I think the problem that a lot of these different applications
or depths have faced is that they weren't able to reduce
their cost of capital faster than the rate at which their
emissions trailed off. So a lot of these applications
are subsidizing their yields by issuing their own incentives in
the form of their governance token or Dow token that gives
their users a a vested upside in the protocol or the protocol
treasury. Really the idea of Turtle was
how can I leverage the collective liquidity and
bargaining power of numerous LP's and liquid funds at the
same time to negotiate better deal and sort of incentives or
upsides on behalf of the entire community.
And if they interacted with any of the partner protocols that
had a kind of a liquidity offering in place, the Turtle
Dow would start issuing rewards directly to these addresses of
ELP's of ours that essentially conducted those activities that
our partners deem valuable enough to start paying the Dow
for. It's a much safer way for us to
essentially back the activity of all of our users and and pay
them additional boosts from the partner protocols that we work
with on the upside. Welcome to Epicenter, the show,
which talks about technologies, projects and people driving
decentralization and the blockchain revolution.
I'm Brian Crane, and today I'm speaking with Essie Lagabardi.
He's the founder and CEO of Turtle Club and Turtle Club is a
Defy liquidity protocol. So I'm really excited to talk
with him about Defy and about Turtle and all the exciting
things happening in that area. Now just before we go into it
with Essie, would like to share a few words about from our
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Cool. Well thanks so much for coming
on. See I've, you know, spoken quite
a few times with you recently. I should also note here that of
course Ron with practice and personally we all invested in
Turtle. So I've been yeah, like learning
much more about the fight even though I've been in crypto for
such a long time in recent time. So I'm really excited to to dive
in the whole D5 world with you today, but maybe just start off
with Sharon will be like, how did you get into crypto first?
Yeah, absolutely. I'm from London originally.
I was born and grew up in the UK and back in 2011 when I kept
coming across Bitcoin, unfortunately, he didn't
understand it, didn't really, you know, take the time to look
into it, which obviously with the benefit of hindsight, I, I,
I regret EP, but given that I studied business and management
and I was very interested in economics when I was younger and
growing up, as well as technology.
And I always had a thesis that tech technology would eat the
financial sort of world, like Amazon 8 retail or a lot of
these tech companies were starting to eat the lunch of
existing industries. BTC kept coming up in my feeds
online. And then in early 2013, I came
across Andreas Antonopoulos video online and he was one of
the early great communicators and he just kind of broke it
down in a really, you know, really easy way to understand.
And from that moment on, I was kind of hooked and obsessed.
Unfortunately this was a stream I last year of university, so I
didn't have very much money, but yeah, I worked pretty hard to
try and, you know, acquire some crypto back then, you know,
obviously much lower prices than today.
So I have been just kind of a Hoddle ever since really.
And and yeah, just and I've learnt a lot throughout the
years. After university I I worked in
Stradfind the City in London, mainly working as a matchmaker
between the buy and sell side for small financial media
companies. So we used to organise all the
banking conferences in Switzerland, Singapore, London.
And it was my job to try and get a lot of these big LP's on the
buy side and a lot of these sell side institutions where there
would be investment banks, asset managers, family offices, hedge
funds that have created financial instruments to sell to
the buy side. So after that, I worked for
around 2-3 years as a financial accountant for Edelman as well
before, you know, just going full full deep into the space
full time back in 2017. So yeah, it's time flies when
you're having fun, for sure. So let's, let's talk about Defy
sort of a little bit on a high level.
And you know, looking a bit at the history, how do you how do
you think about the Defy history?
Like when did it start? And what are sort of the most
important milestones in the history of Defy?
That's a great question. You'll get a very different
answer based on who you ask. I think there was definitely a
lot of big milestones and important phases within Defy.
I think early on in Ethereum you weren't able to do much with it.
So obviously you had the ICO phase back in 2017.
Romania was about, I guess, kind of minting tokens.
But I think the first kind of, you know, beginning of the file,
the very, very beginning was actually the Dow that led to the
Ethereal Classic fork in a way that's kind of a very Defy thing
to kind of bootstrap a Dow and Stefan Tuol, one of the Co
founders. He wasn't I didn't know him at
the time, but he he lived across the River Thames from me in
London. So that actually was the first
thing that really caught my attention to Ethereum in terms
of when it really started. I think for me, the first kind
of blue chip D5 protocol was Maker.
The idea of using ETH to minter synthetic stable coin against in
the form of ACDP was I guess kind of ushered in the D5 era in
my opinion. And it's great to see that, you
know, Maker, you know, we're the first, they're still around
today and they built a really, really good business.
So but but then there's a lot of other big milestones.
The synthetic guys don't really get sort of much credit for
this. But in my opinion, I think they
started D5 Summer. You know, I think with the USD
pool and the incentives, they, from my understanding, created
the 1st pool that was incentivized with these seal
farming incentives. And then off the back of that,
you had, you know, Curve, Yern, obviously Andre Cornier, Michael
Egoroth from Curve, you know, and a bunch of these really
talented founders that started, you know, combining multiple
different concepts and ideas. And it really kicked off D5
Summer. You know, you obviously had
Sushi Swap and their vampire attack on Uni Swap Compound
issuing a bunch of incentives as well.
