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Breaking the USDT-USDC Duopoly w/ @TokenBrice
Recorded: March 10, 2026 Duration: 1:02:53Space Recording
Full Transcription
Thank you. I'm going to go ahead and put it in the middle of the room. Thank you. Thank you. and we are back with another live stream today we have token bryce polaris how's it going man
thanks for hopping on hey thanks for having me i'm glad to be here likewise dude i'm excited to
have you on i mean you've been around for a while but for folks that haven't been following your your work for while you've
been in d5 do you want to give a quick background uh yeah sure i've i've been around since uh six
seven years now pretty much since defy started um i started as a regular participant i want to say
started um i started as a regular participant i want to say my only focus in the first few years
was around essentially organizing for the french community because back then the conversation was
entirely in english uh about d5 and i wanted to to make sure that the mates were not left behind
so we created uh d5 friends which is still alive to this day
uh telegram group but so much more there is also monthly meter there were live streams videos all
kind of things but essentially you know content discussion meetup participation to other events
anything to uh spread the word about d5 and go really deep about decentralized finance mechanism in French.
That was kind of and it's still the angle for DeFi France.
It's like the community where you can have the deepest, most knowledgeable conversation about DeFi in French.
That's really cool. How is the French face these days?
I mean, I think, unfortunately, the most french news i hear about with crypto is
uh some break-ins and whatnot so yeah yes negative news out there it is a pretty big topic of discussion on defy friends right now i'm not gonna lie everybody kind of watching the oh my god you
saw this new guy getting hot attacked at his home and yeah it's been um it's been pretty traumatic
uh but apart from that uh i mean you know it's it's a bit of the markets are not so crazy.
So the world is not at the highest.
I can't say it like that.
But still, the group is active.
3,500 members, roughly.
And lively conversation every day.
All the shiny new toys are discussed there.
So the French guys are still at it.
They're still in the trenches. I love to hear that. No, I that no i mean speaking of new toys you want to talk about polaris a bit
like what's uh you guys building over here well maybe we should start with what you've built in
the past like um i know you've worked on some other protocols before do you want to talk about
those and then how that kind of shipped into polaris sure yeah um so uh my two specialty in the space essentially are like
liquidity management and and stable coins uh i kind of focused on that i guess the liquidity
management angle uh i got from my time at paraswap and i popped there for for a while
there for for a while uh and after pass up that worked at the liquidity on the uh token integration
defy bd for for lusd and blusd back when the chicken bonds launched so uh yeah two formative
experiences for sure uh and uh they definitely contributed to uh bringing me to this point
today and also you know it's kind of
it's connected to everything i've been doing uh on the side i remain an active participant of
the device space let's put it like that beyond my professional implication so you know i was
involved with the goal liquidity the benevolent dictator of it for a while to re-peg the go token
back in go stablecoin back in the days.
And I help out in various governance is pretty much what I'm called.
I don't have so much time to just go around and, you know, chime in on a random governance
post, sadly.
But once in a while, there is a new project launching and they need some help with the
liquidity strategy or things like that.
And I will give a hand.
Yeah, it seems like governance is actually kind of a hotter topic these days,
especially with like the Aave votes and whatnot.
It's, I don't know, it's kind of interesting.
At least the drama is interesting.
Oh, yes.
I mean, not just the drama, you know, it's what makes me glad,
in a way, is that long-term important topic that weren't really discussed in the past in
governance are now being addressed even if you know in the RVKs are being addressed by like oh
okay we're doing what we want from the labs but you know for instance okay let's give kudos to
for instance a question of the IP the intellectual intellectual property of the ownership of the IP by the
DAO or by some private company and how is this thing working?
So it started as a topic in the AVI governance because essentially a sub part of the DAO was
demanding for it because right now the IP is owned by AVI Labs.
But from here, it kind of stemmed into you know many many projects so for
instance uh just a couple of months weeks ago i think fluid uh announced uh that the they
restructured so that the iep is essentially in control of the fluid token holders and you know
probably there is some of it that comes from their own thinking but i imagine that the the discussion on avi was also a a factor to kind of for sure what's this
yeah no i think i i like the direction that the metadao team is going with the
tying token to ownership rights as well so i think that's beyond the discussion of this but
i i do find it fascinating but yeah let's go back to Polaris. Can you talk people through like the basics of it?
Because at least to me, it was a little complicated
getting into how it works on a granular level.
So maybe take it up to the top,
explain why this would be interesting
to a market participant.
Yes, and we can definitely look back on governance after
because that's also a topic of Polaris addressing
in its own way.
But yeah, so if we go from the high level,
Polaris is a new protocol
I've been working on with some colleagues.
And it is a bit of a wild beast
because it has many heads.
At the most basic level,
it's a CDP type protocol that would output stable coins right so you will
have the pusd which is a dollar pegged stable coin that has interesting properties because it's a
without counterparty it's yield bearings through the stability pool it's redeemable and it's
essentially cannot be censored.
So it's designed for maximal resilience, similarly to a stable coin like LUSD or bold, but differently from an LUSD or bold, it's accounting for the scaling factor at every single dimension of the product.
Because the goal here, it's ambitious.
Okay.
I know it, but people will understand the title the design
decisions on polaris were made by answering the question of essentially how can we design something
that has a credible shot at flipping usdc one day if we get the wind in our back because we really
see this uh fundamentally as one of the core problem of DeFi right so we are patting ourselves on the back oh
look DeFi is wonderful anyone can access it you just need a wallet and it's so cool like you can
be 13 years old and maybe you're doing DeFi you can be from Iran or I don't know Russia or some
sanctioned country in North Korea and you can be using DeFi but uh we can ignore the big elephant
in the room that okay fine technically you're right when you say that you can be using DeFi, but we can ignore the big elephant in the room that,
okay, fine, technically you're right when you say that you can do a swap on Uniswap,
not through the official UI that censors you,
but through a roundabout way to interact with the Uniswap protocol.
