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katana: the defi flywheel
Recorded: June 3, 2025 Duration: 0:58:24Space Recording
Short Summary
Katana is launching its innovative Flywheel project, designed to enhance yield generation and user engagement in the DeFi ecosystem. With strategic partnerships and a new token launch, Katana aims to redefine sustainable yield mechanisms while offering lucrative opportunities for users.
Full Transcription
Thank you. um
hello hello check one two one two
looks like we've got matt fisher out here in the audience. So let's get Matt and Will up here. We've got the Katana core team, members of the Katana core team here.
And we're going to ask all questions about the flywheel.
Get them answered.
Take questions from the audience.
Take questions from Reddit.
Take questions from the Discord that we've been seeing and get those answers to you.
Matt, Will, if y'all want to go ahead and just request to speak,
we'll get you up on the stage.
I'm going to try to play some music.
I hope it's coming through okay.
If not, I'll just try to play it louder,
and we will get started in just a few minutes. so
Thank you. um
so so
foreign
so All right, everyone, let's go ahead and get started.
Welcome, everyone, to Katana Twitter Spaces, or I guess X Spaces,
because only boomers call it Twitter anymore.
We're here to talk about the Katana Flywheel.
The Flywheel for Katana is designed to incentivize productivity in its DeFi ecosystem.
Here is where Katana is redeploying revenue streams back into the network to boost yield and deepen liquidity, all for the users.
This is a completely new paradigm for chain architecture and the DeFi space.
new paradigm for chain architecture and the DeFi space.
And let's go ahead and get started with some intros from the Katana core
contributors and contributors of the Katana consortium.
We'll just go from the first people that I see, which will be Matt,
David, and Will.
Matt, let's do a quick mic check on you.
And then if you can just give us a little bit about your role at Katana.
How's it going?
I'm on the BD team at Katana working on institutional liquidity and the core application thing,
also getting other builders to come build on top of them.
Based in New York, if anyone wants to grab a drink at any time, let me know.
Awesome.
Thank you for that intro, Matt.
David, let's kick it over to you.
A little brief intro, please. Hey, y'all. I'm David. I sit on the Tana Consortium as an advisor
assisting the chain app builders, manage the flywheel. Super excited to be talking about it
today. And if you haven't pre-deposited yet, what are you doing? 40 plus percent on stable coins from Turtle Club?
Insane crates with a chance to win a punk?
Yeah.
Absolutely.
We'll get to, yeah, we'll talk a little bit more about pre-deposits here in a second too.
And I'm going to pin a pre-deposit tweet that we had that kind of lays out the differences in the two avenues.
Choose your own journey, Anon.
Do you want to do potentially outsized
rewards? Win a CryptoPunk? Win 10 million cat? Use the crates. You want a little bit more
predictable in traditional DeFi pools? Go with the Turtle Club route. And then Will,
let's get a little bit of background on you, please, sir.
For sure. You got to choose your own adventure right there's a small mailbox in
front of you hey everyone i am will button i'm the engineering manager for katana managing not
only the engineering team but also coordinating the work from all of the fantastic teams that
have come together to build the katana experience including the names that you've already heard a lot,
Polygon, GSR, Morpho, Sushi, but also some of the folks who've been helping us from an
engineering perspective, like Space Harpoon, FunXYZ, and many, many others. So happy to be here.
Awesome. Thanks, all of you, for the intros. And we're just going to go ahead and get into it.
So we've seen a lot of questions on Twitter, on Reddit, in the Discord.
And we've just kind of collected all of those here so that we can get answers from the Katana Consortium here, Matt, David, and Will.
And so the first question is, and I don't know who wants to answer this, Matt, David,
will just whoever wants to answer, go ahead and hop in. Let's talk about the flywheel. What makes
the Katana flywheel different from traditional DeFi incentive models? And maybe just more broadly,
what is the flywheel? Yeah, I can, I can take this one and then pass it off. The flywheel effectively is the
three to four prongs of sustainable yield that powers Katana and causes it to have deep liquidity,
high yields, but not yields coming from nonsensical token emissions like many other places,
but yields coming from actual economic growth of
the chain itself. It starts the moment you bridge, you bridge using USDC, USDT, ETH, Bitcoin,
you're going to end up going through the vault bridge. The vault bridge allows Katana to monetize
the assets that get bridged over in consort with our partners at Morpho and Steakhouse and Gauntlet,
in consort with our partners at Morpho and Steakhouse and Gauntlet,
allowing the chain to earn yield to immediately pass back
to core DeFi applications and venues.
If you take your USDC,
you immediately start putting into Morpho on Katana.
You're not just going to get that Morpho L2 rate
from people pledging collateral and borrowing on Morpho on Katana.
You're also going to get some of the yield earned
by the vault bridge on L1.
So it's going to cause applications to receive an influx of capital and activity. That activity is
going to produce sequencer fees in the form of ETH, that through the chain owned liquidity program,
that's leg number two. That's going to cause the chain to actually use the ETH earned from sequencer
fees to purchase positions becoming a junior capital on the chain. The chain itself is going to buy LP positions.