So I think a lot of people in Defy, you know, have very fond
memories of Defy Summer back in 2020.
What do you think are the most important primitives when you
look at Defy today? Sort of the core fundamental
protocols that are actually, yeah, the most important ones.
So I have a very simple view on it.
I can segment the market by revenue and and protocol fees.
I think the biggest use case by far in D5 is just kind of
payments and stablecoins. The amounts of money that
Tether, USDC and a bunch of these other stablecoin protocols
like Athena starting to print is, you know, truly insane and
also very good for the space given that they issue a tonne of
on chain yield, which then drives further adoption.
The the second biggest use case from my understanding is spot
and pop Dexes. We've seen recently with Hyper
Liquid that they were able to create a really unique yield
source from all of the yield and fees that are generated by all
of the traders on Hyper Liquid that make it very, very
difficult for other chains or ecosystems to replicate.
After that, I think lending and borrowing is I think by market
size, probably the 4th largest. But then there's also some
really other, you know, really good use cases like obviously
yield markets with Pendul, Spectra, Hyperdrive, and then in
a host of I guess smaller ones. And now you know, Turtle is also
trying to create a market for liquidity as well, you know, you
know, a distribution protocol that helps kind of monetize the
on chain activities of our free users.
And in terms of the the size of these, I mean, of course
everyone is aware of Tether which is yeah, producing insane
amounts, I think 15 billion last year or some something like that
I think. Something crazy and they keep
buying Bitcoin with a percentage of their revenue and and
obviously, you know, that's doing pretty well.
So yeah, I think in terms of revenue per employee, they must
be sort of up there with the most profitable companies in the
world. It wouldn't surprise me,
frankly, if ever become one of the biggest companies in the
world at this point. In terms of the size of these
different categories, how do you have a view in in terms of the
the relative size? I haven't done a kind of a
analysis of the Tam of all of these markets.
However, kind of a good friend of mine, he uses this example
that currently the the way the space is shaped is a bit of a
pyramid. You have kind of a bunch of
users on top of the pyramid and then at the bottom of the
pyramid you have a lot of these protocols that are kind of
fighting for a limited amount of web free users.
Which is kind. Of fracturing the liquidity in
the user base between a lot of Aussie different chains, asset
protocol stats, etcetera. And then he uses this example of
this inverted pyramid for connecting existing web free
chains or communities with existing distribution channels
that are kind of higher up the stack or generally sort of more
web to base. So a great example of this was
when Metamask switched on the swaps, at one point, Meadowmar
swaps accounted for 80% of the trading volume on one inch,
which obviously made one inch a lot of money.
And then all of the downstream protocols from 1 inch.
So all of the different Dexes that they would source that
liquidity from are made a ton of fees, right, which then they
passed on to their token holders and their LP's.
So I think there's a lot of really big web free aligned
communities in the space currently like Telegram that you
know haven't kind of really switched on or connected their
user base fully to web free yet, but are in the process of doing
so. And when they start switching on
and connecting their users to a lot of the these key D5
primitives that we're in a talking about in terms of stable
coins, lending, borrowing, sport and Pub X's yield markets,
etcetera. That's going to drive a lot of a
revenue generation downstream to a lot of these different, you
know, protocols, whether it be aggregators or different, you
know, Dexes, etcetera, learning and borrowing markets that sit
sort of below the stack. And I'm very excited about it.
I think myself as a a bit of a DID Gen., right?
I'm spend a lot of time right on a lot of the front ends of a lot
of these apps. But the reality is that majority
of what I call, you know, normal or just normal people aren't
going to do that. And that over the coming years,
I think there's going to be sort of the UIUX problems that we've
been experiencing in web free so far.
A lot of that is going to disappear by extracting that
onto the application layer. You know, think about mini apps
within Telegram that allow their users to swap or lend them
borrow through the front end of the mini app by connecting the
mini app into different Daps that are built on top of top,
for instance. And if you look at, you know,
great communities like let's say Base that have built a really
good distribution sort of channel, they're able to
connect, you know, millions and millions and millions of users
really efficiently with different Daps and sort of
killer products and services that are built on top of Base.
So that's how I think the the space is going to develop.
But you know, I may be wrong. Now in terms of, you know, kind
of like where the yield comes from, right?
So I mean, you mentioned OK, stable coins, right?
So in the case of stable coins, it's basically, well, one thing
is OK, you give dollar to tether or to someone and then they do
something in the back end that produces yield and then, you
know, maybe they pass on some of that to users, spot them perps
taxes. I guess it's the the trading
fees, right, Lending and borrowing.
It's it's the fees people pay right, to to lend or to borrow
yield markets. I guess it's it's again kind of
trading fees in there. Do you feel like the yields in
Difi, are they sustainable? How do you think they will
change with time? That's a great question.
I think currently there just isn't that much or that many
users or kind of applications that are generating a ton of
fees. So a lot of these applications
are subsidizing their yields by issuing their own incentives in
the form of their governance token or Dow token that gives
their users a a vested upside in the protocol or the protocol
treasury. And it's really one of the best,
these cases of kind of web free that we can issue a token to our
community and give out a community of vested interest and
upside in the network that we're building in a way that we
wouldn't be able to do so in let's say a Web 2 scenario.
