The Next Generation of Rate Markets DAS London 2025 Day 2 Investor
Summary
Company Growth: Oiler, led by CEO Michael, has shown resilience and significant growth, reaching $4 billion in total deposits after relaunching with a V2 product.
DeFi Innovations: 3F Labs, co-founded by Sonia, has successfully integrated DeFi solutions like the DeFi mullet, allowing stablecoin holders on platforms like Coinbase to earn yield through DeFi strategies.
Product Developments: Athena, founded by Guy Young, has scaled its products to $17 billion, offering a synthetic dollar and a stablecoin, showcasing resilience in market fluctuations.
Market Resilience: Ava Labs' protocol, AVA, has grown to $75 billion in net deposits, demonstrating the robustness of DeFi protocols during market stress tests, such as the recent market meltdown.
Risk Management: The panel highlighted the importance of effective risk management and oracle design in DeFi, emphasizing the need for multiple pricing sources to prevent issues like those seen in centralized finance (CeFi).
Real World Assets (RWAs): Discussions focused on the challenges and opportunities of integrating RWAs into DeFi, with a need for better risk assessment and specialized players to manage complex portfolios.
Yield Sources: The panel explored the origins of DeFi yields, noting that cryptobacked loans and real-world asset tokenization are key contributors, with transparency being a significant advantage over traditional finance.
Future Outlook: The panelists expressed optimism about DeFi's growth, anticipating more integrations with fintech, the development of fixed-rate products, and the potential impact of central bank rate cuts on DeFi opportunities.
Transcript
Why don't we do just a quick round of intros? Give us your name, org, and one thing that you're particularly proud of from your product or company in the past quarter. Uh yeah, thanks. Great to be here. Uh so I'm Michael, uh co-founder and CEO of Oiler. Uh we we provide infrastructure for building credit markets and uh the thing I'm most proud of has been our growth trajectory for the past uh over the past year. We we relaunched with a V2 in September last year and uh we've managed to grow grow to four billion in total deposits this year and uh yeah I'm just most proud of our the resilience shown by our team and coming back and and growing to where we are today. Hi everyone, my name is Sonia. I'm a co-founder at 3F Labs, a one-click levered looping strategy for RWAs. And I was previously at Stakehouse Financial, an onchain asset manager. And this year, we were very proud of the DeFi mullet um which is using DeFi solutions to be distributed through uh CFI channels. and most famously Coinbase Earn had integrated the stakehouse vaults on Morpho so that stable coin holders on Coinbase could um earn yield through DeFi DeFi strategies. Hey everyone, my name is uh Guy Young, founder of Athena. Uh came out with our products around 18 months ago now. Scaled from uh around 0 to 17 billion in the first uh 18 months. Um we have two separate products. One is a synthetic dollar which you can think about as a sort of tokenized uh delta neutral position or or cash and carry and then the second is a plain vanilla stable coin that we we issue alongside uh USD. Um most proud of the fact that we're still here today I guess from uh this weekend's events. Stanicov the founder and CEO of um Ava Labs and um we built the AVA protocol which is the largest D5 protocol facilitating um lending and borrowing essentially um can supply uh cryptographic assets and earn interest and at the same time use those assets as a collateral um to borrow stable coins. Um, AVA has grown to be um as big as uh 75 uh billion in net deposits. Um, and half of that is roughly been uh 15 billion in in in stable coins. Um, operating mainly on Ethereum but other other um L2s and and networks as well. Um, a has been around since uh 2020. So for the past uh five years and seeing multiple uh cycles ups and downs including uh uh last weekend and also being uh uh very proud to be here uh and surviving over the last uh Friday. Great. Yeah, we are going to be discussing rate markets but uh I feel like it would be a dereliction of journalistic duty not to ask you a little bit more about your experiences on Friday. Um, how did it uh go for your protocol or your team? Um, we can start again with with Sonni. Yeah, I mean it was uh I had like a really good Friday uh to be honest. Uh I had like a really good dinner and um typically what I do uh before I go to bed I you know I check the markets and I I look into the all the the different um markets we have on on a and you know pretty much catch up with latest messages and when I was going to sleep I put my phone on the table uh to charge and as I released my hand the phone actually started to rang um and I got a message from um pager duty as well and apparently the market was uh melting. thing uh at that that point and that was just like uh 15 uh minutes after I uh closed my laptop. So I went um back to the to the computer and and um you know as you you know D5 protocols they run autonomously. So there's not not much really you can do and and they get stress tested but uh based on the parameters and based on the risk assessment that has been done um before these types of events happen. So when I saw all the um the the communications and how much uh leverage there's been uh being wiped out out of the system across crypto and and the pricing. Um obviously that is a very uh big shock to us. Um but eventually things went really well and and the protocol worked uh incredibly well. Uh we liquidated over uh 200 million worth of uh collateral. Um and that's the the native uh way of the protocol to keep solvency uh in market turbulences like this. And for me this was really um uh really scary moment because uh a and the whole kind of the size of the protocol as it it is today. So the stakes are extremely extremely high. uh but also the volatility and the down down cycle of of that uh day was far more beyond what what for example FDX uh and that uh period actually was. So I was kind of um at the same time happy how things ended up but also um can definitely say that it's it's a really frightening to to watch and I think u what effectively happened is that DeFi really uh proved itself uh over the weekend and the more events like this happen and can show how resilient decentralized finance is um that shows uh really why we're building this technology and and and why uh DeFi will win uh down the So it was scary but at the same time um this kind of stress test really shows uh why defi can uh be a resilient option to centralize in traditional finance please. Uh yeah I was stuck on a flight from New York to London while the whole thing was unfolding. Uh Wi-Fi coming in and out uh from the beginning there I think contrary to what a lot of people think there isn't actually a lot for Athena to actually be doing in these uh scenarios. So for everyone that's not familiar with the product, you are long spot on one side and then you short perpetuals on the other. And when the market tends to break down, you tend to see that actually perpetual prices are actually dislocated below spot prices because everyone's getting liquidated. And so from that perspective, you're actually in a position where you're making a lot more money than you thought you would by being short and you actually have extreme amounts of unrealized P&L uh that you hadn't planned for. So the only real thing that the team has to do is like check is every sort of system functioning and then start to realize as much of that P&L as possible. I think this is something that the market still hasn't really wrapped their head around which is they sort of see things blowing up uh within uh you know within the derivative market and don't sort of put two and two together which is actually we're making more money in that scenario rather than being put under pressure. Um there was obviously a pretty public um and well-known sort of like issue in terms of the pricing uh on a single exchange venue. I think uh it's a very good example actually of like DeFi Oracle risk management I think actually being much uh more superior or like better constructed than what you see within CFI. So one of the issues here was actually an oracle price that referenced its own order book as a single source of truth uh for uh pricing and then liquidations as well. Uh for any you know anyone who sort of looked at oracles in any depth it obviously makes no sense to have a single pricing source within that with with zero checks or averages to any other source. And so what was happening here was despite the fact that Athena was honoring multiple billions of redemptions within five basis points of PAR and trading at 30 basis points off of PAR in DeFi in the deepest pools of liquidity on chain which had nine figures of liquidity there uh at 0.997. Uh a single exchange was referencing its own price which was sort of collapsing down as low as uh 65 cents and had no check whatsoever to the fact that there were billions of dollars external to that that market. uh they were close to one. So uh it was an unfortunate obviously um event in terms of users who got hurt uh by that outcome. I think from my perspective our job is to make sure that we never impair the collateral or lose like a dollar of collateral that's sitting behind the product and always service redemptions. There's only so much we can do when it comes to risk management and Oracle design on external platforms that take our product and serve it to their users. Um, so I think from our perspective, uh, we didn't really have a DPEG in terms of primary markets for people to be able to access mint and redeem. The most liquid market that sat on chain within curve had no DPEG whatsoever. It actually deviated less than USDC versus USDT. Uh, it was just a very ex exchange specific issue that came about through through Oracle pricing, which I think is a good lesson for