But what is likely that you're going to do in your DeFi activity, right?
Well, most likely you would interact with stablecoin one way and another.
And as soon as you touch stablecoin, it's pretty much game over because you're back to something that is
to be honest has no sensible difference with the regular traditional financial system so you have
you know the the blacklist the free scissors of stablecoin all kinds of censorship as possible
with usdc with usdt with usds with usde with die with frax with
any stablecoin that you can think of pretty much is either directly implementing blacklist features
free switches or if it's not it's using in its collateral some stablecoin that is so it's it's
subject to the same limitation so essentially the stablecoin topic and especially the question of their counterparty, their
resistance to censorship is like the big elephant in the room of DeFi perspective.
I think that's a great breakdown.
And maybe we can explain for people that aren't as deep into stablecoins because they might
think like, oh, Dai or Frax, these guys are quite decentralized.
Why wouldn't those count?
Why aren't those good enough?
Maybe then we can go into some of the other models like Liquidity and whatnot.
Yes, I got the perfect resource for that.
It's actually another project I'm building called Faros.watch.
And it's a stablecoin tracking platform.
But it gives you a great amount of details on what a
stablecoin is made of and and their um the actual resistance to censorship and things like that
so for instance if you take something like a sky dollar you will find immediately that it has
a mechanism critical dependency on usdc so sky dollar is fine you know at face value it can
seem interesting but already because
of that it's a big breaking point. But if you go down a bit further, you will find the reserve
composition. And essentially then you realize that, okay, 40% of USDS is literally TBIO than
US Treasuries, and another 30% is USDC in the PSM. So essentially what you get from that is 70% of the collateral of USDC has counterparty.
So that explains what I was saying.
And yeah, we can keep going.
So FRAX, I think it's quite clear to people now that it's not the case because their pivot is to become a T-bill wrapper.
So treasury bill wrapper.
And this is what you will find in in
in the reserve you know so they have blackrock bill which is wrapping t-bills themselves when
they're wrapping it 55 usd us tv is the same at 20 and then some usdc some other essentially dollar
wrapping product that is held by some kind of custodian and then they're wrapping
it they're working on getting their own license to to their uh credit so that they will essentially
be able to access the table themselves without having this counterparty in the middle which is
an improvement but ultimately it doesn't solve the problem you know and then I don't know what
what also stable can you want to check out but we can quickly have a look at
what about like LUSD so LUSD would be one of the few that fits the condition
because you will find here that essentially the reserve is 100% ETH right
it is purely backed by E there is no uh blacklist
feature it's not possible to implement one because it's immutable so you can't wake up one day to uh
having um you know suddenly an update and your lusd are freezable but as you can see it has
um some limitations so for instance right now there is an active DPEG to the upside, by the way.
Which is arguably worse.
It depends.
It depends.
But if you are a borrower, it can be worse.
If you're just putting your assets here and you bought it at $1, it's really a problem.
But yeah, of about one cents too high.
And one of the cool things you have on faros is this step safety rating of the
stable coin and you can see that the shape of lusd is very uh maximizing towards minimizing the
dependency dependency risk the decentralization and the resilience but it's pretty compressed
when it comes to liquidity and peg stability right so it's pretty interesting if you if you compare it
uh this is kind of an overview of the other coins you know you have a bit everything and what i like a lot is you can see that you
really have like different kind of shapes in that best rated going on pharos right
uh so feryx usd would be another interesting stable in that perspective or survey usd
they're all essentially essentially a bit less on
the minimizing dependency, maximizing resilience and decentralization side, but they do a bit better
on the peg and the liquidity, especially CRVUSD. Who is surprised, but CRVUSD has pretty decent
liquidity thanks to being built by Curve. And you have a few others here that are doing pretty well.
So you will find the Go.
You will find as well FrankenCoin,
which is the only non-dollar coin kind of topping those ratings.
So that could be interesting.
I haven't even heard of FrankenCoin.
Oh, really?
It's a pretty interesting one.
It's a cool model, to be honest.
So yeah, the way they built it, is essentially they don't use an Oracle.
So that helps a lot with reducing dependencies
to other protocol.
It's a pretty decentralized, pretty resilient
infrastructure they have.
The limitation will be as usual.
It's a bit of an also LUSD in liquidity and peg stability.
And another thing to watch for is the reserve composition
because here it's not as pristine as a LUSD, right?
Despite the pretty decentralized infrastructure, you have some pretty good stuff, you know, Ease, RAP stake Ease, okay, pretty good.
The RAP Bitcoin is up to your assessment, but still you already have a custodian here, BitGo and so on.
But then they also have some kind of tokenized stocked in the backing
and some gold tokens as well so the the the reserve composition is a bit less clean let's say
but still it's a pretty interesting one and it's doing pretty well market cap wise kind of growing
gently you know as you like a stable coin to see exactly not moving too fast ideally either way
coin to see exactly not moving too fast ideally either way and it's doing a pretty decent job at
holding its peg one thing to have in mind there too is it's a non-usd stable coin and so essentially
it's playing the peg game on hard mode right because you're a usd stable coin you build very
strong liquidity against usdc or usdt and then if you have good mechanism to stabilize bah your work is done problem with
frankencoin is they are the biggest chf stablecoin on chain so they can't really do that you know
they don't have a uh circle chf to build liquidity against and then their job is done so they're
doing liquidity against usdc mostly we can uh there is data about the liquidity
right below, but you will see USDT, USDC against Euro E,
pools like that, but yeah, they don't have another CHF
to just build liquidity against.
