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Liquity: Interest Free Borrowing 🤲#DeFi #LUSD #ETH
Recorded: March 2, 2023 Duration: 1:14:48Space Recording
Full Transcription
Hey, Michael.
So, my name is Michael.
And then I joined one and I joined one and a half years ago, Liquity.
Right on.
And what inspired the creation of Liquity and walk us through how it works.
Sure.
So, thank you.
on an exchange and use it in everyday life and the other thing which liquid is very good for is
getting a leverage on if so getting a loan buying more if and so really something for if maxis
yeah it's a tale as old as time right people often wonder why some of the rich don't pay taxes on
their billions of dollars of assets it's because they don't sell the assets they collateralize
them and they borrow against them in this case you guys have a zero percent interest rate um
how does that work yeah good question and you know that's really already one of the big
differentiator for example compared to maker where you have a variable rate something you're um
people know kind of from traditional finance you take out a loan you have a variable rate of one
percent four percent um and with liquidity you don't have an interest rate you only pay a one
of fee at the beginning and that's only 0.5 percent this means the longer you hold the loan the cheaper
it gets um this also means you have fixed cost so with maker or avi or other protocols it can be that
you get a loan at one percent then rate spike and you have suddenly your loan um you need to pay six
or seven percent in interest so that's really different with liquidity how we can do it so um
it's really because liquidity is not a money market so we don't have lenders that provide the capital but
we function more like a national bank we take your deposit and give out lusd our stable coin which is
over collateralized um so we don't have the capital cost of a bank or other lenders so that's why it can
be so cheap okay so i'm curious about a couple things one sorry it's my cat um i i'm curious about
lusd first and foremost is it fully collateralized by eth and eth alone
yeah exactly so that's why um it's the most unstoppable stable coin on ethereum you know it
can't be stopped because the ethereum is really a censorship resistant uh collateral and liquidity
is built in a way it's totally immutable so it's live since april 2021 and uh nobody can change
anything on the system there is does there is also no governments so governance so the protocol handled
um all the loans um autonomously since since the launch and this makes an lusd also really a
differentiating stable coin so there's no other stable coin that has these properties maybe be only
rye comes close all others have kind of a centralization vector and can you dive a bit more
into the governance free automation how exactly does it work who designed it was the protocol at one
point under a governance structure and ultimately these contracts were revoked how does it um
or renounce excuse me how does it work yeah yeah no liquidity was built from the beginning with
true decentralization in mind um so since launch they haven't been any functionality um so it was from
the start immutable and it was precisely because um robert was kind of uh convinced that you don't need a
governance so what do you want to govern i mean others have governance because they have other
collateral types uh or they need to adjust the rates something he found hey that's what smart contracts
are great to handle that and to adjust that and that's how he built liquidity so it has been from
the start like that and i mean since april 2021 just to put that a bit in perspective and show you a bit
the track record the protocol itself has issued more than four billion in loans had more than five
billions in tvl generated more than 30 million in revenues so it's a top 15 d5 protocol on ethereum
in terms of tvl and funny enough we are the top three eth holder in defy so holding eth after maker and
of it that's incredible okay um with lusd you can also stake it and earn lqty tokens uh tell me a bit
about the native token how that works what utilities it provides and the staking structure as well
yeah so maybe let's start with the staking because that's a second differentiator to maker so what
users can do they can take the lusd and stake it in the protocol we call it in the stability pool
and um the capital is then used if positions of borrowers are on the water the lusd is used to
liquidate them so this makes our liquidations really fast so that was a differentiator to maker which
auctions off the bad debt or the the under collateralized positions and this allows us to
give a really great loan to value ratios on your loan so up to 90 percent which makes it really capital
efficient um to get most out of your collateral or also helps you that that your positions are
liquidated kind of um much later than in other borrowing protocols and to incentivize user to stake the
lusd so that's a great stable coin yield you have stable coins and you're getting yield in lqty and in
if from uh liquidations um the the lqty token which is the protocol native token gives you access to the
protocol revenue so if you stake then lqty you're getting the the fees of the protocol being from
being from the issuance or the exemption so lqty is one of the few really yield tokens because you get
don't get the yield in lqty but you get eath and lusd so kind of two really um valuable assets
i'd imagine a lot of a lot of users try different strategies like collateralizing eath borrowing lusd
staking and maybe borrowing are there people that loop a lot in the protocol
yeah i mean they they loop it for a leveraged position i think uh that's interesting the people
that um um so there are a lot of yield strategies you can run in in the liquidity ecosystem being it
in the stability pool being an lp with stable coins um or kind of with the lqty token eath lqty or lending
it out so there's a dune dashboard which shows you more than 25 i think such strategies you can run
in one place and i think bojan our team member is also in the call he can post and these links to
dune dashboard in in in the comments um yeah so there are several strategies yeah you can run but
kind of the the looping is mainly done probably on on eve leverage or for example gearbox offers a
strategy where you can lp in curve with lusd and then leverage up this position yeah so i think there
there is a lot there is a lot to explore and just recently um lqty was listed on binance and that
created you know a crazy volume spike so to give you an idea the uniswap pool then which is paired
with eve lqty eve i had on this day alone i think a thousand three hundred uh percent apr
okay okay and i wanted to know about again the comparison to maker dao why you guys chose to go
with strictly eth i know you said censorship resistance is one um one major reason but why not
