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Arbitrum x Credit Guild
Recorded: April 30, 2024 Duration: 0:30:39Space Recording
Full Transcription
yeah no i i think um no you guys have done like really cool stuff um and i think what would be
interesting to learn i'm sure the community is really curious about this as well but um what
are some like important like really cool like product features that you guys have um and i
know on the technical side you mentioned a little bit but yeah on the product side well what are some
exciting features that community members can go in and try out well probably the most exciting thing
is the idea that we have this radically open governance model where anyone can come in and
stake first loss capital and allocate the protocols debt ceiling and earn a share of interest and this
was loosely inspired by the curve gauges model right where instead of instead of a kind of token
voting where you need everybody in the dow to come vote and maybe it happens on this kind of weekly or
longer cycle and anytime you can go and stake on whatever gauge you want um and in the case of
curve what you're allocating is the emissions of the curve token for us what you're allocating is the
debt ceiling so the borrowing capacity or the liquidity on the protocol so for people who have
been interested in defi for a long time but kind of sitting on the outside this is very cool because
it allows you to take on a more active role and have an influence in the protocol but without needing
to go through political hoops all you need to do is stake your guild tokens or outside first loss
capital so that would be in the let's say in the usdc market you would deposit usdc and get this
deposit receipt g usdc similar to compound you would then stake that and you can vote with that in the
gauges as well same as the guild token so i think that's pretty fun uh of course staking is not a
risk-free activity so exercise caution but i personally have been enjoying playing around
with it a lot and some people have said that um you know this is some of the most fun that they've
had in defi in a long time getting to directly allocate the liquidity in the system um so i think
that's a lot of fun um besides the core use cases right of just being safer for passive lenders
without this oracle risk and um you know there's a lot of features that are optimized for for passive
lenders like a lot of defi lending markets don't have a way to do bad debt accounting so if there's
a loss in the protocol it's a bank run a race to the exits we have bad debt markdown based on the
auction results um there's other things to protect passive lenders like you can if you deposit in the
market you get voting power and the doubt dual governance and so you can veto potentially hostile
proposals so um yeah i guess that's that's more i'm getting i'm getting too technical again unless on
the the fun product side but um yeah the market's really built to optimize the interests of of the
passive lenders and also to let people borrow against interesting collateral assets that might not
be easy to support on an oracle based market so we've had a lot of interest in borrowing against
pendle principal tokens so far um not yield tokens right just the the fixed yield principal tokens which
are a relatively low risk asset since they have a defined redemption time um but can be difficult
to support for an oracle feed because there's always new maturities coming up um and there is some
market manipulation risk um because people could always just mint a bunch and sell into the pool
right um and crash the price and this is something i wanted to highlight um that's very relevant for
any type of liquid staking token or liquid restaking token i saw some wrong takes after the easy if dpeg
saying like oh you know because redemptions weren't enabled that's why it could dpeg but a lot of people
might not realize that for eigenlayer there's a seven day unstaking period um so that means that
even if a liquid restaking token does have redemptions enabled there's still a significant delay um
which provides a window for dpegs to occur um and and risk market manipulation attacks because at any
time someone could come in with a bunch of eth and you could mint instantly you just have this seven
days to redeem so they could mint instantly sell into the on-chain liquidity crash the price and harvest
liquidations right and then go bid in the liquidation auctions for cheap uh i'm sorry go not not auctions
but bin these oracle based liquidations for cheap so um having a liquidation auction with an appropriate
time like six hours fixes this and um it's something that protocols and borrowers should be very wary of
and so um yeah i guess i just wanted to highlight that and why i think credit guild is really the best place
out there to borrow against these types of long tail assets
yeah no i i also wanted to get your thoughts on like the future of borrowing and lending within that
ecosystem um in terms of like the technical front right because you guys don't use oracles but
what do you think do you think a lot of protocols are going to move in direction of like not using
oracles or do you think that there's still room for improvements within the oracle stuff
we'll see i think it's still a pretty contrarian take to totally remove them um naturally that's
what i think should be done in order to to trust minimize but there are some other interesting
approaches that i could highlight um some of you guys might have heard the phrase oracle extractable
value and i've seen this new protocol oval and so one direction is that instead of um removing oracles
you can sort of put additional wrappers and safety checks around the oracle feed
so you don't ingest it in real time but you give some delay and then you could do some other things
with that information um so i think that that's a worthwhile direction as well uh you know i don't
want to be too much of an extremist um of course it's our our mindset to have be trust minimized
and remove those trusted price feeds but semi-trusted systems can still be useful so i think that
people will be doing more work around like oracle sanitization um one other example i'll highlight