So it makes that job harder.
This is a great site.
I think this is a awesome resource.
I'm glad you like it.
I'm glad to see that there are some non-USD stablecoins in the works.
Oh, quite a few.
Yeah, look at this. This is good.
I knew of EURC. It's nice to see the CHF ones, GBP.
It's nice to see the CHF ones, GBP.
And even like some wildest, you know,
Rabon, Japanese yen, Indian currency, Australian dollar,
Turkish lira.
This is the off-chill Chinese dollar, another yen.
You have quite a few.
The stablecoin space is really diversifying.
And it's a tunnel, but not completely,
because this is also something
polaris scatters very well for will touching about this in a minute i guess yeah maybe we
should move on to that because there are there's a few here but obviously the liquidity is quite
small for most of these and it's not like any institutions will play around with these unless
you're talking hundreds and hundreds of millions or billions. But we are I guess we're starting to see a little bit of life in this. So I'm excited
by that. Yeah, you can see I have a chart here and you can see that. So this is, you know,
usual stablecoin market cap. Okay, cut down by several coins, the biggest one. But this one is
probably the most interesting to a discussion. it's essentially excluding the dollar pegged and you can see that there is quite diversity and and
it's it's growing both in total amount about two billion now of non-pegged dollar stable coin but
also the number of currencies are is diversifying pretty fast from the early days where it was pretty
much just euro and cpi coins
yeah because this is great right because folks can always they could save in usdc if they were
in us dollars if they want but at the end of the day they're probably gonna have to pay their rent
or whatnot and in their own home currency so i'm excited to see this yeah it was a big question
for us in the d5 friends chat to look back on this because obviously we are farming on dollar stable coin and in the early days there was literally no option
but then eventually the euro coins started to show up and some people started to either
save in them or at least use them for off ramping so for tax reasons it can be more interesting
to not have a dollar to euro that can be considered a taxable event versus a euro stable coin to euro off ramp
that's a bit less clear i'm not the financial tax advisor so don't take my word on this please
no i mean it's it makes sense for us right because we have a lot of people that would
prefer being paid in gbp and having that as an option is exciting for them, I'm sure, especially when GBP outperforms US dollar by quite a bit and you have to denominate in the US dollar.
Yeah, pretty much everything has outperformed the dollar over the last six months.
I realize this looking at even weird currencies I didn't know about that they're doing very well against the dollar.
were against the dollar um but yeah maybe to to look this back on polaris quickly uh so first i
guess i need just the first step is to uh to give a quick overview of how the system work uh let me
try uh which is the best would be this one uh i have it somewhere just a second yeah um
uh i have it somewhere just a second yeah um
oh yes i'm still it's straight on the polaris website actually that would be the simplest
uh so i think i can share without you needing to give me permission see if i go here yes
so this is just from a high level how the system works but it allows us to touch on on all the
core mechanism so um as i was saying one of the big thing is no counterparty right no entity that
can fail that can have legal problem that can have custody problem of the asset or i don't know what
that essentially put in jeopardy the whole model of the stablecoin.
So here, essentially, the options are very limited on chain.
You need to start with ETH when you're looking for something like that.
The question then is, how do you turn ETH into something that is more suited for users as collateral in a protocol and create interesting dynamic at the same time.
And that's kind of the first major innovation of Polaris compared to what's being done elsewhere,
is this bonding curve where the ETHs are bonded to produce these PEs and the PEs is used as collateral, not the ETH.
It has really interesting property.
So first, the PEs are redeemable against the bonding curve for ease.
So from the user perspective, it doesn't add much friction,
but then it allows the protocol to have very interesting mechanism to stabilize the coin,
like the minting that we can touch upon later.
But so essentially past this step, so step three, once you have the PE's collateral,
it can be considered at a high level similar to what you may be familiar about with the early maker or protocol like liquidity.
So you have a CDP position, a trove that is your own segregated position you're borrowing against the protocol, PUSD for instance. You're not borrowing the PUSD of someone else,
like on AVI, you know, you go on AVI,
you put your EOEs, you borrow your USDC,
those USDC, they come from another person
that supplied USDC to AVI and is now making a EON.
CDP works differently that you are literally
your own mini central bank, right?
You come in and you use that Polaris infrastructure
to open
your own little chest for you, where you put your PE's and in exchange you can
draw a credit line of PUSD as much as you want, compared to the
proportionate to the collateral, of course. So that's kind of like the high
level flow of the system. There is a lot of subtlety uh i don't know you want to go there by them step by
step or what's uh what's the flow here no this is great i yeah so for folks that understand just the
basics of cdp maybe just explain it like an over collateralized loan you're taking up against your
collateral your pe and you're borrowing a smaller dollar amount worth of the PUSD
against the protocol, right?
Yes.
Excellent.
That makes sense to me.
I think maybe we can touch upon how the bonding curve works.
I think that might throw people for a loop because that's a new thing for SWEEP programs.
Yes, that's a new thing.
So I guess at a high level, you know, so that's like the whole scope of the protocol but
we really picture it like three products and the three of them are competitive attractive and
compelling in in their own vertical so you have the pe's you have the pusd and you have the polar
token and actually i'm simplifying here because this infrastructure can be used and will be used to output all kinds of debt assets so not just pusd but p gold pchf and so on we will get into
those guys after let's for no restoring the scope to a p usd um and specifically for the floor price
so for the floor price i think this one the the bonding curve I think this one, the bonding curve, I think this one will provide a good intro.