I think the problem lies in the fact that many communities or,
or projects, they become addicted to these incentives and
there's free subsidy where they aren't really meant to be issued
in my opinion, over the long run.
Because you really want to build a, a ADAP or product or service
or protocol that provides value to your users or community
without having to, you know, pay a free subsidy over the long
run. So these subsidies or tokens
should only be issued in my opinion, over the short to
medium term to bootstrap a community and give you a bit of
time so that you can transition to a much more sustainable
business model. I think the problem that a lot
of these different applications or depths have faced is that
they weren't able to reduce their cost of capital faster
than the rate at which their emissions trailed off.
And it's, you know, very hard thing to do.
I think great examples of protocols that were able to do
this really, really well was are they uni swap?
You know, Athena are currently going through this process and
doing very well. You know, base they don't even
issue a token. They just have that good cost of
capital distribution and are, you know, seen as being a very
security first type chain that they're able to attract and
retain liquidity at a much lower cost of capital, which means
they don't need to subsidise that capital with their own
emissions, right. I think the the fees that are
generated on base or the the, you know, the token issuance on
all of these different apps that are built on top of base provide
ample sufficient kind of yield to, you know, continue sort of
attracting new users and liquidity to the shape.
So I'm not sure if that answers your question right, but.
Yeah, I mean, I, I do think that that seems to be kind of like
one of the fundamental things is now is like, oh, I'm, I'm
someone creates a new protocol and then they use their own
token and then, you know, liquidity comes they pay with
their own token and and then you you sort of selling the future
claim, right, on the success of that protocol.
But then, yeah, right. If, if the, if there's not
actual yield generated in the long run, right, that then
outweighs, yeah, the what they're spending, then it kind
of, it's bound to kind of implode at some point, right?
Because at some point then I guess you have just a download
pressure on the token, you know, because people sell the token
because they won't yield on whatever liquidity they're put
in. And, and then, you know, if, if
the token keeps going down, then the incentives kind of decrease
for the liquidity. And then people are like, oh,
let's go to the next protocol. Yeah.
Before you know it, you get caught in a death spiral.
Yeah, yeah, yeah, for sure. I mean, we've seen it happen
over and over again and that really is one of the core
problems kind of within define crypto about trying to kind of
reduce your cost of capital faster than the emissions trail
off. It's a very hard thing to do
given that title is a distribution protocol.
And I've now spent a lot of time throughout the last 1218 months
in particular learning more about distribution and kind of
liquidity and how it flows through the space.
I've come to the conclusion that each protocol actually has a
different cost of capital and that depending on kind of
numerous variables, but the main 2 being kind of your access to
users or your distribution channels.
And the second thing is, you know, how safe is your protocol
perceived to be relative to others?
That these two variables have a really big impact in regards to
the amount of emissions that you need to kind of omit to LP's or
or Daps to essentially adopt whether it be deploy liquidity
within your ecosystem or protocol or or build on top of
it. And I think that's really been
apparent now that as the time goes on and on, and it's just
become much more competitive to compete on a ecosystem level, on
a protocol level and a DAP level.
That that a lot of these new ecosystems that, you know, have
a kind of a differentiator or a different idea.
And they want to kind of boot trap the community or, or
ecosystem around that are finding it very, very difficult
to kind of bootstrap this ecosystem from zero to 1.
Given that they need to bribe and pay a lot of these blue chip
Daps that are kind of, you know, trusted and and well loved in
the space to deploy into their ecosystem.
But for the Daps to do it, they will want a very large degree of
incentives assigned to them. And they also want to know that
the chains that they deploy onto have a lot of users, especially
new users that they can acquire. Right.
And then on the LP side, you have the same issue because you
need to now bribe the LP's with ever there are higher rates of
emissions to poured over liquidity to ecosystem to, you
know, obviously deploy that liquidity in the different apps.
And the reality is when your cost of capital is too high, you
end up just having to print emissions at a faster and faster
clip, which then again, create that cell pressure and that desk
spiral that you were and have just referred to.
So I think for, you know, myself and my LP's, we really
appreciate the fact that, you know, earning tokens or, or
yield in a token that's actually backed by a real user base or,
or a kind of a real business. And one thing that you said
which resonated with me is when you deploy liquidity in a
protocol and the vast majority of your emissions on the form of
the the Dow token or the governance token relative to the
underlying APR that's actually being generated by utilizing the
liquidity in in the way it's sort of supposed to be in Defy,
right? That is a big red flag.
And that in my mind means that the token is going to be dumped
pretty quickly and that the fundamental value or or the
fundamentals of the business of the protocol itself is, you
know, not really doesn't have a high probability of withstanding
the test of time. I'm curious if you look at the,
the size of the T fi economy compared with the the the
traditional financial system, you have a, you have an estimate
in terms of like what is the relative size of and it's
obviously very small, but how where are we if you put those in
relationship? It's a drop in the bucket.
I had a, you know, I work with a lot of the biggest institutions,
whether it be, you know, investment banks, asset
managers, wealth managers, private banks, hedge funds, even
the odd sovereign wealth fund here and there.