which is cool and a protocol that i admire is gyroscope and they have these systems where
you can ingest multiple oracle feeds and then have triggers for suspicious activity like if there's
too much volatility it has to exist across all of them and you can do comparisons to time-weighted
average prices and so there's definitely cool stuff you can do there i personally think that
there's the most value in a first principles approach that removes them um and there's been
some other cool work in oracle free lending like ajna which some people are familiar with um we have a
lot in common with them uh besides the fact that for ajna everyone is an active lender who sets their own
price um for the collateral whereas credit guild it supports both active and passive lenders so there's
that more you know of or compound lending pool ux that's just simple and easy set and forget um and
then there's also the more active people who are allocating to their preferred um preferred collateral
ratios and things like that oh yeah yeah that's uh very interesting um and another like follow-up
question i had was like obviously our arbitrum over the past few years i have seen
the ecosystem growing to be like the home of defi but i want to get your takes on like what made you
guys like choose arbitrum um i know you mentioned right with the low fees but is there any other
interesting like technical aspects of arbitrum that stood out to you
yes absolutely so yeah the the low fees of course is a general benefit of l2 and the introduction of
blob space which we were happy about the timing worked out for our launch as far as arbitrum
specifically it mostly has to do with the the security culture and the commitments to decentralization
i think that you know optimism is not bad in this regard but personally i feel greater confidence in the
the progress arbitrum is making towards um permissionless fraud proofs right fraud proofs have
been live and permissioned for quite some time um and i think we're very close now to
to getting to full decentralization of the roll-up and having the ability even for like you know our core
team to run a node and be prepared to do fraud proofs um and that combined with the the defi culture that
has established there made it a no-brainer for us to launch on arbitrum you know i personally
use arbitrum more than any other l2 um so i'm sure that influenced it as well
and yeah we're very keenly following the developments at arbitrum and looking forward to the day when
the sequencer is decentralized also i know that you might not be able to leak um too much alpha about
that but for those listening we know that you know it will come one day um there has been a proposal
passed in our governments for for arb staking um it's been a little bit quiet on that front for a
while but um i think we'll probably see some news on that before too long uh you know we have the
permissionless fraud proofs coming up um and so i think there'll be more exciting steps to a full um
i sometimes forget the stages i guess it's a stage two roll up um over the next year and we'd like to you
know support those types of use cases however we can including running our own full nodes um once
permissionless fraud proofs are live and then um providing a venue for people to to stake also once
that's available yeah yeah i think bold is gonna it's gonna be like really really really cool for
the community um just because like of the stuff you mentioned already right um in terms of like
decentralization right um it's gonna enable permissionless validation uh to all arbitram chains
right um including arbitram one and nova right if it gets passed by the arbitram dow because um
arbitram dow uh is in control of the community controls both uh public chains of arbitram one and nova
um so yeah if the arbitram dow approves then arbitram one and nova will uh have access to bold uh which is
gonna be really cool to see um but yeah there's a believe there's an aip um within the arbitram dow for
for bold um and there's actually a testnet going on right now in which people can try out bold or like
be a good validator or an evil validator to protect the network so um i mean that's that's a pretty cool
to see so far um but yeah no it's gonna be really cool to see on the decentralization front right um i think
arbitram has been very fully aligned on that front um in terms of becoming being the first to take the
first steps into a stage two roll-up which is really big for the ecosystem um and yeah there's there's
some things being done as well um in terms of bringing shared sequencing technology to not only just
arbitram ethereum but as well as other l2 roll-ups right um and that's the partnership with off-chain labs
and espresso systems um so that's a huge thing that's coming as well uh but yeah no all things
decentralized right it's gonna be awesome to see yeah shared sequencing is a very interesting topic
and of course good for us as a lending market because it will make um sharing liquidity across
roll-ups easier and so this might be a good time to segue into the sort of what are the risks and
unique character you know unique considerations you need for for lending on l2 and there's a couple of
things one is of course that liquidity is not as deep there as on mainnet for most assets so there are
some things like usdc which have native mint and redeem on l2 um but there's a lot and there's of course
native assets like arb which have deep liquidity on l2 but for most assets that are bridged they're
less liquid on l2 than on mainnet or on centralized exchanges and so even if you have a certain market
cap you have to take into account well within the bounds of this uh withdrawal delay how much capital
could liquidators sell into um now that is mitigated by centralized exchanges which don't require you to
wait the full week um to go in or out of of arbitram right um so there's those arbitrage flows that
exist and that's one of the other reasons that we chose to build on arbitram is that it's one of
the best supported among centralized exchanges in terms of roll-ups um and that will make
you know assets less risky as collateral make liquidations more efficient so it's all really