Let me switch here.
So, yeah, this is the high level of what happened in terms of the interaction with the bonding curve. So a user will come in with some ETH, he bonds his ETH, and he obtain a PE ETH that can then be used
to mint PUSD in the CDP system,
as you see on the right of the graph.
Now the bonding curve part kind of explicit
what happens in terms of the ETH that goes into the system
and the distribution of it.
So as you can see, the reserve part, essentially the collateral of it so as you can see the reserve part essentially the
clutter of the system the east reserve is never greater is never smaller sorry
than the PSG depth kind of basic accounting logic you don't want your
liabilities to overcome your assets right and then this shows more the
dynamic of what happens with this bonding curve, because there is this notion of flow price that is quite compelling as a piece holder.
But essentially, every interaction with the bonding curve has some fees.
And there are other sources of capture as well that are used to create a rising flow price on the PEs.
So that the PEs is essentially,
so you have the market price, right?
Against the bonding curve.
That's one thing.
But then you have this flow price and this flow price is literally
answering the question, okay,
if everybody in the system at once wanted to get rid of their PEs
because they don't want it anymore and they want ETH,
what is the worst price that will be provided to the last exitant?
That is the flow price.
So essentially, it's the worst possible price you would get for your PE under the worst
possible scenario.
So the reality will likely be above and you have the market price in standard situation.
It's more of a guarantee mechanism essentially than anything else.
Yeah, I think we should go into that a little bit more in depth
because I think from a basic example, it would be just
the lowest price in like a standard situation would be
you're exiting your one PETH and your lowest price would just be your one ETH
that would get redeemed for that one PETH.
But because there's additional what you put here as released eth right um there's additional
pressure that goes into supporting this bonding curve that lowest price continues to go up um
can you just explain why that released bit is there so the first thing to understand is you
know this is a bonding curve.
So it will attract a lot of ease in there, the ease reserve.
And the ease reserve can be used to perform the swap at the market price.
The market price will be higher than the flow price in all situations, pretty much,
unless the system is under extreme stress.
So this flow price is much more of a defense mechanism
against such situation.
In regular usage of the protocol,
you will just be swapping against the bonding curve.
Bonding curve is gonna be the primary liquidity source
for PE against ETH.
The flow price is more to make essentially
PE a very compelling collateral.
And essentially it grows through two mechanisms.
That's what we show in this graph.
So every time there is an interaction with the bonding curve,
essentially a swap of PEs to ETH or ETH to PEs,
there is this swap fee that is captured in
PEs and burn and so that means that will push the price slightly upward. We also have another
mechanism on our stewardship token, the Polar, that essentially the only way to mint it is to burn PEs.
So that's also, okay it's a bit ambitious to say, but it is actually, I checked, it is a world first, literally, in terms of protocol design.
There is no other protocol doing that, where essentially to create the, it's not a governance token, we call it stewardship, we will go into that after.
But to create the stewardship token, you need to burn the collateral, the main collateral of the whole ecosystem, right?
you need to burn the collateral, the main collateral of the whole ecosystem, right?
So that aligns the two very nicely because essentially you know that for every polar in existence,
there's been a PE's burn behind it.
Where it gets really interesting, I guess, for PE's as an asset is once you consider the dynamic that this creates,
and this is what you have on this chart.
So it's this notion of what we call the flow ratio, right?
And essentially the flow ratio is the percentage of the market price that is covered by the current flow price.
So in the example, you have a market price at 109.
So that means you get 109 E per P E. That's the price you get against the bonding curve you buy or market price at 109 so that means you get 109 east per p is that's the price
you get against the bonding curve you buy or you sell at and the flow price is at 0.60 so that gives
you a flow price ratio of 55 or if you put it the other way that's a max drawdown essentially if you
buy p at this point on the chart where it's highlighted, your maximum drawdown is 45%.
So if everything was to go south, you will get at least 0.60 ETH per PES.
But again, most likely you will just swap against the market price.
So this is really more of an emergency type of mechanism, right?
But why is it interesting?
It's because of the pattern that you see on the chart.
So we anticipate essentially that Pease will be trading with his own life, but in a bit of a sinusoidal shape, constrained and above the floor price.
Because you have this situation that arises when it gets really close to the floor price. So if you see around the middle of the chart, left to the Max Road Un box, you have this moment where the P's market price is tanking rapidly, right?
So this could be a day, for instance, I don't know, a day where the markets are really panicking.
You know, E's price is tanking, there are liquidations happening, people are clothing their borrowing position left and right.
borrowing position left and right there is blood on the streets literally so what happened on a
There is blood on the streets, literally.
day like that is like every other assets pees will depreciate as there is selling happening
but the more selling happens the closer it gets to its floor price right and so that means the
max drawdown becomes lower to the point that you know on the on the graph, I didn't put the value, but let's say maybe
the max drawdown is 5 or 10%. So that means at this point, you're buying PEs. Let's say you're
buying it at 0.8, but the flow price will be 0.75. So your max drawdown is really constrained,
but on the outside, the upside is pretty uncapped. So essentially it kind of creates a natural mechanism where at some point
there's just, it's a compelling arbitrage to get in and it creates those nice
reversal. The question is then, you know, to be able to catch the absolute bottom
will be a game for the pro players, I want to say,
but it creates an interesting dynamic on the token, making it
much more usable as a collateral to have
this this flow price dynamic it's really interesting and i think some listeners might be
familiar with like a nirvana that has something similar with the bonding curve and floor price
but the difference here is that those guys they put in uh usdc to power the bonding curve and
you guys are using eth and and you borrow against ETH.