eth and let's say eth and wbtc for example
yeah so the idea um was to have really a ethereum native stable coin that was unstoppable and i think
you can only right now have it probably with ethereum because with all the stake wrapped um assets um there
is always still a centralization vector or was at least back in the days uh you know they started
developing it in 2020 so that was early still early defy um and the idea was really to have this
hardened protocol which uh at the end only depends on the oracle and otherwise runs on its own and i
think we've seen that with um what happened to blockfi and celsius with these more centralized lenders
where you have the counterparty risk so liquidity is really a great protocol if you want to borrow
because you don't have this counterparty risk you always see your collateral you know that it's there
and you can monitor it so also from a risk perspective that makes liquidity really attractive
and to summarize you know that the difference the three differences um to maker so one is really
the interest free so it's more it's it's cheaper especially for longer loans so probably not if
you just take it a week um then it's more capital efficient because we have higher loan to value ratio you
can um take out a bigger loan or get liquidated uh later um and the third thing is is the immutability
maker has a governance so kind of the the the security you get so terms and condition are set in stone
there is no team that can change anything there is not a court order that can be issued and somebody
needs to claw back uh some of your if that's all not possible so i think these three things are the things
that liquidity user value and that have given us quite some momentum recently because you know we have seen
first we have seen luna as a stable coin seen what happens if you don't have a solid uh backed
over collateralized stable coins so that gave us some attention then you saw what happened with
blockfi and celsius borrowing with decentralized players again defi did really great and and liquidy in
particular and most recently what happened to busd and paxos regulators going after stable coins
or going after oasis the front end of maker issuing court orders these are all scenarios we will see
more and more and and in my personal opinion i think for for stable coins there are only two ways
forward either you're centralized and you have the licenses and you comply or you are fully decentralized
like liquidity i think all the stable coins that are in the middle ground will will have a tough time
going forward yeah michael i think i certainly agree i think we're going to continue seeing more and
more of these sorts of cases i'm going to play devil's advocate here for a moment and push back
so with liquidity although it is decentralized it doesn't mean that governments can come after it
right they can do the same thing they do with tornado cash and basically say any american for example that
interfaces with this um interfaces with this application is breaking the law and and um
they can world governments can come together and not just liquidity but they can come together and
attack these kind of decentralized uh protocols that might not adhere to the to the guidance or the
guidelines excuse me that that they want people following i don't know i'm kind of just spitballing
here i know you get an idea of what i'm trying to say um what are your thoughts on that
yeah i mean totally agree that this is a possibility and i hope it it won't happen and yes you're right
we can't protect from that but the point i'm making is liquidity will be almost one of the the last
protocols kind of that uh will be on the list because all others are more centralized or kind of
having more vectors to being attacked liquidity also being neutral you know there's no privacy
preserving um it's really clear your assets going in you're taking your assets out it's neutral so also
from aml perspective i think it's quite clean so um i think if that happens you know with liquidity
then i just think you know the entire d5 space will will be dead you know i just think we are really at
the end of the spectrum maybe you have uniswap also there um but there aren't many protocols so we're
just i think really the the last ones such actors could come after you know because then liquid is
really a public good running on ethereum unstoppable and if they stop that then kind of the the entire
d5 space uh probably is dead i wholeheartedly agree and i just wanted to hear your professional
opinion so thanks for that walrus walrus welcome to the state sir give your hand up hey brother yeah
man i was going to comment on this note so i agree with michael that it would liquidy and that type of
code is going to be the highest hanging fruit in that scenario for regulation one of the other areas
is that again to michael's point if it comes from a broad scope something attacking like brokers like
iija or stablecoin referendums that we see in the in the sec they even the definition stablecoin
doesn't actually apply to the way liquidity functions and so i actually have a question for
michael at the end but specifically if you if you actually write legislation that's broad enough to
actually affect liquidity because of the decentralized nature because it's algorithm because it's not a
essential issuance again it would be one of those things that they just the the legislation that
will be written would just wreck d5 or if there is a scenario where it does have to be regulated to
to some level because liquidity doesn't have co-mingling your funds and because there's not an
exchange between anonymized users through like liquidity pools or anything like that the the front
end is actually designable so you could make a regulatory compliant front end and still run the
liquidity code and to your point with with tornado swap i think that that's that area is a discussion
that we need to be more forthright on our side when it comes to regulatory bodies if you just if and i
understand this impulse to say this but if the sec comes and says hey xyz thing is a problem or this
is something we're looking at and our answer is it's unstoppable it's decentralized you can't stop it
okay well then you just told that regulator there there is nothing between basically backing down and
so you made everything look like a nail and they only have a hammer for things like liquidity and
in jurisdictions that are going to go farther than we would like there is regulation to be had that's
fair and it can be done through wallets and through front ends and liquidity especially is a protocol that
could remain decentralized not be destroyed and regulatory bodies and agencies can can run front ends that
would work really well with the with that code again because you don't have that transaction between
anonymized users that would cause a problem with like uniswap and and then on that note i wanted to