us to all take seriously going forward. All right. seems like everybody was either on on route to some new city or, you know, having a relaxing evening. But from my end, I was in a in a small island in Scotland after a whiskey distillery tour just um having a call with uh a potential partner about liquidations of RWA. So 3F is um going to be primarily leveraging RWAS which are very different from atomic assets where you can freely mint and redeem. So liquidations for instance on RWA become more of a non-trivial um activity where liquidators are not arbiting for liquidation premium on lending protocols like Ave or Oiler or Morpho but they will be taking on actual credit risk of the underlying until they're able to redeem the the underlying um at the liquidity cadence of the the fund or the asset. So it was quite ironic that we were talking about ways to you know deal with this duration mismatch when we saw the largest liquidation in the history of crypto markets. I think as sonnie said um lending protocols on chain did really really well. Um in many instances there was very limited bad debt realized uh on the on the part of the um liquidity suppliers but as we go into you know higher duration assets and RWAS I think we will um encounter further challenges of finding the the right types of uh risk assessors and people with balance sheets that are able to seize the asset and be able to you know um redeem at the the cadence of the underlying assets. So this is um you know for the next iteration of DeFi as we not just deal with uh you know high volume bluechip crypto assets but ill liquid assets that we want to port over to onchain something that we as an industry need to be thoughtful thoughtful about. Yeah, I uh I was also uh just arriving back from a from a trip as well and uh going to bed with one page of duty made its friendly call. Um I uh yeah, I think Oiler is a little different to some of the other protocols here in the sense that we're not just one sort of product with a single risk uh risk framework. There actually uh lots of different risk curators on Oiler that uh build their own uh credit based products and uh they all express very different views about how the how risks should be managed and they do that through uh the ways in which they set different interest rates or or uh loan to value rel r r r r r r r r r r r r r r r r r r r r ratios or or caps um or oracle choice or and design and so uh yeah I guess for oiler we were we were looking just across all the markets trying to see uh trying to see how the risk curators had handled this particular event and see whether there there's any going to be any any damage on any any of the individual markets and uh yeah I was delighted to see that that wasn't the case. Uh there was very very limited impact on any bowlers markets. Um so yeah I was I mean it's just a fantastic stress test for DeFi as a whole and I think it's really great to see all of us here uh have come out of this unaffected. I saw this comment from uh Kobe on Twitter saying when we wake up tomorrow there'll be many bodies that float to the top of the water and uh I'm glad to see that none of them were really DeFi protocols. uh it was uh yeah we it really proves that DeFi is working and is going to going to continue to grow from here. I think one thing that I'm uh frequently asked when I describe DeFi yields is where does the yield come from? Um so when we're talking about rate markets uh we should just kind of explain about the base rate and what generates any rate above that whether it's uh from you know credit spreads or funding rates or uh duration or uh rwas which again is this term we can't seem to get away from uh but a lot of people dislike it but it's not very cryptonative but uh instead of just assets or tokenized assets or whatever but um first of all maybe to set the stage are we talking about the the the T- billill rate or the ETH staking rate as kind of the risk-free rate that is the base rate that we're building upon. Sonni, yeah, I mean it's um uh it's actually no mystery where where from a lot of the um DeFi rates are coming from and it comes from the the the actual the the kind of like a cryptonative uh sources. So um effectively when there is a uh market tendency to to actually uh go long on some of these um um cryptonative assets like Bitcoin and Ethereum that creates interest rate markets uh on that leverage. But there is also a a segment of uh user bases that are already long in those positions and they want to borrow against their um holdings like Bitcoin and Ethereum and and and so forth. Um and especially in in down cycle markets, uh they want to borrow because they don't want to um exit their existing positions, but they want to access that uh liquidity. And this is a typical yield that comes from uh cryptoback uh loans um as an example. And there's obviously um other ways uh to to create yield. I think um uh what's what's what's really interesting about DeFi is that you really know and and see how the sausage sausage is made and when you think about like the the previous generation of uh lending protocols or uh lending businesses uh lending businesses rather um and when we started with a at the same time there were a lot of uh centralized crypto lenders at that time um there was Celsius there were blockfi and and and so forth so actually um you know the way these centralized businesses were managing their um interest rate strategies and and risk um wasn't really transparent. So it was a um akin to a uh like a blackbox system that no one really knows uh what was happening and obviously when the market cycles um came came around a lot of these uh strategies uh blew up and these businesses went underwater. Um, in fact, Celsius probably was um the first kind of like a DeFi mullet because at the end of the cycle, they were using a in the back end uh because they weren't uh using their own um yield sources and and and risk uh framework at at that point. But what I what I think is interesting here is that uh when I see new types of uh DeFi products um for example for BTC yield um I get first kind of like my first reaction typically is that this looks a bit um you know um risky to me or this looks a bit unsustainable because there's some sort of a um a kind of um um rewards component in that strategy. Um, but what I actually like about that is that you actually can go all the way to the source and see where the consumption is. Um, and then how that interest rate strategy is created. And I think I think that's very powerful when it comes to structured products in in decentralized finance actually seeing uh all the way between these layers how the risk is structured. And and I think that's going to be really um exciting going forward when you start seeing more complex um uh uh yield products uh beyond the typical uh lending and borrowing and and interesting strategies being built uh in DeFi. Yeah, we're already seeing that on on oiler a fair bit. When I just checked the rates this morning, for example, on a your USDC UST uh supply was about 3 to 4%. Borrow was more like 5 to 6%. the SUSD today, that's the the staked version of the Athena synthetic dollar was 5.5% or at least that's what's what's shown. I know it it's a look back period. Um, are you seeing since the deleveraging event a a compression across the board of yields as as a result of some of that demand for leverage at least temporarily drying up? Yeah, I think so. Uh, this I mean this is not a new phenomenon e either. Um what's different this time probably is that there were many other sources of yield on chain. I mean in the in the good old days the main source was as Stenny said it was people taking cryptobacked loans and so uh when the markets crashed the yields crashed when the market became more frothy and people got excited the yields would go up again. I think now uh with the bringing real world assets on chain, we see we're starting to see, you know, to your question about that base rate, we're starting to see the emergence of of sort of a a baseline rate that's related to the T- bill rate or to the staking rate, which kind of uh is where where uh yeah, yields don't really drop below that anymore like they they sometimes used to. Um but yeah still there's uh I mean with the with the collapse of leverage there's also a collapse in demand for appetite for um investing in new projects and you know a lot of the questions come about where does the yield come from and sometimes the yield is sort of it's sort of like a cor corporate debt where people are investing in projects those projects are issuing tokens as rewards those rewards themselves are kind of like the debt um and so that gets transferred into into Pendle to fix rates which are then used to leverage uh go leverage long on the fixed rate on on platforms like oiler and uh and ave and uh yeah as as the markets uh decline the the appetite to invest in new projects has declined so the rewards or the debt that they're issuing is less valuable than it once was and so uh yeah inevitably we'll see we've seen a collapse in um in some of the some of the demand uh and the rates in the market but it's interesting it hasn't hasn't dropped below to what it used to. Yeah, let let's talk about um the rates that the user sees a little bit. Um it varies from product to product somewhat. So I'm curious um how you decided um you know how to make it transparent uh what yield what the yield components are. When I quoted the the base yield in a that's purely the stable coin supply rate with no extra incentives as you mentioned no uh rep rehypathication of a of a yield uh uh token like uh from Pendle. Um but how do you um yeah how do you determine what is the the best way to disclose the sources of yield to the user and do you think is the industry sort of standardizing around any any kind of uh norms in that sense? Uh Sonia maybe you would you want to take this? Yeah I think um in DeFi overcolateralized lending is now time-t tested and very popular. So