Very interesting.
And then you go, obviously the CDP part is separate as well.
I'm curious if you guys have any lending mechanism
built in this too, because you could just lend
at that floor price or borrow at that floor price now too.
You're connecting the dots pretty quick.
Look at this.
It's a bit of a side way but we do have
essentially there is a component of the reserve that is not needed that can be used to uh enable
what we call those p is low the these east loans so you will post a p is collateral and essentially
be able to loop your piece exposition so it's a way of essentially you forgo the capacity to use
your piece as collateral to mean pusd but you gain capacity to essentially leverage your piece
exposure in a pure is-denominated flow because you're borrowing east you're not borrowing dollar
in that flow so it's it's a good position if you see polaris and you like what we're doing and you
like east as well and you think the protocol is
going to grow well you will just essentially acquire pees and then loop them to have outside
exposure to the growth of pees it's basically getting on separation from the floor price to the
market price yes interesting and it's a way of betting on the protocol but you're not touching
the polar token if you don't like the design. So that's also kind of the same.
You will see protocol is pretty agnostic.
There is a lot of things that you can do with it.
There is a lot of surface essentially.
Arbitratures, regular users, people who just want to study stablecoins, people who just want to make yield on ease, people who want to run short ease strategies, they can use it.
people who want to run short E-strategies, they can use it.
And then once you bring the other P-assets, the gold and so on,
the number of strategies that you can implement with Polaris
becomes pretty extensive.
That's exciting.
And then at the center of it all is that bonding curve,
right, and that rising floor price.
Maybe it's a good point to start talking about the Polar token then.
How does that fit in?
Yes, we just released an
article on it today so i actually have a nice graph to show you as well to explicit that
give me a second to find it that would be this one yes so uh yeah maybe even before we we get to that
uh there is another one uh i don't know if i have yes this one will do the job
so we'll go back to the the polar flow right after but the high level logic is that essentially the
protocol is designed to be self-sufficient right so the polar token is not used to incentivize
borrowing or stability pool depositors or critical component of the system.
All of these are incentivized through flows of PES and PUSD. Where the polar tokens come into play
is for everything related to the outwards. So that's why we have this inward versus outward
facing logic, right? So inward meaning within the CDP protocol, the CDP protocol handle itself.
inward meaning within the cdp protocol the cdp protocol handle itself outward is the question
of okay the integration of pe's of pusd and in the other pss into defy in liquidity pools in
pender markets in year and vaults and other things that you can think of and this is where
the polar token will play a role uh Another thing that is important on the Polar
is this question of the stewardship
and how we design the model.
So essentially, it's a bit of the same logic, okay?
The protocol has a core that is the CDP logic,
the bonding curve, the stability pool,
the redemption, the liquidation.
So everything that can appowers the system.
And this is essentially immutable. It cannot be changed. It has parameters that can evolve
within range, controlled by the poor out-hoc and voters, but it's constrained to ensure that the
core properties of the system will remain as such. So that's why we can say with such confidence that
you will not wake up one day and find it that oh
there is a usdcpsm no and 40 of the the reserve is actually made of that that's like literally not
possible by design but no where you have more flexibility is on the periphery again can again
this inward outward logic so the question of you, the licensing of the protocol to grant license to a new team
to onboard the new P assets
or managing the ecosystem with gauges
or the parameterization on the Polar tokens and things like that.
And yeah, that brings us back to the mechanism that connects them both
because they're so clearly separated, right?
P's, PUSD incentivize the flow right uh psp usd incentivize the flow
inside the system polar incentivize the ecosystem there is a first level of connection where polar
can control some of those parameters within bounds for the system but the more interesting
part is this conversion mechanism this is what i was talking about that hasn't been done before, as far as we know of.
Well, it's essentially the core idea is that to create a new Polar token, you need to go through this conversion mechanism that requires you to burn peace.
So you're essentially enhancing the collateralization of the whole system as you are creating a new portal.
And then there is a value flow with this conversion
because essentially you're burning PE.
So there is an ease release from the burning curve.
Question is then what happened with it?
Essentially, there is converter rebate mechanisms,
a bit technical and not necessarily
to understand the whole flow.
But then part of this is are
used to uh by pe's and redistributed within the system uh most notably in the first iteration
initially uh to the collateral so that's uh another thing quite unique about polaris is uh
maybe that will help understand better too is you remember alchemics and their self-repaying loans
right well we don't have that here but what do we do have is kind of the other side of the coin
the self-recollateralizing loans so on polaris as you are putting your pees in a trove you borrow
your pusd you pay an interest rate all right But you also get a flux of incentives in PEs.
So your collateral is kind of appreciating.
You get more and more PEs over time.
And PEs is also appreciating against ETH.
So you can have a double layer of collateral appreciation here in ETH terms.
It's really interesting.
Can you burn the polar for PES the other way around, or is it?
Oh, no, sorry.
It's absolutely one way.
That's the point of it.
So once the polar is minted, you burn your PES,
there is no going back through that mechanism.
You can, of course, sell your polar on the market for PES
if you want to go back this way.
But at the contract level, conversion is one way.
How do you feel about that disconnect, right,
of the market price of Polar versus what you can mint it for?
Well, it's mostly an arbitrage mechanism, right?
There will be liquidity for Polar and there will be more like a regular token.