When I was working for that small financial media company in
London, you know, being a matchmaker between the buy and
the sell side. And you know, if you look at
institutions, not even the big ones like let's say a Black Rock
for instance, or a Vanguard, but even, you know, smaller sized
large institutions have just small capital assets on the
management than the entire crypto market.
And obviously the crypto market, the defy market accounts for a
very small percentage right now of the entire web free market.
So I think directionally speaking, maybe I'm biased, but
directionally speaking, I think the potential of Defy has just a
huge shoes Tam to grow into, given that you can just utilize
tokenized liquidity to a much higher degree and much more
optimally and efficiently, you know, in this new Internet of
money that we're building. And I think it's just a matter
of time once we reach a point of, I guess, no return when the
technology is. And the sort of D5 primitives
and use cases have been stress tested enough and built out
enough that the cost of capital is kind of at a level where it
will just kind of start sucking in a lot of the liquidity from
the trad 5 market. Just because you can utilize
your liquidity far more effectively and efficiently than
you could ever do in the traditional banking system, for
instance. So you think the the big
advantage of D5 is really that you can, you know, you can use
different protocols on top of each other, then tokenise it and
then basically use your kind of use your capital more
efficiently than what will be possible in the traditional
financial system? I mean, it's not even close,
right? So, you know, I've met quite a
few LP's during my time in, in, in crypto and in particular
Define yeah, some of the degenerates like flywheels that
people invent or come up with is is truly astounding where they
can in some cases rehypothecate the liquidity in up to 1015
different protocols at once and generate a yield on the same
underlying liquidity across all of these protocols
simultaneously. Obviously there's a a risk every
time you rehypothecate the liquidity in terms of the
underlying code base of the protocol that you're
rehypothecating across all the counterparties involved.
So it's not a decision or thing that I'd necessarily recommend
the average show to do. But but the point is, as the
infrastructure and these smart contracts become more and more
stress tested and battle tested, you're going to see more and
more protocols building on top of one another and really
building out these Defy Lego blocks that really become a core
fundamental part of, you know, this new, the infrastructure of
this new Internet of money. And I quite like the, you know,
idea of essentially having your liquidity in multiple different
protocols at once, generating your revenue where you can
essentially just ping your money around the Internet and the
money will continuously being deployed in real time to the
different protocols or use cases that can utilise that liquidity
to generate, you know, the most protocol fees or utilize that
liquidity most efficiently at that point in time.
Right. Because if you take like let's
say if you take the example of Sable coins, then I mean today,
right? If you use that in D5I mean it
seems to be very common, right, that people can generate 20% or
50% or like, you know, very high yields, you know, doing some of
these using different protocols, putting it in, which obviously
is extremely attractive, right? If if you're sort of in the
tratfi space and and OK, you can put it in treasuries and you're
obviously the risk here is, is lower, right, If you just buy
treasuries and you earn 5%. But then if you compare the, I
don't know, 5% versus maybe the 50% that you can earn in D5,
that's a massive delta, right? And, and I imagine the risk
isn't well, it, it seems to concentrate very, very well for
the additional risk that people are taking. 100% every time you
re hypothecate liquidity in D5, you really need to ask yourself,
are there rewards that I'm getting large enough or do they
justify the risk that I'm taking?
And whenever you find an, an opportunity, in theory that it's
paying you out, you know, a, a differential between the reward
that you're making and the risk that you're taking in that
situation, you should re hypothecate, assuming that you
know, you, you've avoid your liquidity across a diversified
set of strategies, because in the long run, you'll be making
or increasing what we call in like poker expected value,
right? That, that kind of move or play
will generate more value, you know, over an infinite amount of
or, or, or you just kind of removing the variance from the
situation. And now the hard part is
actually quantifying the risks. So it's so the easy part is to
find out roughly, you know, what your APR is going to be or, you
know, what are the types of tokens and incentives and yield
that you're generating. The hard part is, OK, if let's
say you find a strategy and you're generating 100%, that
could be a good strategy or that could be a bad strategy, right?
It has nothing to do with the amount of yield that you're
generating. It's all relative to the amount
of risk you're taking to generate that yield.
And the reality is that the vast majority of even, you know,
liquid funds or professional LP's don't really have a
sophisticated framework for risk in Web 3.
And a lot of people kind of rely on the due diligence or risk
assessments of, you know, very few counterparties in the space,
right? And we all know what can happen
will happen, right? Murphy's Law.
So you you'll kind of always reach a point whereby if too
many people rely on too few people doing the due diligence,
then, you know, that could create potentially some systemic
risks, right? I think Luna was a great
example, you know, of that, even though they were, you know,
granted some people that did point out and mention some of
the underlying flaws of the design of UST.
So I think where the edge really is, is in quantifying the risk,
because if you can quantify the risk, you can then find out
which opportunities relative to reward and risk ratio are the
best for you to consider re hypothecating your capital.
How how does one do that like the this risk quantification
like what? What are are there frameworks or
what do you have to look for? Like how do you approach a
problem like that? Yeah, there isn't that much
openly available on the market today.
I'm currently working with Gonzalo, the Co founder of
Consensus Diligence to create a new framework, also with
Cheyenne from Creed. So, you know, we are frankly
having to do a lot of the legwork ourselves.