I think people understand the the idea of cryptobacked loans very well. Unfortunately the landscape is as Michael has said um widening and um and where the yields come from and how to underwrite the risk associated with the yields will only get more complex even on chain as RWAs come you know um onchain. Um we recently when I was at stakehouse um brought FSNAR's MF1 fund which is a private credit fund. Um it's mostly uh the private credit portfolio mixed with some u portion of the delta neutral strategy run by FNAR and one of the feedback that we got from you know hedge funds that have scaled very nicely from being active on DeFi was that they didn't know how to underwrite the the content of what was in the in the portfolio. um crypto is still very much unfamiliar with how to write uh underwrite the risks of the real world um and I think there'll have to be some um specialized players like we see in fund management you know we we have um you know equity specialists fixed income specialists and even within those asset classes uh big subdivisions based on industries and um cap sizes and um different sectors So I do think that uh onchain finance will become as sophisticated over time as uh as the traditional finance world world and I think uh yeah we're at the start of these two worlds actually merging because now we have through a tokenization agents the ability to um bring these tokens um on assets real world assets on chain. Well, I can I can say that one thing is about about DeFi is is is maybe less about like disclosures because everything is truly, you know, transparent on from the on onchain uh perspective. Um it's more about kind of like uh you know, labeling and descriptions and and whatnot. So when you compare to you know traditional finance it's it's really hard to to actually like go beneath the layers and understand like where uh funds are going and what's being actually uh uh consumed and allocated beyond like the the more very uh vanilla uh products and and I think actually uh when it comes to like risk disclosures and this sort of uh labeling um it's much easier to do uh uh in DeFi. uh in in fact I I I believe that um people can make uh better financial decisions let's say if they are some sort of a risk um analyst uh in DeFi because they have the endto-end uh exposure and and visibility to what what happens for example you might have an asset that's that might be in in collateral in in oven and uh oiler and um uh also used in Ethei and and and you can see all this visibility and and quantify better uh actually the risks and I think that's really interesting because if you can quantify the risk much more accurately you should be able to drop the cost for transactioning um and I think that's very uh the path where where DeFi goes. So once we get more of these assets on chain um we're able to to better uh quantify where the liquidity is and and what kind of collateralization there is in the system and also build a better risk management uh for that. So this is why like DeFi is like the winner because you can you know you see the exposure every single second uh instead of uh let's say uh quarterly reports or uh annual financial reports. Yeah. Well, on on a you have the most exotic collateral you have is probably the pendalled PT uh principal tokens. Um other platforms like like Oiler and Morpho are uh having risk curators managing vaults oftentimes using this uh ERC 4626 standard and they're I've found at least that that you know if you want to see what is your uh exposure to different stable coins for example they'll give you kind of a list but you don't really know you know in great detail. So that's kind of what I mean like is there a a sense in which you're trying to make it more legible especially to nondens um you know where where these uh risks are lying I think when it comes to yeah these uh there's there's definitely some challenges ahead with the tokenized credit funds uh trying to I think it's really important to add disclosures there like San said with a lot of cryptoback loans you don't need to make disclosures because the the the real underlying assets are there for everyone to see and you know exactly what's going on when you tokenize is a fund and then use that as a collateral in a in a platform. You don't always it's not there's not a there's not a record on chain exactly of what what's on what's what's backing that fund and what's being used. So I think uh I think there's definitely work to do in that area with real world assets in particular. Um more disclosures are probably needed. Um and it's an evolving part of our industry and it's probably going to continue to grow but uh yeah certainly more more work to do on the risk side. We're certainly trying to push push curators to uh uh keep innovating in that area and uh you know there's I've spoken to people here about bringing uh ratings uh you know on chain as well and trying to figure out how we rate these funds so that uh so that people that are using these products uh know can get a better sense of actually what the what the kind of risks are rather than just relying purely on the the indicative interest rate as the as the only measure of risk. Mhm. Guy, how far can we go with delta neutral yield or uh the tokenized basis trade in terms of it being a rate primitive that that can scale? Yeah, I think the way that we sort of conceptualize market sizing um rough numbers at the moment uh open interest in derivatives is around 120 to $150 billion uh at the moment and that sort of pays 10 to 15% interest rates annualized on average. So really it's actually one of the only three sources of like $10 billion plus cash flow opportunities a year. It's kind of Binance equity, Tether equity and then the basis within the futures market and that's like that's it for $10 billion plus. Um that market's been growing actually quicker than uh the underlying asset prices themselves. So if you wind back a year and a half, Bitcoin 50k uh the open interest in derivatives market has actually tripled in the same period of time that actually uh Bitcoin doubled. And so as the market's sort of growing, the contribution of derivatives to the market as a whole is actually growing much quicker than the underlying. Uh all that to say, I think the rough sort of metrics that we think about constraints or total size that Athena can be as a percentage of the total is roughly somewhere in the order of like 25% of total. So even where we sort of peaked out last week at just under 15 billion dollars, I think that number could have been like 25 or 30 in the right sort of conditions in terms of uh demand for long-sided leverage. Um, so yeah, I think that's the rough figure, but I think the design of Athena and and USD has also transformed slowly through time where we do have an ability to add normal feedback stable coins within the backing for USD. So on a marginal basis, you can scale beyond that sort of like 25 to 30 billion number that I mentioned. You're just sort of lowering the marginal yield as you're doing that because obviously the T bills are at like 4% rather than 10ish like the per. Um, so yeah, that's the rough way that we sort of think about market sizing. And if you even just compare that to DeFi over collateralized lending, uh that as a total market size right now is somewhere in the order of like 10 to 15 billion dollars uh for like dollar lending uh in DeFi. So CFI has and sort of is growing even quicker than over collateralized lending within DeFi and it's like a 10 times larger market uh than what we see on chain right now. Yeah. Sonia, if we want to try to um construct something that maps onto Tradfi uh to to cleanly describe DeFi rate curves, something like uh so for ibore style, what what would that look like to you? The onchain equivalent. Yeah. Um I think AUSDC or AUSDT comes pretty close or in the context of Morpho like stakehouse USDC vault um exclusively lends against bluechip crypto collateral like BTC and ETH um and their derivatives. I think that to me is like the onchain native um base rate and from there you know you can scale the rates through horizontal or vertical means horizontal is trunching vertical is leverage and we've seen you know innovations on both ends to me pendal is you know an instance of um horizontal trunching where you know the pt is fixed and yt is variable based on um token incentives or uh desire for uh leverage. And then um on the vertical, you know, expansion side, 3F is innovating on this front. If users want to lever up on any asset, they should be able to um in our opinion with one click. So um that's what we're facilitating. And between the two um you know you can add incremental risk premium to AUSDC or AUSDT or stake USDC. Who are your borrowers today in 2025 and what do you think needs to happen to try to unlock more institutional capital capital at scale? I mean it's it's really uh it's a really big range of uh um personas. Um it it ranges from um early adopters of of of the of DeFi ranges to institutions and um more like a cryptonative institutions but also with the launch of uh Horizon Horizon uh market where you can use RWS as a collateral and board of stable coins that's another kind of like a layer of uh institutional uh DeFi. I think the range is is quite uh significant and for example in case of Verizon um it's a really interesting onchain repo market where you can access liquidity if you have these uh tokenized assets money market funds credit funds on chain instead of offchain and um an event like last Friday is a is a perfect example where um if you have invested into trady products you can pull liquidity really quickly uh in other places on chain as um uh in institutional market maker for example. Um but at the same time um you know I keep hearing stories where I meet users around the world that are using a for um being able to to borrow against their u house um paying tuition or any other type of finance goal in in real life. and and some users it's it's about actually