ask michael uh just quickly what he thought about the term stablecoin because if you actually if you
look through we're starting to lose control of that word in my opinion and if you read stablecoin
from the sec in the u.s they don't mean stablecoin like we made stablecoin and i actually think that
protocols like liquidy and forks of liquidy are going to run into a problem because if you call
something a stablecoin they're going to treat us like a stablecoin but liquidy by definition from
almost every single proposal and actual uh filing is not a stablecoin the way they refer to it
they refer to terra luna differently than what they refer to all the usually the term is payment
stablecoins and they mean central issuance like paxos uh as you referenced earlier usdt usdc
so canada actually put out a different term that i've never heard anywhere else and they use the
term value referenced asset so i'm just curious on your take i actually think that we need to stop
calling stop calling things pegged to a dollar like like what you get from lusd as stablecoins because
one i think we could actually talk ourselves into a regulatory issue and also by legal definition at
least in the u.s and in many jurisdictions likely soon it won't actually be a stablecoin
really interesting point thanks a lot uh yeah and and agree on your point and you also brought up
you know the the decentralized frontends so frontends are also an attack vector and so i think that's
also something we considered so we don't uh the company doesn't run a frontend so there are users
and teams out there up i think around 20 that run these frontends so kind of there is no single
point um yeah of of access and going back to the stablecode yeah i was just going to say very very
respectfully i would almost challenge i i i 100 understand and i agree with the mentality i'm just
being particular on the wording because this is the regulatory environment we're in i don't think that we
can we should refer to frontends as a tax surface those are a tool like that's what that's i think
that that's what we have to that's the thing we have to tell a regular hey don't come break e and
add of that compliance at the the base layer don't come break liquidity if inside these jurisdictions you
want to have rules that affect it great don't break it and then have compliant frontends that run
like similar like you have like finance and then you have finance us you had ftx and you have ftf us now
those are bad examples owners but like this is really common in legacy where they use geo-fencing
and other ways to actually segregate between those things and i that is the way i think to protect
the base layer things like that that would have been the defense to me for tornado cash i think that's
what can protect things like liquidity and these things moving forward like i hear you i just i don't
think all those things attack surface i think we're gonna i think we're gonna lose one of the best
tools we have which is saying hey you guys build regulatory frontends or allow crypto to build
regulatory compliant frontends and don't come break the code
yeah good point and and i think it stresses you and you know another thing that we should
be really careful with the wording as you did with the stable coins or at least educate people
about frontends you know are they really interacting now with liquidity or is a frontend just helping you
to craft a transaction which is then sent uh to a relayer so is it technically even interacting should
we kind of impose these uh restriction and is that just isn't that just code that helps you to build
your transaction and shouldn't that be unregulated um but going back to your stable coin question i think
that that's really interesting and i would love to hear your take why you think i mean which are the
points that you would say liquidity is not a stable coin and which we should stress more so going back
to your value referenced asset sure so in canada this is the term that i've only seen there and it's
they used value referenced and what they meant is any again i'll have to go like pull through and this
is something that if you're looking at any of the legislation especially what comes from the sec
you can't you can't even read their dissertations and their uh their releases you have to and i'm
speaking to the crowd obviously brother um you have to go read the actual filings and then you have to
go pull the definitions because like everything it's in the details so they say stable coin we say stable
coin and we all assume that we mean the same thing but we don't so if you look in the u.s there's
the iija where that's going to be an issue term broker which i actually think that we should get
a ruling pretty quickly to clear some of that issue up and that it takes for issuance um but in the u.s
the term that if you actually go through and read what they mean by stable coin they usually use the
term stable coin and the points are that it is directly redeemable for a dollar and just again i know
you know but for clarity lusd is not redeemable for a dollar it's redeemable for a dollar's worth
of e so a dollar is just a measurement not what it's redeemable for we think it's worth a dollar
because the way the user interface works but it's redeemable for a portion of e so it's not directly
redeemable for a dollar the a central issuer that can be a little gray but i still think that there's
no problem there but the biggest one is that it's centrally issued and that it's directly
redeemable for dollars those are the biggest ones
yeah agree and and you know i think i'm not sure if even in europe mika also uses the term
value reference so just it sounded familiar to me
and this in the this especially in the in the u.s i'm not i know that the most common law it's
similar in the uk and australia europe i'm not that familiar with but there's there's many places in
just across all the frameworks where if you call something something or if you market something as
something then that's how you're going to get treated so like in the u.s like this is this is a
funny example but if you take a bag of oregano and you sell it to someone and you tell them it's
it's marijuana you go to jail for selling drugs even though you didn't sell them drugs but it's
because that's what you said it was so that's how people interact and it's similar and many legal
frameworks if you call something xyz one you can you can you know there's there's issues about you
know false labeling and marketing but you can also be regulated that way because that's what that's
what you said so staple coins are going to have more and more regulation now that they've sort of
picked their player when it comes to circle and blackrock and they're they're trying to jockey for
space so i i think that if we don't re if we don't come up with a turn in crypto we're going we're
going to have that term hijacked and like we're we're losing control of the narrative and i think