The chain itself is going to supply into Morpho.
It's going to backstop some of the Vertex vaults.
It's going to help ensure that economic activity on Katana
is subsidized by the chain itself using the sequencer fees,
immediate reinvestment, as opposed to just bringing it to Coinbase
or Binance and dumping it like some other L2s tend to do.
And the last one is native capital.
And this comes from teams like Agora that actually, if you don't want to take the vault
bridge risk, we have done close deals with some of the leading asset issuers to isolate
your bridge risk, but also to ensure that there's still economic movement flowing into
this flywheel, attracting know, attracting users,
users bring activity, activity deepens liquidity, and liquidity itself produces yields, you know,
pushing that flywheel forward and forward. I don't know Matt or Will, if you want to add anything,
but no, yeah, basically the more assets that are bridged over, the more yield that's sharing to
the chain, the more yield that's passed on to users in DeFi protocols, which drives in
more users to DeFi,
and then that drives in more bridge deposits.
Same thing with Agora.
The more Agora that's minted on the chain,
the more yield that goes to the chain,
which then is passed back to users,
which then leads people to come into the chain more
because now they can come in with size,
not compress yields,
and also trade with really, really deep liquidity.
And then the same thing with the sequence reviews, as say i'm not trying to repeat them basically the more activity
that's generated drives more fees which then drives more liquidity which then drives more
users and then drive more sweet so yeah
yeah i think the thing that i want to add to that is wrapping all of that into a single
user experience that's just buttery smooth so that you've got one place to go and everything is right there in front of you.
It's intuitive and you can quickly and easily leverage all of the tools that Matt and David just talked about.
Yeah, that's perfect, guys.
So in summary, I mean, what we have here, we've got vault bridge, yield is generated from the vault bridge, yield is generated off-chain by treasury bills,
thanks to AUSD, routing off-chain yield back on-chain.
Sequencer fees, a portion of that will also go to boost yield on Katana.
Yield earn from chain-owned liquidity,
we can get into that a little bit later.
That can go to either compound chain-owned liquidity
or it can go to further boost yield.
And then, of course, there will be some other types of incentives as well.
But those are the core main ones.
That's real yield that's being used to boost DeFi pools on Katana.
And I think it would be a good idea if we can just go straight into Vault Bridge
and kind of talk a little bit more about the mechanics behind that.
David, this might be more of a question for you
and Will too, I guess, and Matt,
you know, whoever wants to answer.
But how does Vault Bridge turn bridged assets
into real yield?
Like where exactly does that yield come from?
That's a great question.
Yeah, it's a great question.
Vault Bridge is a product from
the Aglair team, is effectively a wrapper around various bridges, starting with Aglair,
as well as, or Aglair's LXLY, as well as Morpho. And so what happens is, you know,
Aglair has worked with, the Aglair team has worked with Morpho and Steakhouse and Gauntlet to produce a series of special Morpho vaults that are designed to be used for bridges to
leave their assets inside.
There's a sufficient amount of liquidity.
There's some insurance on there and it allows for yield to be generated.
So USDC will flow into the chain.
The chain's bridge auto deposits into Morpho.
That Morpho vault generates yield managed by either Steakhouse or Gauntlet, depending on the asset.
And that yield comes from over collateralized loans, right?
Folks on the other side could be users like, could be dApps like managers like Yearn,
borrowing against their collateral.
It could be various liquid funds.
It could be market makers like our friends at GSR.
It could be putting up Bitcoin or Rappsteak Deeth or CBBTC and borrowing that USDC and paying interest back to the Morpho
Vault, which means that gets passed to the various foundations operating these different chains,
such as Katana. The same thing happens on WBTC. WBTC will go into this specialty Morpho Vault.
Gauntlet will coordinate lending it out against LBTC and SolveBTC
and some of these really great emerging Bitcoin LRTs
in a very over-collateralized manner.
And that yield then gets passed back to the chain foundation
to be emitted through the core apps.
And so, again, because this is coming from real economic usage,
demand for leverage, demand for liquidity,
it's not coming off of
nonsense token emissions. This is sizable. It is scalable. I remember on one of the calls we were
talking, we got capacity on this vault for up to 5 billion before we got to start looking at,
you know, slight strategy adjustments. So there's really no capacity limitations and no concerns
about compressing this yield when it comes from real economic activity as opposed to VC subsidized emissions.
Awesome.
And I'll ask a follow up there and see if anyone else has anything they want to add.
But first, I also want to introduce Alex.
Alex is here joining us as well, a member of the Gitana core team.
Alex, can you do a little intro on yourself, please?
Yeah, GM.
I'm the main token and mechanism designer here at Katana.
So I've collaborated with people like David
to basically produce the chain design and token design
that you all know now in Katana today.
Awesome. Thanks for that.
And I also see Mark and Omni in the crowd as well.
I've sent y'all requests to speak too.
If y'all want to join and hop on up here,
please go right ahead.
But Matt, Will, Alex, I don't know
if y'all have anything else to touch on
related to the Vault Bridge.