But you're right right in terms of liquidity
management it kind of creates a an interesting question because essentially you are removing
some of the uh uh demand side from the market because some of what could have been a buy of
polar against a liquidity pool becomes uh an arbitrage essentially so this conversion mechanism
but yeah everything is accounted for and it's balanced
this is kind of why the rebate mechanism comes into play because it gives us the the stewards
the ve polar holder uh kind of lovers to fine-tune the conversion mechanism depending on on market
conditions but essentially it's a question of the market cap of polar versus the market cap of uh
pe's and the fine tuning of that mechanism
will depend on the relationship between the two if you want to geek out the conversion do check
out the blog because we literally went uh for a deep dive on this today so the latest article
that went out is is literally like a zoom in on oh there you go the conversion mechanism yeah
because i'm going through like scenarios in my head, like there's a price spike in Polar.
It makes sense to go and arbitrage that.
And that kind of suppresses the market price, but it helps the protocol raise up the floor price, right?
Yeah.
So, I mean, at a high level, you know, Polaris has been designed to be able to capture value permanently for the protocol through the activity of the protocol.
Because I guess one of the traumatic events, we can put it away, is if you go on the LUSD and you look at the market cap, I feel like people have forgotten a bit about this.
You take the market price historical,
and what do you see?
You see that at some point,
there was 1.5 billion LUSD in circulation.
And this at some point was just weeks after launch.
And essentially, then it's been,
with various levels, slow bleeding pretty much since, to the 30 million LUSDs that are in circulation today.
So it's really like something we don't want to see with Polaris, and we design it this way, that we cannot guarantee, of course, that the supply will not fluctuate and go down at some point.
That is not within the realm of our capabilities.
not within the realm of our capabilities.
But what we can guarantee is that if there is such a wild swing upwards,
like LUSD has seen, the protocol will have captured enough value
so that it creates kind of a supply ceiling for PUSD
so that it will not go down to 30 million as LUSD went down over the year.
So that's a bit of the kind of supply flow
on the POSD.
That's a bit of one of the design
tenets of Polaris to be able
to go through the ebbs
and flows of the market but kind of always
chug along and capture a bit
little by little. The flow price
only go up and this kind of thing.
No, and I think that's
a characteristic that people look for in
stable coins right they don't want their liquidity to just disappear if they have a hundred million
of of a stable coin they don't want to be the entire market so i think that's that's great
what else should we be going through here i know you have oh i have a lot i know i know there's plenty to go through
before we touch on the stablecoin ecosystem i think one thing that is you know a bit underserved
in our presentation is the uh the mechanism related to uh pusd itself so how does it keep its price
and what you can do with it uh so here maybe this one would be an interesting one to begin with
because there is some interesting innovation here as well.
So essentially, one of the cool things with Polaris as well
is that the interest rate management is fully automated, right?
There is no governance voting on the interest rate
like you have on Sky and Maker.
It's really just based on what happens with stable coins,
how the life of the stable can determine the interest rate.
And the way this is achieved
in a fully automated autonomous manner
is essentially that there are two mechanisms
that you can that are used as arbitrage mechanism for PUSD and other P assets the first one is known
I guess by users of liquidity or others it's the redemption mechanism that prevents the under peg. So, you know, simple version with gross exaggerated number,
but you saw that everybody followed quickly.
Imagine you have PUSD trading for some reason at 97 cents.
What will happen is an arbitrager will come, buy the stable coin,
redeem for one dollar worth of collateral,
sell that collateral or do whatever he wants with it.
But essentially, as they do that, the arbitrage,
they create buying pressure and they push the PUSD back to the peg.
So that's similar in some dimension to what you have in liquidity,
but the way it's implemented for the borrower,
it's much fairer and less traumatic because that was a bit one of the limit for both bold and lusd
on the overpeg situation you have a bit of the mechanism that could be considered as an inverse
of a redemption so essentially an arbitrator can mint as we call it uh pusd and what that means is
essentially with pe's it would be adding pe's to the collateral of trouble on the protocol and mint
pusd at an equivalence of one dollar and then sell those pusd on the market which pushes the price
down so together they kind of keep the price within range on top of the natural um you know
the natural balance flow with cdp protocol so uh if the stablecoin is underpeg
for instance and you have an ongoing debt going on that protocol that you swapped for something
else you will be more keen to consider buying the stablecoin in the market because now you can repay
your debt with a discount but these kinds of mechanisms are pretty slow but now where it
becomes pretty cool is how those minting and
redemption connects with the interest rate because essentially minting and redemption volume are
observable on chain right without needing an oracle without needing a chain link that gave us the
price of pusd against the dollar we don't need that all we need to know is that oh there is a
surge in redemption volume okay that indicates that there is pressure to the under peg or oh there is a surge in minting volume okay that indicates that there
is a pressure to the upside pz is trending up so then the system can take adjustment based on
those signals so if the minting volume is surging, system detects an under peg, it pushes the interest rate downward, which creates more borrowing demand and help recover the peg quicker.
And the other way around to the downside, if there is a surge of redemption volume, system detects an under peg, it increases the interest rate, which will push existing borrowers to repay, reducing supply and creating buying pressure for the PUSD.
So, altogether, this is what stabilizes PUSD, but also all the other P assets.
That's really interesting. So, that would just be the lending and borrowing rate, is what you mean?
Yes.
For like P ETH versus ETH.
Yeah, there is no lending rate. There's just a borrowing rate, you know, because this is a CDP.
You don't borrow from other people.
You borrow from the protocol.
But yes.
That makes sense.
It's interesting.