I know there's a couple of, you know, top liquid funds or you
know, very sophisticated LP's or treasury management
professionals that have developed their own due
diligence process or kind of risk models.
But I wouldn't say there's AI think the that part of the
market is still very nascent and isn't very developed.
So there isn't really a holistic or, or kind of bulletproof kind
of framework that is being adopted on the market today,
which is why we'd love to invite anybody to come and criticize
the risk framework that we've developed that we're going to
publish and, you know, share publicly with everyone kind of
like open sources in a way. And would love to hear some, you
know, candid feedback or criticisms like Essie, why are
you doing this? Like, you know, this could be
better done by adopting this, right?
Because ultimately we just want to kind of make sure that we can
reduce the risk as much as possible, right, by adopting a
better and better risk framework in terms of there's a bunch of
different things sort of on the financial side.
You have the, you know, different risk of, you know, the
strategies that you create, whether that be, you know, the
liquidation risk, IL risk, for instance.
Then you have the counterparty risk of all of the different
protocols or people or counterparties involved in the
strategy as well. And then on the technical level,
on or on the smart contract level, you have obviously the
risk associated with smart contracts being hacked or
drained or you know, even, you know, down to you know, how do
the team kind of manage the multi sigs of a say, for
instance, right or you know, the treasury that backs the
underlying token, right, that you're holding right.
So then you have real time monitoring, you have sort of
protect, prevent. I mean, again, it's probably
best to to ask like a thoroughbred auditor when it
comes to some of these things. But there's really a kind of a
whole round trip or of different security risk, financial risk,
counterparty risks, etcetera that you need to take into
account when you know developing this risk framework and and
doing your due diligence. So I'm curious, what, what do
you think are the main blockers? Because in the end, right, it
does look like it would, it's actually very attractive for
capital to move into D Phi because you know, you can earn
higher yields in D Phi than I think in, you know, probably
most things in traffic. But what what's, what sort of
what what needs to happen for, you know, D Phi to absorb, you
know, a lot more capital coming more from the traditional
financial space and you know, really starting into really
starting to eat into that market share.
That's a great question. So on the top level you have all
of the different like use cases or D5 primitives, right?
In other words, you can utilize your liquidity to a much higher
degree or much more profitably and efficiently by porting it
that over to the D5 space, right?
And the point that liquidity on the DAP layer itself.
So that's I guess one point. The second point I would say is
you have, you know, what's called the risk free return on
let's say dollars, which is the US Treasury yields, right?
And you also have a risk free return in Defy, which you know,
some people consider the native staking yield on that you
generate on Ethereum, right? Or the on stable coins, let's
say the, the yield that you would generate on RV.
Now you have a, what's very popular, you know, with the rise
of Athena is that a lot of people are essentially doing
this carry trade, right, where they're arbitraging the funding
rates on these perpetual exchanges.
So you know, it's, it's all relative, right?
So if the risk free rate in B Fi is much higher than it is, let's
say in the tradfy world with the interest that these money market
accounts are paying out, you know from the treasury bills,
right, The larger that delta is, the bigger the pool of capital
from the Tradfy world into the DFI world.
Now we had a situation in the bear market back in sort of late
2022-2023. Don't sort of quote me exactly
on the time, but there was a a inversion that took place where
actually the treasury yield was higher in Tradfi than it was in
DFI. So you had a lot of stable coins
and a lot of liquidity actually being pulled out of the space
given that you could generate a higher risk free return in
Tradfi. And This is why a lot of
protocols have started passing on the underlying treasury
backed yield to the stablecoin holders to kind of stem that
flow. So, so, yeah, so the TLDR is
that, you know, the in my opinion is the risk free return
and, and how you can also utilize your liquidity.
And the bigger that delta is, the greater the pool and
generally the more the floodgates open for capital to
kind of flow to where there's what I call like least friction.
And I think that's generally how it is sort of how I interpret
the financial markets to work, right?
Liquidity or capital just flows to where there's least friction,
and that capital can be utilized best.
One thing I'm curious about in, in on chain, right, you
basically you have a tremendous amount of transparency, right?
Like you can check the different wallets, you can check what
they're doing, you can see what's going on in each
protocol. Obviously, there's a lot of
value to that, right? Because you can understand
better what's going on, you can understand risk better, and it's
easier to build on top of other protocols.
I feel like in the past, people would often talk about, oh, we
need more privacy on chain and, you know, this is a big barrier
to maybe some investors or some more traditional players
participating in it. How do you view that?
Do you think DD5 will remain as transparent as it is and and
that's just sort of inherent and it's a good thing, or do you
think that privacy in D5 is going to become a bigger thing?
That's a great question. I think right now, because
there's been many initiatives in the past or protocols that I've
tried to tap into the narrative of privacy.
It's a, it's been a frankly a bit of a hard sell in the fact
that right now the most of the market doesn't really care
enough about privacy for these types of solutions to really
kind of take off in a big, big way.
Obviously, you have hackers or I guess sort of bad actors that
are kind of leveraging technologies like Tornado Cash,
for instance, to obfuscate the transaction history or the sort
of fun flows. But then you also have like
newer technologies like FHE, for instance, a good friend of mine,
she works for Phoenix that allow you to conduct confidential
transactions. Or you know, friends of mine at
Hinkle as well that actually provide a really good use case
and utility that allow institutions to deploy liquidity
in a legitimate way whilst having their activity across web
free, sort of being private and confidential.