I think one of the questions that we saw
was really with vault bridge,
there's,
there's four key assets that are deposited into the vault bridge when,
when bridging over to Katana,
if you opt in to use the vault bridge and that is ETH, WBTC,
USDC and USDT.
I wonder if anyone wants to kind of touch on like,
why were those assets picked specifically?
Yeah, so in order to be included in the vault branch
and for it to actually make sense
in scaling like yield that can then be passed back to L2,
there needs to be actual borrowed demand for it.
And so if you look at Morpho's O1 markets,
those are the four primary assets that are borrowed.
I think we've talked to other teams
that are interested in being included
and there is gates that could be open.
So I would say like these are the four assets
we're starting with.
We're super confident with
and I think the industry is adopted
as blue chip assets.
Yeah, perfect. It looks like we had Mark confident with. And I think the industry is adopted as blue chip assets. Yeah, perfect.
It looks like we have Mark just joined.
Mark, if you want to do a quick intro, please.
Hey, everyone.
I'm a contributor to Katana and CEO of Polygon Labs.
So take care of a few different things.
Awesome.
The next question that we had,
I think this one came from the Discord, and that was the question of, you know, related to the
Vault Bridge, what role do Morpho, Gauntlet, and StayCalves play in managing Vault Bridge
strategies specifically.
Looks like we lost David here.
So Alex, I don't know if you want to take this.
Yeah, I think maybe Matt's had been working close with the curators.
Maybe Matt, you're probably a better person for this one.
Yeah, so if you look at the different vaults on Ethereum mainnet today, you can see Gauntlet has for example gauntlet prime gauntlet frontier
gauntlet core and so all these different vaults have a different set of parameters whether that's like the liquidation loan to value or obviously the collateral and loan asset um and so the role
that the curators play in vault bridge is really critical because if there's any like bad debt in
the ecosystem that would kind of fall under
the parameters or bad liquidations um i'm just kind of subbing on my words here as i'm like walking but basically uh the risk parameters that the gauntlet and stakeout sent basically kind of
determine um the safety of of the vb usdc vb usdt vb eth and vbbb tc on katana itself for the holders there uh and so if gauntlet or stake
house were to then go accept a collateral that's like a brand new liquid resaking token and then
that went to zero um the people holding the vb eth on on katana would be susceptible to that
default risk i can let let David finish the comment.
Yeah, I jump a bit further and say how this was being mitigated. And one of this is like, one, there's sufficient time locks and there is a consortium of the chains using Fall Bridge, as well as independent risk analyzers that are looking at what these teams are doing to ensure that there is, you know, they're not going too off the rails and that plenty of things are being configured correctly.
ensure that there is, you know, they're not going too off the rails and that plenty of things are
being configured correctly. Secondly, on the Katana side, a portion of the proceeds are being
used to build out additional liquidity so that there will be additional exit liquidity for
Katana users in excess of the reserves and insurance provided by Vault Bridge. And third,
lastly, there's a requirement for a certain amount of insurance to be held against the bridge. It's
not entirely insured, but this does provide a decent amount of protection against minor DPEGs or minor bad
liquidations, as well as putting proper guardrails around these curators while they have an incredibly
important job to do. And we want to ensure they're acting always in the best interests
of the chain at large. Awesome. And I think even a more broader question would be like,
so Morpho is obviously heavily involved in VaultBridge protocol. And just to be clear, VaultBridge is not specific to Katana. Katana just happens to be the first chain that is using VaultBridge.
So maybe you can, David, if you want to talk about, you know, why was Morpho selected to be the lending and borrowing or the yield generation
engine of Bald Bridge Protocol?
Yeah.
It ultimately comes down to a few things.
One, it's permissionless and it's immutable in the same way that it's really easy for
teams to build on top of Uniswap because they have full guarantees that those contracts
have no owner.
There's no admin that's fully immutable, fully audited and formally verified. The Morpho contracts are that for
lending, right? There's no governance key. There's no needing to go through a complicated
governance process or vote in order to get a configuration set in order for risk teams to
step in and do emergency actions, right? As with, you know, working with Morpho and working with a
group of change and other providers that are coming on to Vault Bridge in the coming months, it was important to ensure that we had full control, full control for the wanted to work with and ensuring that ultimately everything could be done
maximally in the interest of the chain, in the interest of the end user.
Morpho was the no-brainer design partner.
Awesome. Thanks for that answer. Another good one. It's something I feel like we should specify with Vault Bridge,
and it kind of goes into some of the questions that we've gotten also, is there's been a lot of comparisons to Blast,
that we've gotten also is there's been a lot of comparisons to blast.
And I think that that makes sense.
But, you know,
why is this so much different from what blast has done in the past?
Right. And I think part of it is, you know,
when users bridge to Katana using the vault bridge,
they receive what are called VB tokens, right? Vault bridge tokens.
And for this example, we'll do VB USDC
because it's just an easy example
and it's easy to say phonetically.
So, you know, the flywheel,
at least for the Vault Bridge side of things,
it requires users, well, I guess just in general,
the flywheel requires users to actively deploy
their VB tokens instead of rewarding
idle assets being held in their wallet.