I wonder what those ranges would look like because I think when people are taking out
those loans, they want to understand the stability, the volatility, what they might
expect as far as rates.
Yeah, it's going to be pretty tight.
Essentially, the size of the
amplitude of the sinusoidal depends of the the boring and the minting fee right because the
arbitrage becomes profitable to carry only on certain minting fees and the gas fees depending
on the size i accounted for um so it's it's a matter of parametrization this is something where
uh the stewards will have a capacity to control within
range as well we're still kind of deciding what should be the initial parameterization but we're
thinking something around 50 bps for for the redemption and minting fee so that means you know
uh worst case scenario you will see 99.5 or one,
essentially 50 BPS support,
1005 on the stable coin.
That makes a lot of sense.
Do you guys have to worry about liquidations at all?
Or you're just going straight to the floor price?
You don't have to worry about liquidations.
So no, like every CDP protocol,
there will be liquidations.
So if you're borrowing like crazy.
Oh, on the CDP side, yeah, for sure.
Yes.
Oh, that's too bad. On this laptop, I don't have the testnet that I can show you because that could be pretty interesting.
Let me check.
Yeah, because if you think about it it like during times of market stress people would
actually prefer you know you'd actually your stable coin would or your protocol would increase
in value even though people are worried about some cdp positions which is an interesting dichotomy
there sadly this is my working device so I don't have it connected.
But I can show you at least the analytics website of the testnet.
Nice.
And so we can kind of connect a bit more than we've seen and see a bit more.
So you can see this pattern on the PUSD price.
We do have this sinusoidal, really tight around the peg.
So not too much problem here um what else is interesting
uh you have the this is the api of the stability point we haven't touched on the stability point
yet so maybe uh we'll see later you can see that there's been a bit of an activity here this was a
a liquidation essentially you have such a sharp drop of the usd supply but you
want to model that so that's it's good to see you guys gonna do stress tests
through here of course over here we have extensive modernization and the testnet
going now is giving us also good data and we're thinking of doing a gamified
incentivized testnet eventually on swing a bit of a more mature stage because
essentially right now testnet you know people are doing kind of random things on on testnet right
but we want to see actual proper modelizable economic behavior so uh this gamified uh
competitive testnet essentially is gonna be like okay gets 100 ETH and start at the same time. And it runs for a month.
And whoever at the end of the month got the most, maybe the top 10 or 20, I don't
know exactly how restricted that, will get a payout in actual, I don't know, ETH or
whatsoever, but you know, an actual concrete benefit.
So then you are incentivized to play rationally to, I don't know, you think ETH is
going to go up, then you're going to open a trove and leverage your position and try to close it at a good time to whatever to end up with the most ease and pocket some profits.
But yeah, that's next step.
You can see in action kind of the bonding curve mechanism as well.
So on the testnet, the floor is already at 028 ease.
And you can see the debt component and the reserve component market price of pe's is
at 108 right now uh and you can see the the gentle growth of the flow price as interactions are
happening through the bonding curve um those should even like shoot up during like volatility periods
right for all the liquidations for cdps yes the floor price
can always gently grow up but if there is a spike of activity it's direction direction agnostic you
know so it will uh shoot up uh uh faster than usual during a spike of activity uh it's just a
bit more uh size a bit more stats on on the state of the ecosystem, you can see the
borrowing costs are pretty competitive as well.
Interest rate is here.
So, interest rate at face value is 5.6% right now.
But because you have this incentive, this piece of incentives that I was telling you
about earlier, the net borrow costs end up much lower,
below 1% right now.
Interesting.
So because you get this 4, 63% yearly in peace
on your collateral.
Right.
Yeah, maybe it's a good point to touch
on the stability pool then.
Yes.
So for stability pool,
let me actually have a graph.
I can go into it.
Yeah, right there.
Oh, I have so many tabs.
But yeah, so it's kind of showing you
how the stability pool connects to the whole system, right?
So the first three steps we're familiar with them now.
You have ETH, you bond them in the bonding curve, you obtain PES.
PES is the collateral that you put in the CDP system.
Then you can borrow, mint your PUSD.
And the PUSD can be deposited in what we call the stability pool,
which is essentially a liquidation reserve to liquidate the CDP positions
that are underwater when they need to be.
So it's pretty interesting because that means the protocol can liquidate the CDP positions that are underwater when they need to be. So it's pretty interesting because that means the protocol can liquidate decent amount of its total borrowing at any time, pretty much instantly if needs to be.
So it acts as a strong guarantee for the stablecoin that essentially there will not be bad debt and it will not go underwater.
Most of the protocol, they use liquidators that comes with
their own assets and so that adds friction and and inertia to the liquidation mechanism so now as a
p usd holder it's pretty interesting as well because essentially you can you deposit your
p usd in that stability pool right and now you're earning a share of the interest rate
paid by the depositors.
So you get a yield in PUSD,
but also if there are liquidations triggered,
you have essentially some of your PUSD
that would be converted to PE,
proportionate to the amount liquidated,
but they are converted as,
I wanna say a doubly favorable price because first,
you know, liquidations, they usually happen
at the bottom of the V, if I may put it like that.
So you get a pretty,
it happens at a pretty interesting price on this overall,
but on top of this, you have a liquidation penalty.
So that means you're buying at the bottom of the V,
but you're buying at a discount on the bottom of the V, to put it this way.
Yeah, exactly.
So it's a pretty cool position, you know, because essentially you're in stablecoin, you're getting a yield in stablecoin.
And if the markets are really tanking, it's like an automatic buy option on cheap ETH, but denominated in stablecoin.