that we need to redefine that word and be more accurate and i know that for most users this stuff is
like really tedious but this is the difference in billions of billions of dollars when it comes to
how these things play out legacy markets so that definition is extremely important the definition
broker issuer stable coin and asset all those are a really big deal right now
yeah i agree and and you know there is an interesting other example we we had recently is
also the pooling of assets you know pool is is terrible from aml perspective so kind of oh
we are co-mingling phones so that's something we really looked carefully with liquidity and it
makes it really interesting also for more traditional financial player so we did a use case or a broker
here in switzerland has an offering which i think is really unique because i think it it's almost the
first time that a trad fi customer takes out directly alone with a d5 protocol so what their
customer can do is uh instead of taking out the loan with a bitcoin swiss the broker on their balance
sheet bitcoin swiss just facilitates the loan with liquidity so at the end the counterparty um to the
customer is the protocol and this was only possible because we could show that kind of we don't have a
co-mingling um of funds which which is usually then really a problem and then that was mainly also
um the case that the protocol was clearly decentralized there is no counterparty and it just shows the value
of building protocols like that makes it also easier for trad fi players to interact and for me it's another
example which is really really dangerous um talking about pooling assets because then every regulator
will kind of um the alarm clocks will the alarm bells will go off with them and i think we can
show with the transparency of blockchain that we can trace these assets and that they the assets
actually not the assets itself but the accounts of the users stay tainted or not um so that's just
something that that came up when you talked about that but we are already uh really in the weeds so
maybe noah you you can tell where you want to take the conversation oh no i'm still here and i love
i love the i don't even want to say tangent i love the direction that walrus took this conversation
but they're phenomenal questions and some of the questions that i wasn't even thinking of
they weren't even popping up in my head it is interesting to see or rather interesting to think
about the fact that a lot of this is going to come down to a game of semantics right just the
language alone is going to make a difference and whether or not certain things are regulated and
certain things are left alone is that kind of what you're getting at walrus
i i'm getting the
they're getting that will be played i think semantics is a good term and i
conversation it's it's a conversation that the majority of crypto don't care about and that's
on purpose so if you look at where these good stuff it's inferior with nodes it's blackrock and
circle on stable coins and you know double stack compliance at the the base of ethereum so those
players come in and they try to censor and they try to take control in ways that don't change the
the user experience so everyone can sit and raise your hand hey did anything change and blackrock
came in nope everybody's still using metamask and inferior nodes yep everybody's still using
ethereum anyone here actually get sanctioned by ofac anyone had transactions block nope and yet we still
have a huge amount of censorship and centralization come in because these guys are good at stuff and
the semantics on this side is they want that to sort of be the battleground because no one
cares no one cares except for a handful of people that realize how impactful it is on the space
and things like liquidity are some of the best tools ever built in crypto full stop it is that good
being able to denominate value being able to maintain price exposure being able to do all those
things in ways in which there's no pulling of funds where there's extremely limited governance this
is some of the best code ever written uh michael and robert that seemed incredible we're we have
other stuff going on i don't want to talk about my stuff here just it's a good space those things
are really important to protect and so that that semantics on regulation is like that's where the
battleground is and then on the other side if we don't understand the shortcomings of trafi and some
of these issues then we can't really understand and explain why why crypto is better why liquid is
better so if we don't if no one understands what admin keys are they don't understand why lusd is better
they don't understand that there's no combing with funds they don't understand why liquid is better
they don't understand that circle and paxos that if you want to hold busd on another chain if you hold
busd on any chain or doing eath you don't hold the stable coin you hold a wrap stable coin from an
exchange backed by an issuer that's on e that has bridge risk that has central that has central
issuance risk that has counterparty risk that has jurisdictional risk you have literally four or five
layers to a bet that says if any one of those chains breaks your coin goes to zero you don't
have that with liquidity with liquidity you go it's verified on chain the system's redeemable
it's it is not better it's a you know it's almost entirely different how much better that design is
and how these things function in the space and so one we need to defend them on the regulatory side
but we need to at least understand even if we don't understand in the weeds the way some of us
champion one we need to support the people who are doing that kind of fighting because
they're fighting for everybody and people need to under at least have an idea of oh that's what
crypto is about that's why this stuff is better so that we can understand the direction to take in
the future beautifully put michael i want to take it back to you really quick and i wanted to ask you
you have established you guys have established there's no governance when you guys want to make
a protocol decision or make updates or choose a new direction that you want things to go in who is
ultimately pulling the trigger on those
yeah i mean as i said the the code is immutable so we can't change it and you know that makes it
really a level playing field so nobody in the team has more information or more control than any other
user but this also means uh we can't change anything so the system will be there as long as
ethereum runs in the way it is as i said terms on the condition set in stone what you can do now is
build on top of it so other protocols can use liquidity can build products on top of lusd or lqdy
and if we wanted to um add features or in case uh i don't hope so but in case something goes wrong and
we need to make a new version then it works similar like with uniswap so i really like also uniswap