So I wonder if anyone wants to kind of touch on that design preference specifically.
Yeah, so this is like a pretty important part of the whole flywheel actually.
So with Blast, like, yes, they had native yield, but like, it was not in any way implemented in the way that we are.
So for us, we take that yield and we don't just give it to idle holders.
We instead collect that yield and then deploy it in an opinionated way into the DeFi ecosystem.
This means that to receive that yield, you must deepen liquidity.
And when you deepen liquidity, you then create the opportunity for really economic value
to be captured and circulated on Patana,
meaning that only active participants receive that yield.
And that means active participants then receive that yield,
which is the L1 yield plus the L2 yield,
because they've deployed their liquidity into DeFi on Katana.
Which is meaningfully different to what Blast did, right?
Like, this will, like, produce a much more robust DeFi ecosystem.
Yeah, and I think there's, like, just to add to that, like, I think
there's a lot of like, just strategically, when you think about this, right? So everyone wants to
focus on the mechanisms and similarities or differences from the mechanisms. And I think
those are very relevant, right, and important, because there are similarities and there are
differences. But there's a bigger strategic question,
which is just like,
hey, is this a new DeFi chain that looks like Blast and approaches things like Blast?
I think the answer is just not even close.
So there's a few reasons for this.
First of all, Blast had this concept of,
hey, let's be neutral,
let's bring every app over here and launch, right?
Katana is not that.
It's very much focused on creating this deeper liquidity
and this higher yields.
And having these core applications
is a very key strategic difference
because it allows for building much deeper liquidity
than could exist when you have a bunch of other apps.
Second, I think Blast launched with 80 applications.
Very few of them were known to anybody.
That's okay. You want new primitives, that's good.
We'll have a lot of those on Katana.
But on Katana, what you also see is a lot of established players.
It's very much like this mix of established players,
as well as new experimental stuff.
When it comes to the flywheel, I think one part that's really important is like,
A, Blast was just bridge yield in a very limited way and that was it.
There's obviously a lot more to Katana when it comes to the different ways that fees are actually distributed,
like chain-owned liquidity and the approach over there.
There's also this very important concept that Blast allowed people to deposit assets.
And when they deposit assets in the bridge and receive them on the Blast side, they would earn yields doing nothing, right?
So they'd just sit there and they'd earn yields.
What did that mean? Well,
it meant people would just literally bridge, do nothing.
This is not something that works on Katana.
If you bridge on Katana and you do nothing,
you earn no yields.
You're actually being farmed, technically.
What that does is that actually
incentivizes people to use applications on Katana.
When they do, they earn that yield plus more.
They're actually incentivized to use it,
and you get rid of this net cost of people coming in and not doing anything.
Instead, you turn it into an active user that drives value to applications
and ends up actually creating a better ecosystem.
So I could go on for a really long time on how this chain is totally different from Blast,
notwithstanding that there's a couple mechanisms that look similar.
I think in some, it's basically like it is an opinionated chain,
and the opinion is not all users should be treated equally.
We're treating the users that are driving the most value to the chain's GDP
with first-class service and that first-class service is yield.
And that's kind of like, I think all you really need to know.
Yeah, I think that's perfect.
I'll just kind of summarize too.
So, right, you're a user, you bridge over to Katana.
Those assets don't sit idle in a bridge contract on Ethereum.
They're actually deployed to earn yield.
And then that yield is routed back to boost pools, core pools on Katana.
And so users that get those VB tokens on the other side on Katana,
they only get rewarded with that Volpred Shield
if they're actually actively deploying and
making the chain go or the defy ecosystem grow stronger and better and it's essentially you know
we've talked about all these different yield mechanisms that flow into the the defy ecosystem
you know volpred shield ausd yield sequencer fees yield from channel liquidity um when it really
comes down to it like this is effectively a liquidity mining campaign
that's using real yield instead of uh inflationary token emissions right and i think that is really
something that that sets things apart uh for katana it's all about generating deep deep
liquidity high yield uh and do that by incentivizing productive TVL, which is users being productive
and using actual DeFi on Katana
and not being extractive to those users,
taking mechanisms that have historically
been either idle or net extractive to users
and putting those back into the DeFi ecosystem,
which is all very exciting.
And another big part of this too
is the concept of chain-owned liquidity.
So the next question we have here is just,
what is chain-owned liquidity?
What does that support look like?
And how do users benefit from chain-owned liquidity?
Yeah, so chain-owned liquidity
is like a pretty core part of the Katana flywheel.
And it does a few things.
So one, of course, when the Chain-Owns Liquidity, it can guarantee liquidity depth for its users.
That's the first thing.
However, what tokens is that liquidity held in?
Well, since we have these amazing vault bridge tokens,
and since they're the majors, this means that essentially all of the chain liquidity pools
are going to involve at least one vault bridge asset. And that means that the chain itself
is now holding vault bridge tokens and therefore perpetuating the Katana flywheel.
Now, when that happens, Katana has a decision to make.
Since it's essentially now farming its own rewards,
it doesn't actually need to keep them,
which means that for the Vultbridge tokens that the chain itself holds,
it can actually boost the yields for all other users
if it doesn't take the yield itself, which it likely will not.