taking long on position on on these cryptonative assets and I find it actually more than a fascinating uh use case because I think there's a really uh big problem of uh wealth disparity at the moment and the wealthiers are getting more wealthy um and and the the chances of of being able to have financial freedom uh is decreasing for a lot of people. So things like Bitcoin, things like Ethereum and being able to double down is a is a really big uh factor for a lot of people who are in the space. Um but my kind of vision is that you know we can go beyond uh these more cryptonative assets or uh RWAs and extend credit to um all types of businesses around the world uh and also credit to to everyone. And I think that's what the onchain infrastructure is there uh for we've been able to uh figure out the liquidity aggregation piece uh to the extent that it's relatively easy to aggregate aggregate liquidity and if there is good yield sources and collateral and directling that liquidity there the next kind of pieces is to bring more of these traditional assets and value on chain because that scales the defy interest rate markets and and that yield opportunity to everyone and access to dollar is more um actually interesting with with uh ability to have also yield on on that dollar dollar but what it provides uh over the long run is is the ability to offer credit uh globally and having a a resilient um capital allocation system there. So I think a lot of uh folks are still early in the space. Um but down the line I think we're going to go to a world where DeFi is is kind of like the the computer of uh of capital allocations for for credit uh in the future. I could add some color here. I think the profile of an average borrow actually has changed quite a bit uh since DeFi summer of 2020 and 2021. Um initially I think a lot of people who were early into crypto you know BTC and ETH Wales um they didn't want to sell their crypto so they would borrow against it uh stable coins and then we had crypto native institutions who wanted to do sophisticated strategies like lever looping but beginning of this year um for instance uh Coinbase had allowed CBBTC holders to be able to connect with Morpho and borrow basically onchain. And I think that transition of uh cryptonatives to now anybody who is a user on Coinbase being able to tap into DeFi infrastructure I think is very very powerful and we're only at the beginning of um you know making DeFi infrastructure and onchain capital markets available for for CFI uh CFI users. Yeah. Yeah, I mean that kind of u expansion of credit backing you know if your collateral is Bitcoin that works great in bull markets especially um maybe in bare markets uh you start to see the reversing of of flows and what what kind of impact uh would that have or or do you think that we've sort of have enough diversity in yield sources that uh that that's less of an issue in this if we have another downtrend? I think it's quite different to last cycle where um a lot of the leverage that existed last cycle was sort of quite opaque and sitting in balance sheets that no one could actually see. Um I actually have zero issue if like DeFi lending or leverage was 10x the number versus where it is now. As you can see in the last weekend, DeFi works just fine and that number is going to be just fine when it's 10 times the size. Um and I think the reason for that is that everyone can actually see what are the assets and what are the liabilities. uh this cycle u maybe it's sort of famous last words but it's not entirely clear to me now where that sort of hidden leverage is actually building up or existing within the system. I think you've sort of cleaned out CFI lenders and Ave's kind of won that game now. Uh and there aren't any sort of like CFI lenders who are there competing. Uh and I think a lot of the um you know underlashed lending that existed last cycle doesn't exist at the same scale now. Um so I think it might be a slightly uh controversial statement but I actually think we kind of need more leverage and more growth in terms of what we see on chain and uh it's fine if things get liquidated. That's sort of the risk that people are taking on and someone ed and someone else's edge to buy during that moment. So I think so long as it's like transparent and in the open um there's no issue with more leverage. Yeah. Yeah. On Oiler we had um relatively low uh level of liquidations on uh on Friday and that's because the profile of borrowers on Oiler is a little bit different I think from other platforms. On Oiler you can build credit markets that really simple just collateral debt pairs and we have some borrowers that are using that to do the cryptoback loan stuff like you discussed on on Coinbase. uh some people are using it uh using the the platform to create bespoke markets for all sorts of different types of borrowing use cases. You can use Oiler to uh borrow using just in time liquidity to supply liquidity into the markets as it's needed. Uh and with that you can actually uh earn yield from market making on dexes. Uh you can also create instant redemption-l like facilities for real world assets through this through this approach where if somebody wants to borrow for instance we've got a b we've got a bidd market on oiler uh black rocks tokenized money market fund if someone wants to e exit a bidd position they can go through the facility uh that they provide but using uh just in time liquidity they can actually swap that in and somebody on oiler will LP that for them using just in time liquidity where the the the asset will collateralize as it hits the market and borrow the liquidity from from the underlying credit market and send that back out to the person exiting. So there all sorts of new novel ways and that we can design on oiler uh reasons to borrow I think and uh and with that we're not as dependent on market cycles as we were in the past. Uh yeah, every market's different. Every every market on oil has a completely unique use case. Mhm. Wrapping up, um what's uh one thing you're looking forward to in the next six to 12 months uh coming down the pike? Well, I'm super eager to look forward for um you know the central bank rates going down um because it's a it creates like a very interesting catalyst and I I think u a lot of financial innovation if you look back into u some of the like history um it typically happens with some sort of a macro um catalyst as well and I think uh the early days of uh for example with with DeFi back in um uh back in 2020 for example before DeFi summer it was a really uh interesting time right so everyone had a lot of time at their hand you know they were at homes there was covid at the same time um a lot of job losses um so people were conscious about their financial health and at the same time you know you had a pretty much zero interest rate and environment so that type of conditions um you have two choices right you find alternative yield sources or you go to the stock market and that's when um Wall Street bets for example happened that's when the early uh times of defi and and the first wave started to happen with significantly higher yield with with also um incentive so I think um every single uh interest rate cut actually provides a really um uh interesting arbitrage opportunity for for for DeFi. So if you're going to see more rate cuts in the next u 18 months uh to to have a significant difference in in DeFi um and more value goes into stock market and and and crypto we might see quite a uh interesting rate difference between the traditional rates and and DeFi and I think at that point especially because DeFi is become uh safe enough um we will see a lot of uh traditional um participants um uh and starting from like the most um kind of like um fluid uh uh I would say like a neo banks or fintex actually looking into more defi and plugging in that as a as a yield source to keep uh higher retention for their uh customers. So that's what I'm uh super eager to see to happen in the next uh year. Yeah, I think echoing a lot of uh what Stanny said, I think generally we've observed when fed fund rates come down, you tend to see like credit spreads in crypto uh widen in the opposite direction. And I think that's obviously pretty bullish for like all of the projects that are here on the on the stage today. Uh I think one other idea uh not really relevant to um you know core product that Athena has but uh I think the growth of equity perpetuals I think is the most exciting idea to me in general. I think uh perpetual swaps are kind of the one true financial innovation which I think is like uniquely better than trady just like outright as in terms of an instrument for leverage. And I think uh we're going to start to see retail speculation shift from options on Robin Hood to perpetual swaps and equities somewhere. And I think that's like a multiund billion dollar opportunity for someone to capture. I think DeFi DeFi architecture has proven robust and now we're seeing a lot of institutions trying to make use of this um architecture that we've built as an industry over the last five years. So I'm very excited about um the unlock of uh unlock of non-gated credit provision to various purposes. Um and you know DeFi is about more efficiently matching the suppliers of capital with the you know the borrowers of capital and um because it's a global permissionless market um the market clearing price i.e. the interest rate is much more competitive than in the real world. So, I'm I'm excited about um more people being able to have access to to DeFi yields um including the traditional institutions. Last quick word. Yeah, more more integrations with FinTech. Um yeah, and for us, I think just we're excited about new products coming on uh online as well. We've been working a lot on fixed rate products. So, uh yeah, we're going to try to keep innovating and pushing out new new products for the for the integrators using Oiler. Thank you very much. Please give a hand to our panelists.