important of course that doesn't apply to every asset only the ones that are also listed on
centralized exchanges but that's still very good um in terms of things like liquid staking tokens
and then the other risk to keep in mind on l2 is the possibility of downtime uh so arbitram has a
pretty good track record in these regards but it's definitely possible for a sequencer to go down
as long as it's not an open sequencer set yet there's a risk we have to keep in mind and so
the significance of that for us is mostly that auctions have to be a certain minimum length
um if we had very short auctions in the credit guild it would be possible that um an untimely
sequencer outage could cause bad debt and so you want auctions to be long enough that even if there's
a little outage during it um it doesn't completely ruin the auction process and so
risk parameters should be set a little bit more conservatively than they would be on mainnet based
on that uh that's one reason we're looking forward to um the opening up of the sequencer in the
future um because that will increase the reliability of uptime guarantees and especially once one day
there's an independent or separate implementation of it just like there is for ethereum nodes
so that's kind of our our wish list um but still um you know the the track record is good and um
it is possible to force include transactions on mainnet after after a delay that delays a little
bit long from the perspective of a lending market i understand why it can't be shortened too much but
i've been noodling around with the idea of proposing a modest reduction in that delay from 24 hours i think
it is to um maybe something more like six hours
yeah yeah um and i think another really cool thing that's going on within the arbitram ecosystem is
arbitram orbit uh the permissionless pathway to deploy your own custom chain um right it's really custom
the customization is you know people can customize their chain however they like it um they could add
any gas token to their chain um they could customize the governance make it permissionless or permissionless
um and they also have the ability to customize uh the arbitram nitro tech stack um so i i want to get your
thoughts on the use cases for borrowing and lending protocols out there do you think there's room for
um borrowing lending projects to you know does it make sense for them to deploy their own orbit chain
or i don't know want to get your takes on that so i think that the it can but the main issue with that
is liquidity fragmentation and so if you deploy either either using the tech stack for your own l2 or
as an l3 either way um when you're doing liquidations you're then limited by the liquidity that are
is available on that that new layer now i think there is a way to work around this um
if you like you said customize that tech stack a little bit and tightly couple the liquidations and
withdrawals um so i have some ideas around how um not to get too deep into the technical weeds you'll
have to excuse me if i start um learning out too much but i believe that it's possible um
to have more effective mechanisms for cross-chain arbitrage through something that's similar to a
shared sequencer where effectively you could post collateral on l1 or in this case maybe on arbitram one
if it's an l3 and then borrow liquidity that is in the canonical bridge um and this would allow
faster arbitrage without the same challenge period delay because it is over collateralized still on
the base layer um so i've been thinking about some ideas like that uh we're interested in potentially
building some of our own scaling stuff in the future but um for now arbitram one is is scaled enough
from my point of view and that the gas costs are low and the liquidity is what's more important
so at least in the short term we're focused on just being present uh present there growing the
liquidity in the market and um making a few additions to the model because there's a few features that
we're excited about that weren't included just in the core protocol because complexity had to be kept
down and we wanted to you know not spend forever and letting the perfect be the enemy of the good get
live so i'm happy about that choice but there's a couple of cool things coming up which i could share
about a little and one of these is what i call a mint redeem blending term and so if you've ever
leveraged up or against something like a liquid staking token um or a liquid restaking token
you know that when you're leveraging up it's fast right you put it up as collateral borrow and
go admit more put that up as collateral borrow and so on and so you might have to do these loops which
could be a little bit annoying but it can be fast but redemption has a delay and so if you're lucky
and you're unwinding your position it's small you can just sell into on-chain liquidity that's been
incentivized and that's all good but if it's a very large borrowing position or if on-chain liquidity
has been impacted by other sales and liquidations um you might be an inconvenient spot because you have
this collateral position you can repay a little bit of the loan withdraw some collateral go and
try to uh redeem it but then you're stuck waiting for this delay period to happen and if you're trying
to deleverage your hurry and you have you know it depends on the asset like for a lot of real world
assets like um backed finance real world assets it can take um about two business days to redeem uh for
liquid restaking tokens there's a seven day redemption period due to the eigenlayer constraints
and so that delay can make things very inconvenient for you when you're a borrower trying to unwind your
position and they can also make it challenging to do liquidations where we know that there's deep
liquidity available but if we have an auction that's six hours or even worse an atomic oracle-based
liquidation like in most protocols they can't access that liquidity and they're they're restricted
only to what's available in the on-chain liquidity pools which will be much more limited and so
the mint redeem lending term is intended to solve this and so the idea of that is that if you have
this collateral position let's say you're you know you're borrowing eth against a liquid restaking