And then similarly, by holding Vault Bridge tokens,
you provide a kind of soft backstop for the Vault Bridge.
So if there is a lot of withdrawals that happen all at once,
since the chain itself is not going to make withdrawals ever.
There is then like, um, not only is there like the utilization, uh,
rate on Morphe to consider, um, or the idle assets not deployed from the vault
bridge, but there is now this extra buffer of channel liquidity, meaning that,
um, we can pretty reasonably believe that like any user that wants to get out of the chain
will be able to do so because of these three layers.
And chain liquidity also supports that,
as well as supporting, yes, all the dApps and asset issuers
that we will be holding liquidity pool tokens in.
And I think one of the big things that we want to touch on here too is,
how does chain-owned liquidity act during times of market volatility
compared to user liquidity?
And then also, let's talk about the yield generated from chain-owned liquidity
and how users benefit from that,
especially in times of extreme volatility
where users might be exiting the system yeah so this is like a good one um so once once chain
owned liquidity is acquired um it's essentially there meaning that um users can always know that there will be a market for key pairs critical defi pairs
if they want to if the market's volatile they want to leave the channel liquidity essentially
acts as a counterparty in these times of volatility and yeah to that point about the yield
the yield can be directed back into the ecosystem.
This then provides like another layer
to the whole yield stack
that is the Katana flywheel.
Yeah, absolutely.
And, you know,
when you have this chain on liquidity
in a specific DeFi pool
and you do have a time of market volatility
where users are starting to pull out, you know, channel liquidity stays there and becomes a bigger portion of that specific pool. And what can happen there is the yield earned from chained on liquidity can be redirected to boost that pool. So, you know, the users that do stay and stick around, they're essentially getting an outsized reward for hodling through the volatility in that pool.
100%, exactly.
Yeah.
And then let's talk about,
there have been a lot of questions
about the sequencer fees on Katana.
And so what we say is like 100 of net sequencer fees
redirects to either chain liquidity or to further boost pools um curious uh as to like you know
what do other chains do historically with those sequencer fees um and why does this make katana
a little bit different it's actually like posted something about this just earlier today.
But I mean, what we're doing with Sequencer Fees has essentially,
or it has never been done before, actually.
People talk about fee switches or they tease fee switches.
But in terms of taking all Sequencer Fees
and redirecting them back into the ecosystem,
it's never been done.
So if we take Coinbase, for example, or Base and Chain,
they've made over $100 million in ETH since launch.
And that's been withdrawn to Coinbase.
Maybe they're insta-dumping.
There has been some speculation about that.
Maybe they're just holding it or whatever.
Either way, it's not anywhere in the base ecosystem.
It's just been extracted.
So we took the opinion that we're
going to redirect all value that could be captured back
into the ecosystem for the good of the ecosystem,
thinking about the the long game
not about extracting value yeah absolutely and another really interesting question that i saw
and i think this was on reddit and if you're listening right now uh go to the katana subreddit
it's r forward slash katana short clean amazing i can't believe we got it uh that's all thanks to
greg on our team who's who's holding the host handle right now for katana but yeah go check
that out go ask some questions if you have some and i'm in there answering right now but the one
of the questions was um right okay so the yield generated from Vault Bridge is the majority of it comes from borrow demand on Ethereum L1 in those specific vaults. And the question was, you know, what happens if borrow demand on Ethereum actually dries up? Does that break the flywheel? And I think this is a good opportunity to talk about like AUSD yield and COL yield as well.
USD yield and
COL yield as well.
Whoever wants it.
I know David's had quite a
thought a lot about this, but
I can
open.
Let's see. If there's not
borrowed demand, I mean, yeah, David, you just hopped on.
Yeah, I was going to
say that ultimately
one of the great things about working with these amazing teams like Gauntlet and Steakhouse is that borrow demand traditionally has always been tied to demand for leverage in DeFi.
And we've always seen that, right?
There's times when we joke when the Aave rate or the Morpho rate starts to drop below the T-bill rate.
Everyone's like, oh, why would you take the DeFi smart contract risk, which has always been a very fair point. And intentionally part of why the AgLayer team
partnered up with Steakhouse and has partnered up with Gauntlet is they're not just experts in
curation, like several of these other very amazing, great DeFi curators out here. They also
specialize in working with RWA assets. Steakakehouses started off as Maker's RWA arm,
managing the largest on-chain T-bill portfolio that's existed.
Gauntlet, in a previous project with Polygon,
brought the first actual real leverage positions
powered by RWA yield in Acred to Morpho and to Polygon.
And so when we look at these teams, we can say, hey, even if DeFi leverage starts to
back off, you know, they're going to make sure there's some high quality RWAs in the
mix.