The Next Generation of Rate Markets DAS London 2025 Day 2 Investor
Summary
Transcript
Why don't we do just a quick round of intros? Give us your name, org, and one thing that you're particularly proud of from your product or company in the past quarter. Uh yeah, thanks. Great to be here. Uh so I'm Michael, uh co-founder and CEO of Oiler. Uh we we provide infrastructure for building credit markets and uh the thing I'm most proud of has been our growth trajectory for the past uh over the past year. We we relaunched with a V2 in September last year and uh we've managed to grow grow to four billion in total deposits this year and uh yeah I'm just most proud of our the resilience shown by our team and coming back and and growing to where we are today. Hi everyone, my name is Sonia. I'm a co-founder at 3F Labs, a one-click levered looping strategy for RWAs. And I was previously at Stakehouse Financial, an onchain asset manager. And this year, we were very proud of the DeFi mullet um which is using DeFi solutions to be distributed through uh CFI channels. and most famously Coinbase Earn had integrated the stakehouse vaults on Morpho so that stable coin holders on Coinbase could um earn yield through DeFi DeFi strategies. Hey everyone, my name is uh Guy Young, founder of Athena. Uh came out with our products around 18 months ago now. Scaled from uh around 0 to 17 billion in the first uh 18 months. Um we have two separate products. One is a synthetic dollar which you can think about as a sort of tokenized uh delta neutral position or or cash and carry and then the second is a plain vanilla stable coin that we we issue alongside uh USD. Um most proud of the fact that we're still here today I guess from uh this weekend's events. Stanicov the founder and CEO of um Ava Labs and um we built the AVA protocol which is the largest D5 protocol facilitating um lending and borrowing essentially um can supply uh cryptographic assets and earn interest and at the same time use those assets as a collateral um to borrow stable coins. Um, AVA has grown to be um as big as uh 75 uh billion in net deposits. Um, and half of that is roughly been uh 15 billion in in in stable coins. Um, operating mainly on Ethereum but other other um L2s and and networks as well. Um, a has been around since uh 2020. So for the past uh five years and seeing multiple uh cycles ups and downs including uh uh last weekend and also being uh uh very proud to be here uh and surviving over the last uh Friday. Great. Yeah, we are going to be discussing rate markets but uh I feel like it would be a dereliction of journalistic duty not to ask you a little bit more about your experiences on Friday. Um, how did it uh go for your protocol or your team? Um, we can start again with with Sonni. Yeah, I mean it was uh I had like a really good Friday uh to be honest. Uh I had like a really good dinner and um typically what I do uh before I go to bed I you know I check the markets and I I look into the all the the different um markets we have on on a and you know pretty much catch up with latest messages and when I was going to sleep I put my phone on the table uh to charge and as I released my hand the phone actually started to rang um and I got a message from um pager duty as well and apparently the market was uh melting. thing uh at that that point and that was just like uh 15 uh minutes after I uh closed my laptop. So I went um back to the to the computer and and um you know as you you know D5 protocols they run autonomously. So there's not not much really you can do and and they get stress tested but uh based on the parameters and based on the risk assessment that has been done um before these types of events happen. So when I saw all the um the the communications and how much uh leverage there's been uh being wiped out out of the system across crypto and and the pricing. Um obviously that is a very uh big shock to us. Um but eventually things went really well and and the protocol worked uh incredibly well. Uh we liquidated over uh 200 million worth of uh collateral. Um and that's the the native uh way of the protocol to keep solvency uh in market turbulences like this. And for me this was really um uh really scary moment because uh a and the whole kind of the size of the protocol as it it is today. So the stakes are extremely extremely high. uh but also the volatility and the down down cycle of of that uh day was far more beyond what what for example FDX uh and that uh period actually was. So I was kind of um at the same time happy how things ended up but also um can definitely say that it's it's a really frightening to to watch and I think u what effectively happened is that DeFi really uh proved itself uh over the weekend and the more events like this happen and can show how resilient decentralized finance is um that shows uh really why we're building this technology and and and why uh DeFi will win uh down the So it was scary but at the same time um this kind of stress test really shows uh why defi can uh be a resilient option to centralize in traditional finance please. Uh yeah I was stuck on a flight from New York to London while the whole thing was unfolding. Uh Wi-Fi coming in and out uh from the beginning there I think contrary to what a lot of people think there isn't actually a lot for Athena to actually be doing in these uh scenarios. So for everyone that's not familiar with the product, you are long spot on one side and then you short perpetuals on the other. And when the market tends to break down, you tend to see that actually perpetual prices are actually dislocated below spot prices because everyone's getting liquidated. And so from that perspective, you're actually in a position where you're making a lot more money than you thought you would by being short and you actually have extreme amounts of unrealized P&L uh that you hadn't planned for. So the only real thing that the team has to do is like check is every sort of system functioning and then start to realize as much of that P&L as possible. I think this is something that the market still hasn't really wrapped their head around which is they sort of see things blowing up uh within uh you know within the derivative market and don't sort of put two and two together which is actually we're making more money in that scenario rather than being put under pressure. Um there was obviously a pretty public um and well-known sort of like issue in terms of the pricing uh on a single exchange venue. I think uh it's a very good example actually of like DeFi Oracle risk management I think actually being much uh more superior or like better constructed than what you see within CFI. So one of the issues here was actually an oracle price that referenced its own order book as a single source of truth uh for uh pricing and then liquidations as well. Uh for any you know anyone who sort of looked at oracles in any depth it obviously makes no sense to have a single pricing source within that with with zero checks or averages to any other source. And so what was happening here was despite the fact that Athena was honoring multiple billions of redemptions within five basis points of PAR and trading at 30 basis points off of PAR in DeFi in the deepest pools of liquidity on chain which had nine figures of liquidity there uh at 0.997. Uh a single exchange was referencing its own price which was sort of collapsing down as low as uh 65 cents and had no check whatsoever to the fact that there were billions of dollars external to that that market. uh they were close to one. So uh it was an unfortunate obviously um event in terms of users who got hurt uh by that outcome. I think from my perspective our job is to make sure that we never impair the collateral or lose like a dollar of collateral that's sitting behind the product and always service redemptions. There's only so much we can do when it comes to risk management and Oracle design on external platforms that take our product and serve it to their users. Um, so I think from our perspective, uh, we didn't really have a DPEG in terms of primary markets for people to be able to access mint and redeem. The most liquid market that sat on chain within curve had no DPEG whatsoever. It actually deviated less than USDC versus USDT. Uh, it was just a very ex exchange specific issue that came about through through Oracle pricing, which I think is a good lesson for us to all take seriously going forward. All right. seems like everybody was either on on route to some new city or, you know, having a relaxing evening. But from my end, I was in a in a small island in Scotland after a whiskey distillery tour just um having a call with uh a potential partner about liquidations of RWA. So 3F is um going to be primarily leveraging RWAS which are very different from atomic assets where you can freely mint and redeem. So liquidations for instance on RWA become more of a non-trivial um activity where liquidators are not arbiting for liquidation premium on lending protocols like Ave or Oiler or Morpho but they will be taking on actual credit risk of the underlying until they're able to redeem the the underlying um at the liquidity cadence of the the fund or the asset. So it was quite ironic that we were talking about ways to you know deal with this duration mismatch when we saw the largest liquidation in the history of crypto markets. I think as sonnie said um lending protocols on chain did really really well. Um in many instances there was very limited bad debt realized uh on the on the part of the um liquidity suppliers but as we go into you know higher duration assets and RWAS