Again, there just isn't at this point I think enough interest
from the what I call core web free crowd in these types of
solutions, but especially as you know more and more funds and
financial institutions come into the space.
The incentives to adopt that technology is just going to grow
and grow and grow because for instance, let's say, you know,
I'm running my on chain strategy and I found a really good yield
source given that, you know, everyone can see my activity and
the strategy that I deploy on chain.
That will be, you know, kind of identified and copied very, very
quickly by other LP's in the market, which will then pile
into my strategy and then dilute my rewards.
And then before you know it, the alpha that I'm generating will
just evaporate. So there's a, so I think the
biggest factor really is the profit motive, right?
If there's a big enough motive for institutions to, you know,
adopt that technology in terms of actually like making money or
saving money, I think we'll see more and more people adopt that.
Because right now you can again go on chain and see what all of
the top liquid funds are doing. Like if you kind of know their
addresses or, or you can just kind of track addresses that
deploy their liquidity really sophisticated in a very
sophisticated manner, right? And then you can just kind of
copy them, which is quite nice or learn from them, right?
What I like to do is I'd say, oh, you know, this dress is
doing this. I like this, but actually in
this case I'll probably do this and this not because you know,
I'm better than them or what not just because I have a different
sort of risk profile or or preference or I might have
different digital assets in relation to them.
What's missing in DFAI now? Do you feel like there's some
sort of, you know, primitives or protocols or, you know, that you
think would be really important and you know, would be super
helpful that don't exist yet? That's I mean.
I'm biased, right? Because I think like a
liquidity, a distribution protocol is missing, which is
why I'm kind of yeah. We'll get to that.
Yeah, let's get to that after this question.
But in in, in terms of other stuff, I think that, you know,
the more liquidity the better. So there are some really
interesting kind of use cases that haven't really been fully
developed yet, you know, or even existing use cases that just it
would be nicer to have more of a liquid market or more efficient
market given that a lot of these sort of use cases are kind of
starting to emerge. Like for instance, some of my
friends that derive it's just a, a options on chain options
marketplace. So, you know, 12 months ago, 18
months ago, you really couldn't do much in terms of on chain
options. Sure.
There was, you know, a couple of different sort of early
protocols that were providing it, but really the markets were
very liquid. Now derive has started to gain a
bit more traction and the more liquidity they get the, you
know, essentially the now for the first time you can use
options to within let's say a delta neutral strategy, right Or
you can use on chain options in a permissionless way, which, you
know, adds a lot of utility to the DFI ecosystem as a whole.
Then yeah, in terms of I guess other use cases, I think the use
case isn't really the issue. I think, you know, ad Dexes, bot
Dexes learning and boring. I mean there are quite a few
killer applications in D5 already.
I think where the friction lies is on the UIUX layer.
And This is why I believe that for a lot of the kind of just
normal people out there, they're, they're not going to be
willing to go onto the front end of a lot of these D5 Daps.
And, you know, actually, you know, approve a transaction and
then submit a transaction like we would do when we interact
directly with smart contracts or the UIUX on the DAP layer.
I think that's going to be abstracted away to the
application layer where existing popular applications, you know,
whether it be on on Telegram or you know, on your iPhone or
whatever the case may be, will connect directly into the
different dabs. And then through the front end
on the application, they allow their users to swap, lend and
borrow and essentially kind of provide all of these key D5
primitives and use cases. Yeah, directly into these
different depths, our front end application.
Sorry. Yeah.
I mean, I think one of the big challenges here is also right.
If you think of a lot of TC fair strategies where like, oh, you
do this and then you get a token and you put it somewhere else
and you get another thing. It's it's pretty complicated and
it's hard for people to do that. So I think what obviously would
be very attractive, I think for a lot of users is if it's just,
I can just buy, I don't know, deposit my tokens into some
vault or I just buy a token that's kind of like, you know,
then on the back end does all of that stuff.
But then of course, I think the big challenge there is, well,
there is like some obviously there's like risk going on
underneath and like, how do then these people deal with that
risk, right? If they don't understand really,
I mean, it's, it's hard enough to understand the risk if you
actually do those things. But then if it's fully
abstracted, then I think that's, you know, it's also it's a
tricky 1 I think. Oh for sure.
But I mean, this happens in trad FIRE as well.
In during the financial crisis of 2008, a lot of these banks
were creating these toxic essentially securities, right,
or mortgage-backed securities when they were just packaging a
bunch of these, you know, ninja loans together, like from
essentially lending people with no jobs, no income and no asset,
right? And they were like bundling them
up in the form of a factual debt position or CDO.
And then, you know, they didn't really care how they constructed
the the asset because it was their business just to sell it
so that the liability would be on the book of someone else's
balance sheet, right? The problem was obviously as the
music stopped, they got caught with their pants down holding
all these toxic assets. But yeah, we we don't need to
sort of go off on the tangent there.
But but yeah, that kind of happens in in traditional
worlds. And, and actually there's been
kind of much bigger blow UPS, right, Given of the the history
of the traditional financial market over web free.