because from the decentralization point because it's also uh immutable and they deployed first
uniswap v1 then v2 and v3 and they live in parallel the only difference with with uh dex it's much
easier it's also easier to bring it on a l2 with a stable coin because we have lusd the the stable coin
um if you deploy now a version two you have a a another stable coin a second one which need to be
integrated which needs to have liquidity and all these things and that's the the tough part
so it's not so easy like with uh with a dex and we've seen that you know liquidity is also one of
the top 10 protocols that has been forked so kind of really forked very often but it's really hard
uh so the technical part copying it and deploying it it's actually the easier part than building out
the ecosystem getting the the traction um and the utility is much harder so that's why most of these
folks then then also fail crystal clear on that i i wanted to go back really quick and ask you
about liquidations um how do liquidations work and yeah just take us through what a liquidation looks
like for the average user that's over leveraged and there's a there's a price drop in ease and
yeah yeah sure i think it's it's an important mechanism one should understand so so let's start
with a concrete example let's say um you put 10 eath into liquidity so that's your collateral
um let's say it's worth 16 000 then you can take out a loan for example for 10 000 you get that in lusd
and um now you need to monitor the price of eath if eath raises so everything is fine because
your collateral gets worth more but if eath drops um let's say in half so the value drops in in half
then the collateral in eath that the protocol is holding would get um less valuable than than the
than your loan so the protocol needs to protect itself to acquire bad debt so in case the the loan is
approaching 110 percent collateralization ratio um it gets in danger that it's liquidated and
liquidated means that somebody can buy um the eath collateral which is worth 110 percent for the price
of 100 percent and liquidity has this instant liquidation so um you don't as a user you don't
need to monitor um these positions to be able to liquidate that but you can just deposit your lusd in
the stability pool and as soon as the protocol detects that the position is now liquidatable
it will do so with the funds of the users which is in the stability pool and what that means is you can
keep your lusd but your eath that has been at that point probably uh been worth 110 percent of your loan
so let's say 11k has been uh liquidated so you don't own it anymore so that's usually you don't
want to get in that situation you can avoid that by repaying your loan adding more collateral um
these are the the two main ways for the borrower for the users that deposit into the stability pool there
is a really interesting strategies uh strategy um to do so so first of all you get a yield on lusd
but it's a really cool way to dollar cost average into eve so let's say you have the price drop
um and you don't need to worry okay when do i need to buy eve when is the dip usually uh our positions in
the protocol are liquidated kind of really at the dip so a lot of position get underwater and then
they are liquidated so if you have your stablecoin lusd in the stability pool once positions are
liquidated you are buying the eve usually at the dip and at the discount of around nine percent so if
you deposit a thousand dollar in the stability pool after a steep price drop you may only have
five hundred dollar worth of lusd but you have cheaply bought um if that is uh value more valuable
than the 500 lusd at that moment that you um for uh yeah that you forego
thank you for the breakdown michael um i was a bit curious about your marketing strategies
and generating exposure for liquidity in my anecdotal experience more of my friends and
co-workers know about maker dow than they know about liquidity and my just my personal opinion is i i kind
of i like liquidity more just because and i think maker dow is a great product by the way don't get
me wrong i like liquidity more simply based on the fact that you guys chose a single asset and it's the
asset it's the native asset of the chain that you've built on to be the collateralized uh the
over collateralized asset backing the stablecoin that you're issuing um and i'm curious to know just
why why you guys have been a bit slower in your growth than let's say maker dow and as i'm looking
at tvl um as kind of that main metric yeah so maybe first to put it into perspective you know
maker always seems really huge with its four or five billion but if you compare it then on an apple and
apple um basis if you just look at the eve that is currently maker liquidity is not so small maybe
maker is two or only two or three times bigger um so i think their liquidity is doing quite fine but
i agree you know liquidity i think personally i mean when i joined liquidity and really saw the product
and kind of the values of the team i was blown away and and and i also thought hey liquidity should
be much more known and i'm always surprised when i talk to people that have been for quite a while
in the defi space and then they don't know liquidity and i think there are several reasons one is i think
maker was really the is the og they were the first ones so i mean you have the first mover advantage and
they did a great job as you said um the second thing is liquidity doesn't have a governance so
then your community is already much smaller you know you don't have that much much engagement because
the protocol runs on its own um that has a disadvantage so you kind of um it's less engaging
it has also an advantage i mean for the team it was advantage you don't have the the whole governance drama
around it which also can be an advantage and the third thing is probably looking back i think it was
rather uh an engineering driven product i think something we see often here in switzerland you we are
creating creating great products um but we could do better in in kind of letting people know talking
proudly about it and just spreading the word um so that's definitely something we we're trying to do
more and um intensifying so really educating the space um helping the community and that's something
you know i mean of course we have a we have a discord people can join that we also reward people um that
put out great content unique content um we started a a small grand program called liquid friends
where um we offer small grants for people that want to engage in the community and i think it's
definitely a goal of us to hand it more to the community to people like walrus and people that
that really care about the values you know it's a public good but if nobody takes care of it um
it loses value so i think there is also some responsibilities for for the user and it shouldn't be just with the