It could be Biddle, it could be Vbill, it could be some of these really safe Tbill wrappers
to ensure that the vault bridge yield is never straying too far away from either the prevailing
DeFi rate or the prevailing defy rate or the prevailing
sofa rate whichever is kind of the higher of the two i can just like expand a little bit on how
that actually works so like if you have um if you're accepting t-bills as collateral in the
vault bridge um then the borrow rates um or like the lending fees that the chain makes,
assuming that people want to borrow against their T-bills,
which they most likely will,
it essentially acts as a kind of pass-through for the T-bill rate,
which means that all things being equal,
the stablecoin yield that we get on Katana
will be a kind of pass-through on the T-bill rate.
And on top of that as you mentioned
we have also a usd which is yes direct t-bills um t-bill rate which will go to katana and
into the ecosystem
yeah i mean it's a diversification of revenue streams that can thrive through this diversification in both bull and bear markets.
So no matter what the market conditions, there will still be outsized yield, yield better than any other chain that will be present on Katana, which will further incentivize users to bridge over and deploy and just kind of maintain that active and
thriving DeFi ecosystem. Would you agree with that, Alex? Absolutely. And I think this is actually a
pretty key point to like drill into is like Katana is designed for sustainability. And sustainability
means being ready for the bear market because we know that it's going to come and it could be painful and typically when that happens the charts look pretty
horrible the yields look pretty horrible and um yeah the users dry up everyone's kind of like you
know flying um flying back to cash um but katana is designed, mechanistically designed to be able to weather
that storm because of the mechanism which we described, whether it's the T-bill pass-through
with USDC and USDT or via AUSD. And we actually did a study, a user study, about types of yield that users like to get in various market conditions.
And no surprise that users actually like to receive stable coins when times are bearish.
And mechanistically, Katana can actually guarantee that.
Yeah, great, great answer.
This next question I'm going to direct to David
since he does have the Polygon badge
on his Twitter handle here.
This question came from Reddit as well.
And the question was,
why did Polygon and GSR decide to incubate Katana
when there are already DeFi-focused chains Blast, BearChain, and Sonic?
Yeah, that's a great, great question.
And I think it ultimately turns down to looking at what are some of the goals with Katana from Polygon's perspective and who Polygon tends to work with.
But Polygon tends to work very, very closely with some of the biggest names and payments in fintechs and RWAs that are starting to explore, really using DeFi to power all sorts of what we call DeFi mullet products.
That could be I'm sitting on Mercado Bitcoin and I'm holding stable coins.
I want to earn yield.
I want to earn yield.
Or I'm sitting with Lemon Cash at Bitcoin and I want to earn yield.
Or I'm sitting with Lemon Cash at Bitcoin and I want to earn yield.
Or I'm a user of OKEx and I want to borrow dollars against my Bitcoin, as we've seen Coinbase do a recent implementation of.
And so ultimately, when we looked around and we said there's not a chain that's really designed from the ground up to meet that need, to meet that need of what we would say is like, you know, safer, mature DeFi designed in
a way that is really user friendly for retail through fintechs. It's not retail of you and me
just necessarily using MetaMask. And it definitely is going to cover that vector. And there's plenty
of chains that have covered that vector. Well, and Katana is going to be one of those that does an
amazing job at that. But it's also going to do a really, really focused, intentional job of going after this mass amount of retail that's
coming in through these alternative distributors, where it's fintech in the front, DeFi in the back,
that DeFi in the back better be safe, audited, compliant, and also just really, really well
thought out from that integration point. And when Polygon, that's really what we specialize in,
GSR helping provide the liquidity.
Katana was the perfect testbed,
the perfect ability to design a chain from the ground up
to really be used by actual billions of people.
Not billions of people downloading MetaMask,
but billions of people through existing distributions,
through existing apps that they work with.
And that's really kind of part of Polygon's distribution thesis
with respect to Katana.
And there's no other chain really tackling that
when you look at the primary DeFi chains.
It's going to be very hard to go to Revolut and say,
the chain has a bear on it, but we promise you it's serious.
We promise you that it's compliant enough to handle your user deposits.
It's going to be hard.
We talk about Sonic, there's this gas token and there's a fee. It's just easier when the entire chain and all of
the actual primitives designed around it come from teams that have long DeFi histories, that have
long, strongly audited histories, and are all SOC 2 compliant, which is a necessary thing for any
enterprise integration. Awesome. Thank you for that answer, David.
Another fun one that came from Reddit,
and this is just kind of a natural flow
to what we need to talk about here is,
let's talk about the core apps.
Core apps are hand-picked DeFi protocols
that plug directly into the flywheel,
and they are the beneficiaries of boosted yield
from Vault Bridge and chain-owned liquidity.
So those core apps are Morpho from the lending side,
Sushi for Spot Decks, and then Vertex for Perps.
So what does it mean for Morpho, Sushi, and Vertex
to be quote-unquote core apps?
And then the follow-up question to that was,
will apps like Aave or Uniswap be on Katana?
It's a permissionless chain.
Anyone can come deploy.
So I guess I would say that.
It's unclear.
We haven't talked to the Uniswap team.
Could you rephrase the question, actually?
I only cut the tail end of it for whatever.
Yeah, the question was,
what does it mean for Morpho, Sushi, and Vertex
to be core apps and plugged into the flywheel?