But to sort of go back to your point, I think, you know, a lot
of these things are quite complicated in terms of how a
lot of these strategies are, you know, the different moving parts
that they're sort of made-up of and the way they interconnect
with one another under the hood. But all you need to do is you
just need to put a shiny token wrap around it, you know, and a
nice sort of meme and, you know, and then people like, you know,
kind of buy it, right? So.
So, yeah, I mean, there's a obviously, you know, like I was
mentioning sort of prior in, in in our conversation, there's
obviously a lot of risk in the space and people, even
professionals find it very, very hard to quantify.
So what feels sometimes like a good move can, you know, be
obviously terrible. But I think a great example
actually of a really interesting kind of strategy is what you're
doing with the stake wise war, right?
When you're allowing people to essentially deposit a, you know,
OS ETH as collateral that generates, you know, the native
staking yield and then borrow against that collateral on RV at
a lower interest rate, right? And then kind of leverage Loopid
obviously geared towards the individual risk reference and
exposure of BLP, right? And you know, have a, you know,
to tokenise that I think makes a lot of sense because now for
people that are willing to take sort of a higher risk, right,
they can now leverage that leverage looping strategy as
collateral again, sort of to leverage, you know, and, and
deposit or kind of utilize within the sort of wider web
free or DFI ecosystem, right? And as long as the risks are
sort of well understood or communicated, like I see no
problem with that, right? People should be able to, you
know, kind of deploy their liquidity or take on risks,
right? Yeah.
So just briefly for listeners. So at course one we use a lot is
a protocol called Stake Wise and we have a Eve staking bolt and
that now allows yeah, this what I see mentioned, right,
Basically staking the Eve and then meeting liquid staking acid
OS Eve and then putting that into RV borrowing Eve and then
looping this. And then you can you can
generate with that on on Ethereum.
I think right now it's around 7%.
It's obviously a much higher than the the base staking rate.
So yeah, people are interested in that.
Just go to the Stake wise website and then you'll see the
course one wall there. Let's talk about turtle.
So how? What's the Genesis story of
Turtle? Yes, it's a, It's a pretty long
1. So I, I was working for one of
the largest GPU miners in the space as as a director of Define
in 2021. I was really enjoyed my time
there. And you know, back in 2021, I
was, I guess inadvertently, I started building a bit of a
network of, you know, LP's just being in the trenches and all
these discords, coming across some really clever LP's and, you
know, sharing ideas and getting second opinions on my strategies
or vice versa, sharing my opinions on other friends of
mine strategies. And I was always looking to how
can I, you know, generate a better upside or increase the
rewards that I was generating whilst reducing my risks.
And in 2021, I came across a lot of, you know, I started noticing
that a lot of protocols were starting to engage in what I
call these sort of backroom deals.
And that were happening behind closed doors where they were
offering LP's a certain amount of additional private incentives
that they weren't extending sort of publicly to the market for
different liquid funds or LP's that would commit a certain
amount of liquidity over a certain period of time to help
bootstrap, adapt. And there's nothing wrong with
that, right? So for instance, imagine using
an exchange or lending a boring market.
But when you buy and sell, there's a huge spread, right?
And it's very liquid and you can't really buy and sell much,
right? Because there's just not much
liquidity in the order. But well, same with sort of
lending and borrowing, right? There's just you can't borrow
much. And if you do borrow much, the
APY starts shooting up because again, there's not much
liquidity. So you actually need a certain
amount of liquidity within a DAT so that it operates at a really
effective utilization rate. And, and when I noticed these
deals were occurring, I said, you know, I wanted to kind of
look into it to see if I can essentially gather deal flow
that, you know, other friends of mine could be potentially
interested and obviously myself as well.
And then on the downside, so on the auditing side, a friend of
mine set up Omniscia in early 2021.
It's a smart contract auditing firm.
I believe they've done over 1000 plus audits and they asked me to
join as a part time CFO. So I, I did some, you know, high
level BD for them. I onboarded, you know, some of
their biggest clients, but they'd also outsource on a case
by case basis, you know, really fun jobs, frankly, sometimes we
had a, you know, crypto hedge fund that wanted to do a risk
assessment or well, a second opinion on a strategy or maybe
some LP engagements or just tokenomic modelling protocol
design. And yeah, so I, I learnt a lot
also working with some really, really talented hackers inside
of Omniscia as well as just more generally within the auditing
industry. And one of the best things there
was trying to learn to quantify risk also on a more technical
level, given that I'm not a developer by truth.
And so, so, so the idea of Turtle kind of sprung out of
that, given that now I had a really good insight into how I
could quantify risk better or, you know, get auditors within my
network to audit certain strategies before, you know,
different LP's would deploy into these strategies, right.
The problem with that model was that, you know, auditing is
very, very expensive, especially if you're not work with the best
guys. But you really do want to work
with the best auditors because if you don't, then the best it
is or hackers are going to hack you, right?
So the problem was that if you deploy a small amount of
capital, you need to absorb the security cost over a small
amount of capital. So if you're only deploying
let's say $100,000 and you're paying, you know, 10K to do your
due diligence, you're already down 10% on your principal,
which makes the strategy just not economical.