I think we will um encounter further challenges of finding the the right types of uh risk assessors and people with balance sheets that are able to seize the asset and be able to you know um redeem at the the cadence of the underlying assets. So this is um you know for the next iteration of DeFi as we not just deal with uh you know high volume bluechip crypto assets but ill liquid assets that we want to port over to onchain something that we as an industry need to be thoughtful thoughtful about. Yeah, I uh I was also uh just arriving back from a from a trip as well and uh going to bed with one page of duty made its friendly call. Um I uh yeah, I think Oiler is a little different to some of the other protocols here in the sense that we're not just one sort of product with a single risk uh risk framework. There actually uh lots of different risk curators on Oiler that uh build their own uh credit based products and uh they all express very different views about how the how risks should be managed and they do that through uh the ways in which they set different interest rates or or uh loan to value rel r r r r r r r r r r r r r r r r r r r r ratios or or caps um or oracle choice or and design and so uh yeah I guess for oiler we were we were looking just across all the markets trying to see uh trying to see how the risk curators had handled this particular event and see whether there there's any going to be any any damage on any any of the individual markets and uh yeah I was delighted to see that that wasn't the case. Uh there was very very limited impact on any bowlers markets. Um so yeah I was I mean it's just a fantastic stress test for DeFi as a whole and I think it's really great to see all of us here uh have come out of this unaffected. I saw this comment from uh Kobe on Twitter saying when we wake up tomorrow there'll be many bodies that float to the top of the water and uh I'm glad to see that none of them were really DeFi protocols. uh it was uh yeah we it really proves that DeFi is working and is going to going to continue to grow from here. I think one thing that I'm uh frequently asked when I describe DeFi yields is where does the yield come from? Um so when we're talking about rate markets uh we should just kind of explain about the base rate and what generates any rate above that whether it's uh from you know credit spreads or funding rates or uh duration or uh rwas which again is this term we can't seem to get away from uh but a lot of people dislike it but it's not very cryptonative but uh instead of just assets or tokenized assets or whatever but um first of all maybe to set the stage are we talking about the the the T- billill rate or the ETH staking rate as kind of the risk-free rate that is the base rate that we're building upon. Sonni, yeah, I mean it's um uh it's actually no mystery where where from a lot of the um DeFi rates are coming from and it comes from the the the actual the the kind of like a cryptonative uh sources. So um effectively when there is a uh market tendency to to actually uh go long on some of these um um cryptonative assets like Bitcoin and Ethereum that creates interest rate markets uh on that leverage. But there is also a a segment of uh user bases that are already long in those positions and they want to borrow against their um holdings like Bitcoin and Ethereum and and and so forth. Um and especially in in down cycle markets, uh they want to borrow because they don't want to um exit their existing positions, but they want to access that uh liquidity. And this is a typical yield that comes from uh cryptoback uh loans um as an example. And there's obviously um other ways uh to to create yield. I think um uh what's what's what's really interesting about DeFi is that you really know and and see how the sausage sausage is made and when you think about like the the previous generation of uh lending protocols or uh lending businesses uh lending businesses rather um and when we started with a at the same time there were a lot of uh centralized crypto lenders at that time um there was Celsius there were blockfi and and and so forth so actually um you know the way these centralized businesses were managing their um interest rate strategies and and risk um wasn't really transparent. So it was a um akin to a uh like a blackbox system that no one really knows uh what was happening and obviously when the market cycles um came came around a lot of these uh strategies uh blew up and these businesses went underwater. Um, in fact, Celsius probably was um the first kind of like a DeFi mullet because at the end of the cycle, they were using a in the back end uh because they weren't uh using their own um yield sources and and and risk uh framework at at that point. But what I what I think is interesting here is that uh when I see new types of uh DeFi products um for example for BTC yield um I get first kind of like my first reaction typically is that this looks a bit um you know um risky to me or this looks a bit unsustainable because there's some sort of a um a kind of um um rewards component in that strategy. Um, but what I actually like about that is that you actually can go all the way to the source and see where the consumption is. Um, and then how that interest rate strategy is created. And I think I think that's very powerful when it comes to structured products in in decentralized finance actually seeing uh all the way between these layers how the risk is structured. And and I think that's going to be really um exciting going forward when you start seeing more complex um uh uh yield products uh beyond the typical uh lending and borrowing and and interesting strategies being built uh in DeFi. Yeah, we're already seeing that on on oiler a fair bit. When I just checked the rates this morning, for example, on a your USDC UST uh supply was about 3 to 4%. Borrow was more like 5 to 6%. the SUSD today, that's the the staked version of the Athena synthetic dollar was 5.5% or at least that's what's what's shown. I know it it's a look back period. Um, are you seeing since the deleveraging event a a compression across the board of yields as as a result of some of that demand for leverage at least temporarily drying up? Yeah, I think so. Uh, this I mean this is not a new phenomenon e either. Um what's different this time probably is that there were many other sources of yield on chain. I mean in the in the good old days the main source was as Stenny said it was people taking cryptobacked loans and so uh when the markets crashed the yields crashed when the market became more frothy and people got excited the yields would go up again. I think now uh with the bringing real world assets on chain, we see we're starting to see, you know, to your question about that base rate, we're starting to see the emergence of of sort of a a baseline rate that's related to the T- bill rate or to the staking rate, which kind of uh is where where uh yeah, yields don't really drop below that anymore like they they sometimes used to. Um but yeah still there's uh I mean with the with the collapse of leverage there's also a collapse in demand for appetite for um investing in new projects and you know a lot of the questions come about where does the yield come from and sometimes the yield is sort of it's sort of like a cor corporate debt where people are investing in projects those projects are issuing tokens as rewards those rewards themselves are kind of like the debt um and so that gets transferred into into Pendle to fix rates which are then used to leverage uh go leverage long on the fixed rate on on platforms like oiler and uh and ave and uh yeah as as the markets uh decline the the appetite to invest in new projects has declined so the rewards or the debt that they're issuing is less valuable than it once was and so uh yeah inevitably we'll see we've seen a collapse in um in some of the some of the demand uh and the rates in the market but it's interesting it hasn't hasn't dropped below to what it used to. Yeah, let let's talk about um the rates that the user sees a little bit. Um it varies from product to product somewhat. So I'm curious um how you decided um you know how to make it transparent uh what yield what the yield components are. When I quoted the the base yield in a that's purely the stable coin supply rate with no extra incentives as you mentioned no uh rep rehypathication of a of a yield uh uh token like uh from Pendle. Um but how do you um yeah how do you determine what is the the best way to disclose the sources of yield to the user and do you think is the industry sort of standardizing around any any kind of uh norms in that sense? Uh Sonia maybe you would you want to take this? Yeah I think um in DeFi overcolateralized lending is now time-t tested and very popular. So I think people understand the the idea of cryptobacked loans very well. Unfortunately the landscape is as Michael has said um widening and um and where the yields come from and how to underwrite the risk associated with the yields will only get more complex even on chain as RWAs come you know um onchain. Um we recently when I was at stakehouse um brought FSNAR's MF1 fund which is a private credit fund. Um it's mostly uh the private credit portfolio mixed with some u portion of the delta neutral strategy run by FNAR and one of the feedback that we got from you know hedge funds that have scaled very nicely from being active on DeFi was that they didn't know how to underwrite the the content of what was in the in the portfolio. um crypto is still very much unfamiliar with how to write uh underwrite the risks