Yeah, it basically just means
the revenue driven from Vault Bridge,
the fees driven from sequencer activity,
and some of the other stuff we have planned,
a portion of that will go into those applications to support
as a layer of incentive slash yield
or in order to purchase liquidity as we talked about earlier in the show.
They're also entrusted with essentially winning that category on katana meaning that like
sushi will be the core decks and they will essentially win the decks category meaning like
make sure that they are keeping up with the standards like v3, V4, whatever, the latest hooks, et cetera, making sure that the product is competitive because underlying or the actual inside of that protocol, like the protocol exists to produce deep liquidity for the chain to then produce economic activity, which then produces yields and the whole thing goes around.
activity, which then produces yields and the whole thing goes around.
So, um, going further into that, when we talk about the liquidity pools in
sushi, for example, um, often you'll see like on chains, there'll be like, yeah.
Sushi uni, what are arrows?
There's a few DEXs and they, all these DEXs have the same liquidity pools.
So you'd have like three different types of ETHUSDC pools.
This is just like inherently inefficient.
If these protocols have emissions,
they're all competing against each other for the same liquidity.
Probably there'll be some aggregator that'll sit on top
and it'll move liquidity between that same pool.
It's good for the user, but is it good for the chain?
And also, by the way, that aggregator
is actually going to be taking fees for that service.
So by having just one DEX and just one lending protocol,
we're able to focus liquidity the same way
that we're opinionated and intentional
about how we've designed the chain.
We're opinionated about how we designed the liquidity liquidity too and that liquidity is designed by way of this
perpetual emissions or perpetual liquidity mining campaign you mentioned earlier justin
um so um and that is like yeah manifest via um core pools receiving um So core pool in one protocol,
receiving all the emissions for that particular.
Rather than distributing it between multiple of the sample,
we focus it into one, therefore deepening liquidity.
And the same principle applies to the morpho side.
Yeah, and I think, you know,
another good benefit here from my perspective
is like a lot of people talk about liquidity fragmentation throughout Ecos, like throughout other L2s, but not a lot of people talk about intra chain fragmentation where you have, you know, we're not spreading this thin across
10 different DEXs or 10 different lending protocols. Like these are concentrated into
a small set of deeply integrated core apps. And that also just provides a better user experience
as well, right? You've got, you're going to have very, very deep liquidity, which is going to
reduce slippage thanks to chain owned liquidity. And also just the incentives on those like DEX
pools as
well as going to encourage users to provide liquidity in those pools just further deepening
that liquidity and so you know the spreads on the swaps that you make are going to be a lot tighter
you're going to have a lot less slippage and also because sequencer fees also go into chain
on liquidity and boosting yield what that deep deep liquidity is going to do on the deck side
by only picking a winner on the deck side
is it's going to attract intense insolvers.
So you're going to have all these cross-chain swap providers
essentially routing their trades through Katana, through Sushi,
which further generates more activity,
which is more fees for the LPs,
providing liquidity in those DEX pools.
And also that provides more sequencer fees,
which further compounds channel liquidity
and further boosts yield.
Alex, I don't know if you had anything or Matt or Will,
if you had anything you wanted to add on that thought
that I just had.
I think you covered it really well.
Cool, cool.
Thanks, thanks.
Okay, let's see what other questions we had here.
I think we had someone request to speak, actually, too.
So 25th, I'm going to add you up here, and then we'll get get your question if you have a question for the team.
So if you see the request, go ahead and hop on up.
But also while we have it, let's talk about Cat.
Alex, you're kind of spearheading the tokenomics mechanism design behind Cat.
So let's talk about that because one of the questions we had is like,
other than voting, what other utility does CAT, VCAT have?
And like, is CAT necessary to use DeFi on Katana, etc., etc.?
Yeah, so it's not necessary at all.
But let's see, where to start on CAT?
So basically, like, CAT is the first chain token to be defi native and what i mean by that is if you look
at the blockchain landscape um most chain tokens are either um like in staking rewards um or their
governance tokens um or their i mean honestly it's essentially that, right? And when I say governance, it's like quote unquote governance
because like, is it really decentralized?
And is it, and just the governance that goes on in the forums,
is that really like what's happening?
So we decided to basically skip all of that.
We're making a DeFi chain, so we should have a DeFi token.
And so we're thinking about like, okay,
but what does it mean to have a DeFi token for a blockchain?
And thinking about that question
and kind of taking all the lessons we've learned from DeFi
over the last year since DeFi Summer,
we came up with a design which is essentially a VE33 token, but at the chain level.
And so what I mean by that is, so you have VE33, the solid lead design, which was the improvement
on the curve model, which is essentially you lock a token and then you can direct emissions to liquidity pools and you then receive trading
fees for the pools that you direct emissions to. So we're thinking about this and like this is
clearly a very effective model because it by design aligns participants. It's kind of a pretty hard mechanism to game and to extract from.
So we're thinking, okay, this works, but like, how can we expand on this?
And so taking that just from the decks and then kind of thinking about,
okay, what if it's a chain-wide token?
And so what that means is, so I guess we are just starting with Sushi,
meaning you'll be able to take your cat, you'll be able to lock that cat,
and you'll be able to direct emissions to Sushi pools.