developers and that's clearly something we want to intensify and also reason why i go
on these spaces to kind of find also new new fans new contributors new believers that we should build
protocols in the way like liquidity has been built
well michael i would hope you got at least 200 and something new believers
for folks listening at this pod uh listening to this broadcast and i also completely agree with
you on first movers advantage i think it's really important and i think that as time goes on people
are going to find out about liquidity more and more and and then they'll kind of see that it is if you
want to look at it fundamentally a more decentralized stable coin um lusd that is and yeah i mean that's
those are kind of all my thoughts in response to what you just broke down for us so eloquently
walrus i want to pass you the torch again sir go for it i'll i'll try to be quick and not stand in
the sandbox so michael was nicer to dow than than i will be uh there is no comparing the protocols
the first mover advantage and then michael gave the again the very polite stance and i i have a lot
of appreciation for that i don't mind being a little harsh around them die was originally a
single collateral system built to be decentralized and when you look at having a single collateral
like e the idea on some of that is you want stability of a coin so you want to be risk off you
want to be able to use something that's simply denominated for commerce you want to be able to
provide liquidity in something where one pair doesn't pull the other around
that was where this thing came from and that has nothing to do with where die is now
michael brought it up politely that the majority of the tbl lock there is not e that's because it's
treasury paper usdc and usdt which is just digital versions of treasury paper the that protocol is
completely hijacked from the ethos that originally brought it for all of those reasons so part of the
reasons that it's popular is for all the reasons that you don't want to use it and part of the
reasons that liquidy maybe isn't as sexy in a commercial is for all the reasons you do want
to use it because there's no governance because these players can't come in because there's only one
collateral the the first things literally written in in like the history of cryptocurrency were
deer to deer digital digital cash that's what lusd is lusd and those types of collateral
back stable coins it's just a denominated unit of e the lusd is just e it's just it's just done in
dollar size portions because we can't sit here and go buy a coffee for 0.00369 e and then two hours
later it's 0.0009643 like that doesn't make sense it's so difficult to do that commerce and that's why
even every one of us that do trades or look at our portfolios even if we don't try to exchange them
back for fiat our brains just can't rationalize pricing of all these pools attached you have to
have some kind of an indicator so we use us dollars just as a measurement tool like they're money not
an asset but when you look at a few of those things that he brought up those same things that
governance that's the reason that maker has a typically around 150 collateral minimum so if you
miss and maker you lose 40 more on average than the position you would in liquidity so there's more
gamesmanship over there because there's more to be gained from liquidation of those positions
that's also more capital efficiency and liquidity and again to the average user at small scale those
may not make a huge a huge difference but at economies of scale on the network it makes a massive
difference so maker dow even recently rolled back a position over a court order so if you're going to
be backed by treasury paper and you're going to obey court orders what was the point in the first
place all we've done is add layers of failure onto what is just a treasury bond if that's all you were
going to do you should have just held the dollars in the first place because then all you'd have to do
is make sure they didn't fly out the window but die is completely different from that now and
liquidity not only has has taken those positions to be more capitally efficient they're also the reason
that it can't be hijacked like that in the future so they've managed to do a good job again he brought
it up earlier with um front ends by not having control not only do you don't have to worry about
them having control but you don't have to worry about them giving control or bending control to other
people um this is you can this that part of that discussion goes way back even batalik had some
discussions about stable coins years ago i think it was with lex friedman and he didn't want to have a
stable coin wrapped up with e specifically because then you start to have to make political decisions
on that currency so having something that doesn't have the governance model isn't just a sound
practice for the way we look at things as crypto but if you look at things from the outside
not having control of the code means that no one can lean on them to get control of the code so
those those points are extremely impactful
hey thank you again walrus for that breakdown you've been a major contributor to this broadcast
excuse me i've been a bit of a hard time talking today um michael one more question for you
um and this has been an awesome tag team really has uh one more question for you before i pass it off
to an audience member i noticed that there there was a few dpegs and correct me if i'm wrong back in
may of 2021 um and also in like july of 2021 i'm not sure how long those lasted for but it looks like
the price of the the price of the l usd token went down to 94 and 95 and then um conversely
uh it went up to like 103 um back in november of 2022 so i wonder if you can shed some insight on
those incidents yeah sure yeah you're totally right so so i think users need to understand
l usd and how it's packed so l usd just guarantees a hard pack from one to 110
and uh it can fluctuate in between mostly it is around one but there is a hard pack below one so i think
the the the price with 99 cents that was really short because people can at any time redeem their eve
sorry their l usd against the eve in the protocol so at one dollar value so as soon as it's below
people will redeem and the price will go up again actually in the beginning with single collateralized
dye that was also differentiated to maker so this direct redeemability was also a great feature
and now it helps the pack the other thing it can go above pack but also above 110 there is a strong
arbitrage opportunity um which kind of will be instantly orbed so it's very unlikely that the price
will long stay above 110 but in between it can fluctuate and we had more recently the l usd was around
1.103 for quite some time so people need to be aware of it can have advantages and disadvantages if
you borrow or if you buy l usd um and this was mainly because we are also in a beer market i mean l usd is
