million dollars in audits if you don't want to have a bug bounty of a thousand eth then uh come talk to us like if you want to have uh the next generation emm or any sort of solution that has two tokens that need to be exchanged like uh like faye like the the pcv if it's over collateralized automatically you can go towards more risky assets and balancer handles all of that without like people sandwiching you without you having to have multi-sigs you trust it's all automated oh custodial uh less custodial s and it like why would you do all the borrowing stuff that we spent like a year working on like talking to other protocols to make sure everything is composable there's a lot of work there so i i don't know why you wouldn't use balancer if uh yeah if you have such a i agree like 30 seconds each who should come talk to you if you're working on something interesting i want to talk to you there are too many forks in the space too many boring projects in the space if it's something that will that i'll find entertaining come talk to me if you're interested in interested in building a fixed income preemitive something cool come find me as well um if you're interested in building structured products or any products that utilizes a fixed yield source come talk to us we have a few products that have already been built on top of us so you know we can refer to you to talk to them but you know just open to any products being built on top of element and if you're building something that you want to kind of partner with anybody up here on this stage uh come talk to me the nation team would love to help you with that as well thanks everybody thank you guys thank you that