of the real world um and I think there'll have to be some um specialized players like we see in fund management you know we we have um you know equity specialists fixed income specialists and even within those asset classes uh big subdivisions based on industries and um cap sizes and um different sectors So I do think that uh onchain finance will become as sophisticated over time as uh as the traditional finance world world and I think uh yeah we're at the start of these two worlds actually merging because now we have through a tokenization agents the ability to um bring these tokens um on assets real world assets on chain. Well, I can I can say that one thing is about about DeFi is is is maybe less about like disclosures because everything is truly, you know, transparent on from the on onchain uh perspective. Um it's more about kind of like uh you know, labeling and descriptions and and whatnot. So when you compare to you know traditional finance it's it's really hard to to actually like go beneath the layers and understand like where uh funds are going and what's being actually uh uh consumed and allocated beyond like the the more very uh vanilla uh products and and I think actually uh when it comes to like risk disclosures and this sort of uh labeling um it's much easier to do uh uh in DeFi. uh in in fact I I I believe that um people can make uh better financial decisions let's say if they are some sort of a risk um analyst uh in DeFi because they have the endto-end uh exposure and and visibility to what what happens for example you might have an asset that's that might be in in collateral in in oven and uh oiler and um uh also used in Ethei and and and you can see all this visibility and and quantify better uh actually the risks and I think that's really interesting because if you can quantify the risk much more accurately you should be able to drop the cost for transactioning um and I think that's very uh the path where where DeFi goes. So once we get more of these assets on chain um we're able to to better uh quantify where the liquidity is and and what kind of collateralization there is in the system and also build a better risk management uh for that. So this is why like DeFi is like the winner because you can you know you see the exposure every single second uh instead of uh let's say uh quarterly reports or uh annual financial reports. Yeah. Well, on on a you have the most exotic collateral you have is probably the pendalled PT uh principal tokens. Um other platforms like like Oiler and Morpho are uh having risk curators managing vaults oftentimes using this uh ERC 4626 standard and they're I've found at least that that you know if you want to see what is your uh exposure to different stable coins for example they'll give you kind of a list but you don't really know you know in great detail. So that's kind of what I mean like is there a a sense in which you're trying to make it more legible especially to nondens um you know where where these uh risks are lying I think when it comes to yeah these uh there's there's definitely some challenges ahead with the tokenized credit funds uh trying to I think it's really important to add disclosures there like San said with a lot of cryptoback loans you don't need to make disclosures because the the the real underlying assets are there for everyone to see and you know exactly what's going on when you tokenize is a fund and then use that as a collateral in a in a platform. You don't always it's not there's not a there's not a record on chain exactly of what what's on what's what's backing that fund and what's being used. So I think uh I think there's definitely work to do in that area with real world assets in particular. Um more disclosures are probably needed. Um and it's an evolving part of our industry and it's probably going to continue to grow but uh yeah certainly more more work to do on the risk side. We're certainly trying to push push curators to uh uh keep innovating in that area and uh you know there's I've spoken to people here about bringing uh ratings uh you know on chain as well and trying to figure out how we rate these funds so that uh so that people that are using these products uh know can get a better sense of actually what the what the kind of risks are rather than just relying purely on the the indicative interest rate as the as the only measure of risk. Mhm. Guy, how far can we go with delta neutral yield or uh the tokenized basis trade in terms of it being a rate primitive that that can scale? Yeah, I think the way that we sort of conceptualize market sizing um rough numbers at the moment uh open interest in derivatives is around 120 to $150 billion uh at the moment and that sort of pays 10 to 15% interest rates annualized on average. So really it's actually one of the only three sources of like $10 billion plus cash flow opportunities a year. It's kind of Binance equity, Tether equity and then the basis within the futures market and that's like that's it for $10 billion plus. Um that market's been growing actually quicker than uh the underlying asset prices themselves. So if you wind back a year and a half, Bitcoin 50k uh the open interest in derivatives market has actually tripled in the same period of time that actually uh Bitcoin doubled. And so as the market's sort of growing, the contribution of derivatives to the market as a whole is actually growing much quicker than the underlying. Uh all that to say, I think the rough sort of metrics that we think about constraints or total size that Athena can be as a percentage of the total is roughly somewhere in the order of like 25% of total. So even where we sort of peaked out last week at just under 15 billion dollars, I think that number could have been like 25 or 30 in the right sort of conditions in terms of uh demand for long-sided leverage. Um, so yeah, I think that's the rough figure, but I think the design of Athena and and USD has also transformed slowly through time where we do have an ability to add normal feedback stable coins within the backing for USD. So on a marginal basis, you can scale beyond that sort of like 25 to 30 billion number that I mentioned. You're just sort of lowering the marginal yield as you're doing that because obviously the T bills are at like 4% rather than 10ish like the per. Um, so yeah, that's the rough way that we sort of think about market sizing. And if you even just compare that to DeFi over collateralized lending, uh that as a total market size right now is somewhere in the order of like 10 to 15 billion dollars uh for like dollar lending uh in DeFi. So CFI has and sort of is growing even quicker than over collateralized lending within DeFi and it's like a 10 times larger market uh than what we see on chain right now. Yeah. Sonia, if we want to try to um construct something that maps onto Tradfi uh to to cleanly describe DeFi rate curves, something like uh so for ibore style, what what would that look like to you? The onchain equivalent. Yeah. Um I think AUSDC or AUSDT comes pretty close or in the context of Morpho like stakehouse USDC vault um exclusively lends against bluechip crypto collateral like BTC and ETH um and their derivatives. I think that to me is like the onchain native um base rate and from there you know you can scale the rates through horizontal or vertical means horizontal is trunching vertical is leverage and we've seen you know innovations on both ends to me pendal is you know an instance of um horizontal trunching where you know the pt is fixed and yt is variable based on um token incentives or uh desire for uh leverage. And then um on the vertical, you know, expansion side, 3F is innovating on this front. If users want to lever up on any asset, they should be able to um in our opinion with one click. So um that's what we're facilitating. And between the two um you know you can add incremental risk premium to AUSDC or AUSDT or stake USDC. Who are your borrowers today in 2025 and what do you think needs to happen to try to unlock more institutional capital capital at scale? I mean it's it's really uh it's a really big range of uh um personas. Um it it ranges from um early adopters of of of the of DeFi ranges to institutions and um more like a cryptonative institutions but also with the launch of uh Horizon Horizon uh market where you can use RWS as a collateral and board of stable coins that's another kind of like a layer of uh institutional uh DeFi. I think the range is is quite uh significant and for example in case of Verizon um it's a really interesting onchain repo market where you can access liquidity if you have these uh tokenized assets money market funds credit funds on chain instead of offchain and um an event like last Friday is a is a perfect example where um if you have invested into trady products you can pull liquidity really quickly uh in other places on chain as um uh in institutional market maker for example. Um but at the same time um you know I keep hearing stories where I meet users around the world that are using a for um being able to to borrow against their u house um paying tuition or any other type of finance goal in in real life. and and some users it's it's about actually taking long on position on on these cryptonative assets and I find it actually more than a fascinating uh use case because I think there's a really uh big problem of uh wealth disparity at the moment and the wealthiers are getting more wealthy um and and the the chances of of being able to have financial freedom uh is decreasing for a lot of people. So things like Bitcoin, things like Ethereum and being