only minted if people borrow so in a beer market not a lot of people borrow or leverage their eve so there
is more demand for usd than there is supply which lets the the l usd deep pack a bit and as soon as
this improves um so usually also in bull market the the the peg is really good but i mean that's
the l usd is designed like that so it's not a bug but i think people need to be aware of it opens up also
some interesting strategies you know um for example opening them a loan when it's above pack is is
is interesting or um buying now l usd as a treasury asset is also interesting if it goes then up in
price um yeah but this is how it's designed so because it's not directly backed as walrus said with
with treasuries and it's it's with eve and it has this volatility um yeah that's as good as it gets
but i think for for a fully decentralized over collateralized stablecoin that's quite an
achievement i mean if you look into the stablecoin space 99 you know are backed by mostly centralized
collateral um or governed by daos or multi-six um so l usd and liquidity are
really uh unique and all others have kind of these these hard assets you can redeem against it and
it's a much tougher job for a protocol like liquidity to do that with this volatile asset like eath i mean
that was the move by maker maker had the same issues and then they just um added the psm module which
takes usdc to better peg it but but i think um yeah you you you have the uh kind of the negative effect
that now die is backed by tragedies as as walrus said
absolutely um and just to be clear to audience members listening both the the couple times that
this happened in 2021 and when this happened in 2022 they were very short periods and the price
converted back to its peg so just wanted to throw out that disclaimer and also ready to pass the torch
to a couple of my audience members let's go with aisha first
yeah thanks noah i'm interested in learning more about how l usd adoption is being promoted
and expanded particularly with regards to growing its utility and use cases
specifically i would like to know if l usd is currently accepted at any online and physical stores
and what other real world applications it may have
yeah so l usd is really anchored in defy so i start there so happy to see and we support some projects
that use l usd for strategies or are building on top of l usd um also seeing l usd being adopted on
on layer twos like arbitroom and optimism so i think that's great um we've also seen ad stack building a
bridge to main net so from their privacy privacy preserving l2 you can get a loan um which i think
is really cool and then from from the adoption of l usd um so i think there are some mover has for
example a debit card which i think is really nice if you are a defy developer holding your assets
uh in l usd is great because they kind of your keys your stable coin which is as i said not the case
with 99 of the other stable coins and then having a card you can top up and then pay that's the
probably the um the easiest part or bridge to to um see if i otherwise usually you would swap it
into a stable coin and then off ramp it to an exchange
understood okay i also want to know are chicken bonds separate entity or it is under the umbrella of
liquidity and also how are chicken bonds dynamic nfts supporting growth and sustainability of liquidity
yeah great question so chicken bonds for those who have heard
has been developed by the same team and it's a product built on top of liquidity which should help
the protocol to get protocol on liquidity so right now the chicken bonds holds one million of l usd
in a curve pool which helps with the liquidity and another seven million of um user assets that is
provided through the protocol and it gives users an amplified yield on the stability pool so that was
the original idea and it's uh something for more pro users which like to to trade these opportunities
but as i said you know protocol on liquidity and an amplified yield that was the main idea and you
mentioned the nfts you know and that was an amazing experience so chicken bonds it's a bonding mechanism
so you can bond your l usd and you get a boosted l usd which gives you an auto compounded yield of the
stability pool so as um in the same way you could uh deposit l usd in the stability pool the protocol
does it for you auto compounds and boosts it and the cool thing these positions are nft
and something which the protocol did and i think it's also very unique um we gave the these we made
these nfts dynamic so for so imagine you have now a portfolio of your bonds which are nfts and depending
on your actions if you kind of claim your bond if you cancel your bond if you're still bonding the nft is
an egg becomes a chicken that runs away or a chicken and based on kind of the the loan size
based if you're holding liquidity based on if you're lp-ing with liquidity you get special features so we
gamified the whole experience and i think that was really a interesting experience also for us to see
how people reacted to that how it made it easier to interact with the protocol but the nfts are really
a visualization of your portfolio of course there are a piece of artwork but i think the nice thing
is really how we used it in this dynamic interactive way um uh presenting your portfolio i mean imagine in
your e-banking in your normal bank where you have your shares it's so boring and i think we just made
it fun and and and yeah i really liked uh that we built that into the the chicken bond which is
also an immutable protocol which we can't change which has been and deployed which is running on top
of liquidity so again back to your questions the team developed it now it runs on its own
and it's intertwined with liquidity but on top
awesome thank you thank you so much for answering thank you for the question just what i gotta jump
out so no thanks so much for letting me uh share the stage uh michael i appreciate the questions and
all the great work your team has done and uh for the engagement so i wish y'all the absolute best guys
you'll be safe thanks all those for the very insightful comments yeah thank you so much for
coming on all this that was awesome absolutely john appreciate y'all captain levi you're up next
there and then we're gonna wrap things up all right um thank you noah okay so i i do have um just
two questions um um the first one was an observation and um the second i would just like your input
on it so when i checked um the sites the front end sites i saw um different um um kickback rates um
the the kickback rates for the second to the last one um liquidity ir which is a um a persian um related
site it promises um a kickback rate of around 90 percent and then the last one is um liquidity world um
i decided to randomly pick these two um while the first the first one just kept me on a welcome page
and really didn't take me anywhere else um liquidity world didn't really um load um it was telling me