But phase, and that's phase one, phase two is actually enhancing this locker
so that you can direct emissions to other parts of the ecosystem.
So that might be a morphine market, either supply side or borrow side. Meaning like, if you are a
DAP, and maybe you've, you're like, well, every DAP, they need DEX liquidity.
And so they're probably going to have some CAT
to then either direct emissions to their pool.
But now they can have that CAT
and they can also direct emissions to a Morpho market.
And that then provides instant utility for their token.
Because let's say if their token is
a yield-bearing stablecoin,
they can then start to incentivize the borrow side
of the yield-bearing stablecoin's Morphe market.
Meaning with one token,
they can ensure their stablecoin has liquidity
and ensure that there is a healthy borrow market
for their stablecoin as well.
Beyond that, we have some other crazy ideas
on how we can VE3 through the entire ecosystem,
which we will roll out very slowly and very carefully
because it's all quite experimental.
But the end result will essentially be that CAT,
when you lock your cat into VCAT,
it should provide essentially revenue streams,
real revenue streams,
that is like fees captured from across the DeFi ecosystem on Katana
and return them back to cat lockers in one token.
And that might sound a bit like onerous
because, oh, I forgot to lock the token
and I've got to like direct it
and look at all the bribes
because there will be a bribe market.
Look at all the bribes
and the fees across the ecosystem.
Where do I direct my missions?
This is only if you want to, right?
Like for dApps, for certain,
like maybe for DAOs, for like our users,
they're probably going to want to do that.
But if you're like,
want to be a bit more hands-off,
we'll provide options there too.
So there'll be options like deposit cat
and have it auto vote and auto collect bribes
for profit maximization.
And this is a very similar parallel here
is the Aero Relay, which then just buys, takes a lot of fees and buys more aero.
In our case, you don't need to auto compound if you don't want to.
We have that option for you if you'd like to do it.
But maybe you just want to have the thing auto vote and auto collect bribes and then take all those fees and print stables for you.
Maybe you want it to just, you just sit there and it auto-votes
and you have USDC just kind of coming in every epoch.
Maybe you think ETH is undervalued and you want to take those fees
and buy ETH with them every epoch.
Or like a BTC printer.
Maybe you want to set it to actually buy like 10 different meme coins every epoch.
So you have a kind of meme coin DCA fund.
You could also do that.
So we provide this kind of flexibility to the farmers as well.
I mean, I could go on and on, but yeah, that's a little snapshot of the vision.
Yeah, that was great, Alex.
Yeah, Alex, bringing all the alpha for the cat token on the flywheel call.
So thank you for that.
That was awesome.
And we're going to go ahead and wrap things up here.
But before I kick it back over to Matt, Alex, and Will for final words here,
how do you get involved now?
You can pre-deposit right now.
There are two ways to pre-deposit,
and I've pinned the tweet to the spaces for you to check it out.
Uh, first option is Turtle Club.
Uh, here you're going to see like traditional DeFi pools with, uh, pretty high APRs currently.
Uh, the tweet says 40, but I think it's up to like 55% APR.
Uh, those are, those have a soft commit on them for three months.
And if you want to withdraw earlier than the three month period, you you just take a haircut on the rewards that you would have received.
A little haircut on the APRs.
And then you've got the Katana crates, which is super fun.
I've opened up a bunch of crates, pre-depositing onto Katana.
So you deposit to earn these crates.
These crates have potentially rare outsized rewards. Like you
could win 5 million cat or 10 million cat or a crypto punk or a m'lady. Uh, and with
the crates, you can also withdraw on the date of mainland launch as well. So go check that
out. Sirs and madams and DGNs and add on and ons. Uh,ons. So yeah, Matt, any final words for you before we
wrap things up and shut it down?
No. Yeah, thanks
for your interest. Looking forward
to seeing this go live and
expecting
some capital flow
in the next 10 to 14 days
at size.
Super exciting. Thanks for the alpha there.
Will, what about you any final words
before we sign off yeah for sure thank you for hosting and thanks everyone for listening and
keep hitting the app and be sure and keep asking questions and let me know if there's anything you
can see want to see or having issues with because i just adamant on making sure that it's a buttery
smooth experience for everyone.
What a legend. And last but not least, Alex, final words from you, sir.
Yeah. I mean, yeah. So thanks everyone for the curiosity and all the engagement. I think like if you have any questions or if anything's unclear, I know there's like this chain design can be,
it's like, there's quite a lot to it and And maybe it's not like easily understood from day one.
So just like, please feel free to like reach out if anything is unclear and we'll be happy to, yeah, help you out.
Absolute.
And everyone, if you're listening right now, please go ahead and give these individuals a follow.
Will, Alex, looks like Matt peaced out a little bit early and that's fine.
He's got some institutional work to do on the Katana side of things,
but thanks for everyone for listening and we will catch you all later.
Thursday,
we will be spotlighting one of our core apps,
Morpho.
Very,
very exciting.
So keep on the lookout for that and we'll talk to you later.
Stay sharp,
everyone.