token instead of needing to repay your loan first and then go initiate redemption you could initiate
redemption from within the leverage position so to have the entire liquid restaking token
or you know ondo or usg whatever it is any mint redeem type of token you can initiate that to be
redeemed with the issuer from within the debt position and so that saves you this need to do
all these loops and allows you to just automatically close the loan um at the canonical exchange rate
after the redemption delay reducing costs from selling it into on-chain liquidity and same thing for
liquidation auctions where when a position is going to be liquidated it will automatically be able to
initiate that redemption right away instead of the arbitrageur having to bid at a discount
and then take on the inventory risk it will just go ahead and initiate that redemption and then the
liquidator can just post a small bond to reserve the rights to um close the position or in some cases
you may not even need a liquidator at all because you could just redeem it and close if you're doing a
like kind borrow like let's say you're borrowing eth against um against wrapped staked eth you could
just go ahead and redeem that wrapped staked eth for eth um and automatically close the position without
even needing an arbitrageur to bid um if it's not like kind like you're borrowing usdc against one of
these redeemable tokens that's that's eth-denominated then you'll still need a liquidator to put up a bond
but i apologize if i got too far into the weeds on that but we think this is really exciting um and
especially for um especially relevant for l2 where liquidity that's incentivized may not always be
as deep um because you know i was talking about native mint and redemption the same thing would
apply for the l2 bridge right so if you need to bridge back to l1 to redeem the auction house or the
deposition could do that natively within it as well um and allow us to overcome some of these constraints
for l2 liquidity so that's something we're really excited about and that we want to put to audit in
about one to two months and yeah there's a few other quality of life improvements for the market that
will be um coming in then as well but i won't talk to you here off about all of them
yeah no all that sounds like super exciting um especially the features that you guys are working on
um and are you guys looking to also like collaborate within the arbitral ecosystem with other projects
that are building borrowing and lending protocols do you think there's room for that or yeah what are
your thoughts yeah there's definitely some room for collaboration with other lenders and borrowers
although i think what we're most interested in is um what i would call asset issuers right issuers of
things like liquid staking tokens or stable coins or other things like that that want to
bootstrap debt or collateral markets for their assets and so i won't name names just yet but we're
speaking with a couple of different projects on arbitrum that have been stip grant recipients um to
variously onboard their assets as collateral or bootstrap debt markets right lender borrow markets for
their asset uh so that's something i'm really excited about and um i think that our optimistic
governance model really shines with making it pretty easy to onboard new assets and to you know
govern these parameters and so um definitely if anyone um we're open to you know further collaborations
along those lines um so that's something i'm actively seeking and we have a couple that have been
coming along and we're kind of at the discussing proposal stage i won't be announcing the names just yet but
i'm hoping to be able to share some news about that in the next week or so cool yeah that's awesome uh
and i know we're towards the end the ama but i also want to give you a chance to share anything like any
other thoughts that you may have um like where where can people learn more about credit guild and get involved
so you can find the best places to come hang out in our discord you can find the
the link in the bio of this account um and there you can find you also see the official website in
this account's bio um but i definitely encourage you to come into the discord and ask questions i'm
there all the time um you know ready and happy to talk shop and we have you know the the website the
github the gitbook um the audit report all that stuff you could find it both in the the discord
and on the official website that's linked in in our bio here and i guess the yeah the last thing i'd just
like to emphasize is that the goal of credit you know the name credit guild was chosen because we want
to be a you know an open collective of people who is working on trust minimized lending and borrowing
this is a living project that has a long you know long way ahead of it and this is just the credit v1
so we're we're always very keen to hear design thoughts um thoughts about collateral assets um
just really any any input that you may have into into on-chain lending um we're very keen to talk shop
so don't don't even feel limited about credit guild specific questions if you're researching
other defi lending protocols we're happy to talk about that um you know i'm always you know researching
and nerding out on these different mechanisms um there's quite a few projects that i admire and
hope to um incorporate some of their good ideas into upcoming upgrades as well
awesome yeah well thank you kirk for joining us today i'm sure the community is super excited about
what you guys are building here on arbitrom and yeah wish you guys the best and hope everybody here has
a great tuesday awesome thanks for coming out everyone else if you have any questions come up
from this uh yeah i'll be live in the discord for the next few hours so feel free to swing on in and
um i'll look forward to seeing you there and appreciate um churro and the folks at arbitrum for hosting
um yeah it was it was nice coming out today and hope to talk to you more soon yeah no definitely more
spaces to come so yeah i'm curious yeah we should definitely do like a follow-up space uh but yeah
awesome yeah hope you all have a great tuesday yep take care everyone talk to you soon um peace out