that um the size um there was no dns access to that site so are some of these sites based on um
upper country basis and um is this site's updated
oh sorry what did you mean or painted or i'm not sure if i got it okay so um i'm asking about the
front ends um i'm on your um um front end slash the liquidity front end um page of your sites
i decided to pick two random um front ends to visit them um i chose the second to the last one and then
the last one um while visiting the persian sites that's liquidity ir um it's promises it's really
it's written in um um persian um it says that um it promises the kickback rate so i decided to just
click on it but i didn't go past the greeting page um then the last one which is um liquidity world
um it's a front end that enables users interact with um liquidity protocol i also couldn't access
it because it's actually told me that the sites couldn't be reached so i'm asking um do you guys
usually check this um liquidity front end sites and update them yeah so what we do um is really taking
feedback from user as you and kind of if these sites aren't working so we're taking them then down
so that's just a suggestion of lists of front ends and yeah so happy to get this feedback and and
and look into that and that's you know that's a bit a drawback of a decentralized front end so you
have all these providers that need to be responsible to run these things and we can't guarantee so you
could even we we have a you know the source code you can even run your own front end if you want to be
sure but usually especially the upper ones are up and running and something you mentioned the kickback
rate i think that's important that's uh something that front end gets but it's uh only gets it not
for the borrowing borrowing um uh you don't pay any fees on any front ends also not for the lq device
taking but if you use the um strategy depositing lusd in the stability pool there the front ends can take
a cut so uh 99 kickback rate means 99 of the yield you get on your stability pool strategy is getting
back to you and the front end takes one percent oh that's that's actually awesome michael okay so um
that actually prompted me to get the next question so um is it that um okay so this feedbacks now is
there an avenue where people can actually make these kinds of reports yeah sure ideally on discord
um we can also post you know in the comments the links to our discord so if you head over to
twitter so it's at liquidity protocol go to the spaces announcement i think bojan will post some
of the links there also for people who are new and watch out our twitter we will post some kind of
posts for people that are new to the liquidity ecosystem because a lot of people with the binance
listing we got some inflow of new users so there's a really a lot of material i think liquid is really
well documented uh technical docs but also other docs where you can learn and you should learn you
should understand it um so watch out for these tweets and you get information there and bojan will
also post the discord links so um ideally you go there and and and and tell tell it um in the discord if
you see something like that but happy to take that and look into it thanks for that awesome michael
okay so um here's my final question um you just made mention of the fact that um the liberty docs is
well detailed i i have to agree with you on that um i chose to go to one of your github repos
it redirected me um one link led to another and it redirected me to a part where i understand that
there's a version two coming up um could you tell us about these migrations over conversion two or um
and how is it going to be going about because i i can see some pull requests here um and it seems
that there's only one developer that is making answers to these or is this a team of developers
under the name being gen sorry my connections was a bit bad not sure if i understand the question
concerning the github usually we don't answer questions on github we have also kind of deaf
people in the discord so but but there was some interruption not sure if if that answered your
question okay okay so um um i uh could you tell us about the migrations version two um i actually saw
it on github is this something you can talk about a version two yes i guess i was curious about the
migration to version two yeah so there's no migration to to version two what we do i mean
what do you do with developer team that has an immutable protocol i mean the developer can't do
anything anymore so of course what we have done for example with chicken ones we bring new product
and right now what we are doing is researching um kind of how can we make liquidity better and not just
incremental but but really looking at um how can we design a stablecoin better um in the way liquidity
has done and we don't haven't seen much innovation so what i can tell is that we're looking in different
ideas um and that's probably what you see on github exploring stuff but it's really early and in the research
phase so we have some ideas but it's um yeah that's i would still call it research race we are not even in the
development phase so that's what our developers are currently doing no you know that actually proves
that you have um an active research and development team um that are working in the background to make
sure that things at liquidity um actually works um as as seamlessly as possible and where it's possible
your own scaling um i i really want to appreciate your detailed answers to my questions michael um i wish
you guys the best and i hope that the liquify um project stays bullish on board thanks noah over to you
thanks yeah cheers michael i know we're a little bit over time and i i want to thank you for coming
on today we learned a lot and i do hope that the word of liquidity continues to spread across the
industry i think more people should know about this protocol and the proprietary software excuse
me project code that has made it all possible um i i'm quite bullish on it and i wish you all the
best if you want to leave any final words to our community go ahead and do so now yeah first thanks
for having me i think an amazing community this was one of the best spaces you know very very insightful
comments people that know liquidity uh so it was really a pleasure um yeah and the only thing i can say
if you like liquidity we would like to welcome you head over to our discord uh watch out on our twitter on
the tweets and and links we post and yeah thanks a lot cheers michael thank you and best of luck
whale coin talk community you're listening to another episode of the aquarium brought to you by
the team at whale coin talk my name is noah remember that everything you hear on these broadcasts meant
for educational purposes only nothing is financial advice so be safe out there and we'll see you all in
in about let's see an hour for the next one take care