And so then the question is a bit about some people,
you know, if you're an East bull, you like that.
If you're not an East bull, you might be like, yeah, okay,
but I don't want my stablecoin to be converted to East.
This is not for me.
Well, this is where the extended ecosystem around PUSD come into play,
where essentially you'll have a yearn vault and other provider
that tokenize position on top of the stability pool, right?
And settle in a timely fashion the ETHs that are obtained through the liquidation.
So that you're essentially locking in this liquidation bonus without taking price exposure to the ETH.
So now you have a pure PUSD earning position like you're used to.
And that allows to do some cool thing as well, because then it's a standard ELC 4626 stable yield bearing vault.
And you can throw that on Pandor and have the PT and the YT and do all kinds of fun stuff on top.
Then all the money Legos start working in your favor.
Yeah, and all of that goes back to the core protocol.
So that's really exciting.
Yep.
Oh man, there's a lot to think about,
but I know we're running up on time here.
Oh, really?
Yeah, I know.
It feels like we could, we talked about a lot of this.
Oh man, I'm excited for this.
I think this organs back to like a lot of what got us excited
about defy in the first place right building from first principles building these building blocks
now that all of these tools are in place so i'm excited to see what you guys build where should
folks go if they want to learn more about what you're building get updates that sort of thing
yeah i mean uh follow on Twitter, of course.
Polaris Finance is a good place.
I want to give it another shout out to the blog.
So polarisfinance.io, and then you'll find the blog
because we're putting a lot of care, attention, and time
into that blog.
We want people to understand the protocol solely.
So all the infographics that I showed you,
they are used in blog articles to explain various mechanism.
So yeah, if you want to beef up your understanding
of Polaris, the blog is definitely the place to go.
Perfect.
Awesome. Well, thanks, man.
This is a lot of fun.
Appreciate you hopping on.
Yep.
Can I have one more minute just for one last?
Yeah. What do you got?
What do you got?
Because we said we would talk about this, but we forgot.
I'm sorry.
Oh, yeah, yeah.
Oh, for sure.
This is exciting.
Because I remember what I said.
Essentially, we went through a simplified example.
We sort of that way.
We just have PUSD as an outputted asset.
But the full story is that Polaris is a stablecoin operating system, as we call it.
So PES is the shared collateral.
And then you can have different CDP protocols plugged on PE
using PE as collateral, using the Polaris CDP infrastructure,
but to output their own debt asset, right?
So the team itself is building PUSD and P-gold.
So you're going to have a decentralized,
counterparty-less, interest-bearing,
gold-peg token.
If that doesn't get you excited,
I don't know what that does.
But other teams are essentially can analyze the infrastructure
and build their own thing.
So a P-E-R-O, a P-C-H-F.
We're even joking about this P-BigMac.
I saw the P-BigMac in the blog.
Because technically, these are synthetic assets.
So as long as you have a price source for it,
you can build it on the Polaris table OS.
And then there is a whole layer of interactions
between those P-assets and the value flow it creates
within the ecosystem and for Polaris and so on.
But this is getting really deep.
So maybe we will keep it there.
But keep in mind that essentially it's not just PUSD.
It's like three big products, right?
The P is an interesting,
is the dominated asset that have a guaranteed full price
and is earning interest.
The Polar, they will capture some value from all the ecosystem
and have this interesting connection with the conversion mechanism.
And then what we call the P assets, the depth assets.
So PUSD, PGOL, PCHF, P whatever,
as long as there is a credible team to carry it pretty much.
Does it become permissionless at that point?
Yes, yes. We are designing the system right now to have a permissionless onboarding on team so it will be a mechanism with uh the the
v polar holders that are acting as the gatekeeper of the ip nice so yeah we were talking about the
ip the ip is owned by uh the um the polar holders they are the one granting the usage rate over that IP to other teams.
We can fine-tune the details of the system, but there will be some kind of, you know,
they submit an application to the Polar stewardship, probably they pay some kind of fees,
then there is a review mechanism that takes place and eventually if they pass all those steps,
their proposal will be submitted to the Polar holder vote and if they pass all those steps their proposal will be submitted to the uh the the
portal order vote and if they gather necessary support then they will uh essentially have the
right to use the license that's really exciting then i mean the opportunities there are pretty
endless really you can really take that however you want it's no I'm pumped. I'm excited for this type of energy back in DeFi.
Yeah, I'm glad you shared the enthusiasm.
Yeah, we've all been in the space for a while,
been through the ebbs and flows
and kind of seen our dreams shattered,
keep believing in the stories from left and right.
So that's really one of the things we wanted to do here
is we have kind of this, it's turning into a tagline pretty much,
but it's like we're designing Polaris so that promises
don't turn into compromises.
Like we've seen in other protocol, you know,
make a, we promise you we're going to be free of any real world
asset dependency, a beautiful, flying, roaring Phoenix.
And then four years later, percent uh real world asset in
in the backing you know uh so this kind of thing really like were a bit uh uh those kind of moments
that radicalized us you know like vitalik was playing world of warcraft and he got his
i don't know a siphon life spell of his warlock nerfed and that radicalized even then he was like
okay i'm gonna make a serum well for us it was you know the the big situation and countless of others that okay now
we're gonna make a stable coin where this cannot happen by design you have structural guarantees
that this thing will not drift away as it scales up yeah every good product has a good origin story
i love that awesome man this is a blast i appreciate
you hopping on and explaining all this and sharing all this to to someone so i can explain it or i
can understand it so until next time man thanks for thanks for coming in thanks for having me
cheers cheers Thank you.