able to double down is a is a really big uh factor for a lot of people who are in the space. Um but my kind of vision is that you know we can go beyond uh these more cryptonative assets or uh RWAs and extend credit to um all types of businesses around the world uh and also credit to to everyone. And I think that's what the onchain infrastructure is there uh for we've been able to uh figure out the liquidity aggregation piece uh to the extent that it's relatively easy to aggregate aggregate liquidity and if there is good yield sources and collateral and directling that liquidity there the next kind of pieces is to bring more of these traditional assets and value on chain because that scales the defy interest rate markets and and that yield opportunity to everyone and access to dollar is more um actually interesting with with uh ability to have also yield on on that dollar dollar but what it provides uh over the long run is is the ability to offer credit uh globally and having a a resilient um capital allocation system there. So I think a lot of uh folks are still early in the space. Um but down the line I think we're going to go to a world where DeFi is is kind of like the the computer of uh of capital allocations for for credit uh in the future. I could add some color here. I think the profile of an average borrow actually has changed quite a bit uh since DeFi summer of 2020 and 2021. Um initially I think a lot of people who were early into crypto you know BTC and ETH Wales um they didn't want to sell their crypto so they would borrow against it uh stable coins and then we had crypto native institutions who wanted to do sophisticated strategies like lever looping but beginning of this year um for instance uh Coinbase had allowed CBBTC holders to be able to connect with Morpho and borrow basically onchain. And I think that transition of uh cryptonatives to now anybody who is a user on Coinbase being able to tap into DeFi infrastructure I think is very very powerful and we're only at the beginning of um you know making DeFi infrastructure and onchain capital markets available for for CFI uh CFI users. Yeah. Yeah, I mean that kind of u expansion of credit backing you know if your collateral is Bitcoin that works great in bull markets especially um maybe in bare markets uh you start to see the reversing of of flows and what what kind of impact uh would that have or or do you think that we've sort of have enough diversity in yield sources that uh that that's less of an issue in this if we have another downtrend? I think it's quite different to last cycle where um a lot of the leverage that existed last cycle was sort of quite opaque and sitting in balance sheets that no one could actually see. Um I actually have zero issue if like DeFi lending or leverage was 10x the number versus where it is now. As you can see in the last weekend, DeFi works just fine and that number is going to be just fine when it's 10 times the size. Um and I think the reason for that is that everyone can actually see what are the assets and what are the liabilities. uh this cycle u maybe it's sort of famous last words but it's not entirely clear to me now where that sort of hidden leverage is actually building up or existing within the system. I think you've sort of cleaned out CFI lenders and Ave's kind of won that game now. Uh and there aren't any sort of like CFI lenders who are there competing. Uh and I think a lot of the um you know underlashed lending that existed last cycle doesn't exist at the same scale now. Um so I think it might be a slightly uh controversial statement but I actually think we kind of need more leverage and more growth in terms of what we see on chain and uh it's fine if things get liquidated. That's sort of the risk that people are taking on and someone ed and someone else's edge to buy during that moment. So I think so long as it's like transparent and in the open um there's no issue with more leverage. Yeah. Yeah. On Oiler we had um relatively low uh level of liquidations on uh on Friday and that's because the profile of borrowers on Oiler is a little bit different I think from other platforms. On Oiler you can build credit markets that really simple just collateral debt pairs and we have some borrowers that are using that to do the cryptoback loan stuff like you discussed on on Coinbase. uh some people are using it uh using the the platform to create bespoke markets for all sorts of different types of borrowing use cases. You can use Oiler to uh borrow using just in time liquidity to supply liquidity into the markets as it's needed. Uh and with that you can actually uh earn yield from market making on dexes. Uh you can also create instant redemption-l like facilities for real world assets through this through this approach where if somebody wants to borrow for instance we've got a b we've got a bidd market on oiler uh black rocks tokenized money market fund if someone wants to e exit a bidd position they can go through the facility uh that they provide but using uh just in time liquidity they can actually swap that in and somebody on oiler will LP that for them using just in time liquidity where the the the asset will collateralize as it hits the market and borrow the liquidity from from the underlying credit market and send that back out to the person exiting. So there all sorts of new novel ways and that we can design on oiler uh reasons to borrow I think and uh and with that we're not as dependent on market cycles as we were in the past. Uh yeah, every market's different. Every every market on oil has a completely unique use case. Mhm. Wrapping up, um what's uh one thing you're looking forward to in the next six to 12 months uh coming down the pike? Well, I'm super eager to look forward for um you know the central bank rates going down um because it's a it creates like a very interesting catalyst and I I think u a lot of financial innovation if you look back into u some of the like history um it typically happens with some sort of a macro um catalyst as well and I think uh the early days of uh for example with with DeFi back in um uh back in 2020 for example before DeFi summer it was a really uh interesting time right so everyone had a lot of time at their hand you know they were at homes there was covid at the same time um a lot of job losses um so people were conscious about their financial health and at the same time you know you had a pretty much zero interest rate and environment so that type of conditions um you have two choices right you find alternative yield sources or you go to the stock market and that's when um Wall Street bets for example happened that's when the early uh times of defi and and the first wave started to happen with significantly higher yield with with also um incentive so I think um every single uh interest rate cut actually provides a really um uh interesting arbitrage opportunity for for for DeFi. So if you're going to see more rate cuts in the next u 18 months uh to to have a significant difference in in DeFi um and more value goes into stock market and and and crypto we might see quite a uh interesting rate difference between the traditional rates and and DeFi and I think at that point especially because DeFi is become uh safe enough um we will see a lot of uh traditional um participants um uh and starting from like the most um kind of like um fluid uh uh I would say like a neo banks or fintex actually looking into more defi and plugging in that as a as a yield source to keep uh higher retention for their uh customers. So that's what I'm uh super eager to see to happen in the next uh year. Yeah, I think echoing a lot of uh what Stanny said, I think generally we've observed when fed fund rates come down, you tend to see like credit spreads in crypto uh widen in the opposite direction. And I think that's obviously pretty bullish for like all of the projects that are here on the on the stage today. Uh I think one other idea uh not really relevant to um you know core product that Athena has but uh I think the growth of equity perpetuals I think is the most exciting idea to me in general. I think uh perpetual swaps are kind of the one true financial innovation which I think is like uniquely better than trady just like outright as in terms of an instrument for leverage. And I think uh we're going to start to see retail speculation shift from options on Robin Hood to perpetual swaps and equities somewhere. And I think that's like a multiund billion dollar opportunity for someone to capture. I think DeFi DeFi architecture has proven robust and now we're seeing a lot of institutions trying to make use of this um architecture that we've built as an industry over the last five years. So I'm very excited about um the unlock of uh unlock of non-gated credit provision to various purposes. Um and you know DeFi is about more efficiently matching the suppliers of capital with the you know the borrowers of capital and um because it's a global permissionless market um the market clearing price i.e. the interest rate is much more competitive than in the real world. So, I'm I'm excited about um more people being able to have access to to DeFi yields um including the traditional institutions. Last quick word. Yeah, more more integrations with FinTech. Um yeah, and for us, I think just we're excited about new products coming on uh online as well. We've been working a lot on fixed rate products. So, uh yeah, we're going to try to keep innovating and pushing out new new products for the for the integrators using Oiler. Thank you very much. Please give a hand to our panelists.