So really the idea of TUDDLE was how can I leverage the
collective liquidity and bargaining power of numerous
LP's and liquid funds at the same time to negotiate better,
you know, deal and sort of incentives or upsides on behalf
of, you know, the entire community.
While also being able to spread the cost of security over a much
larger subset of capital. So that I wouldn't need to pass
on the cost of security to my LP's, but I would still be able
to pass on the benefits of doing a extensive risk assessment or
kind of a light audit, quote UN quote.
So again, boosting the upside of my LP's and decreasing the
downside risk. So in March of this year, I
decided to step down from on issue just to kind of give it a
go. And, and really it was more of a
experiment at first, just launched an MVP very, very
quickly. And I think the MVP kind of
proved sort of proved that there was a lot of demand for
something like this. The way I went about it is
rather than developing a set of smart contracts that would route
the liquidity of all the LP's into and then deploy it like a
traditional, you know, Volt or like a traditional protocol on
top of it. I wanted to, I didn't want to
have the, I guess risk or, or like legal liabilities,
compliance liabilities and also kind of create like a bit of a
honeypot to sort of adopt A structure like this.
So what I did was I created a set of APIs that would track the
positions of all of my LP's across different chains.
That's and protocols. And if they interacted with any
of the partner protocols that had a, a kind of a liquidity
offering in place that the Turtle Dow would start issuing
rewards directly to these addresses of Elps of ours that
essentially conducted those activities that our partners
deem valuable enough to start paying the Dow for.
And the way it works is you just connect your wallet to Turtle
dot Club. You are prompted to sign an on
chain message. There's no risk in signing this
on chain message. It's not like an approval
transaction or transfer transaction.
We don't, you know, siphon off any of your existing rewards.
You know, we literally can't do that.
We can't get, you know, hacked ourselves or, or the protocol
can't get hacked in that sense. So it's a a much safer way for
us to essentially track the activity of all of our users
and, and pay them additional boosts from the partner
protocols that we work with. On the upside and then on the
downside, we're starting to do more and more risk assessments
and spending more and more money on doing due diligence on
protocols before we integrate with them.
I wouldn't say that, you know, LP's should just rely on our due
diligence, but the idea is that as time goes on, we just want to
spend more and more time, you know, doing these risk
assessments due diligence. And, you know, hopefully
eventually we'll get to the point where we're conducting
full audits on all of the different protocols that we work
with. And this way we can again, pass
on greater rewards to our communities while, you know,
trying to take out or reduce the risk that they're being exposed
to. So that was title V1.
That worked pretty good. We have around 300,000 wallets,
give or take, that have signed up to turtle.
We generated again depending on the oil price, all coin prices
because sort of they've gone up or down quite a lot, but between
5:00 to 8-9 mil in contributions to the Dow.
However, V2 is kind of, we're now evolving from a pure
liquidity protocol that monetizes just on chain
activities in terms of moving liquidity to a distribution
protocol, which what is a distribution protocol?
It means that rather than just limiting our, you know, the part
of protocols that we work with that are willing to sort of pay
to tap into distribution, right? Because they want to, you know,
get users to use that. The Apple platform.
Now we allow them to plug into the user bases of the different
distribution partners that allow plugging into Turtle and
building different communities or networks or porting over
existing communities and networks into the Turtle
distribution protocol. And this enables quite a few
very interesting things. You know, imagine you, you have
a web free wallet, right? And you have a lot of multi
active users. By partnering with Turtle as a
distribution partner, you can monetize the activity of all of
your users across all of the different partner protocols of
ours that want to sort of plug into and pay for that
distribution. And we can do it in a way
without exposing any of the users to any additional risks
and smart contracts. And then we can then accrue that
extra value that we're generating to both the
distribution partner and their users, right.
And I think this is a really nice way to monetize your
existing user base whilst also accruing more value to them and
providing more utility to without again, exposing them to
any additional risks. So yeah, we've, you know, we're
making that pivot now to V2. So yeah, hopefully become a bit
of a one stop shop or essentially allow our clients to
tap into a much larger base of different distributors as well.
So to to walk through an example here, so that would be let's say
you go to some wallet and then the wallet says, OK, we want to
participate in this. Then the wallet would kind of
register all the wallet addresses with Turtle and then
and then kind of like surface to the users like, hey, there's
this, you know, special program you use a protocol A and you're
going to earn, you know, a little bit additional yield that
you guys negotiated with the protocol.
And then some additional yield goes to the users.
Some goes to the wallet maybe, and then some goes to a turtle
doll, something like that. Correct.
So there's I guess two parts to this.
And the V2 you have like the signing up to Turtle.
So if you as a distributor kind of promote Turtle on your front
end and and get your users to sign up, when they sign up, they
use essentially your referral code and and as a result that
user is assigned to your community that is kind of built
on top of Turtle. That means that now from then
on, from the point at which the user signs up to Turtle, any
activity that they do current or sort of current of in future on
any of the Turtle partner protocols, they'll start
accruing additional value. And as a result, whether it be
Turtle, the Turtle token holder, the distributor and the user
that generates that activity will accrue an additional value.
So that's kind of one part. The second part is we're in the
process of developing a plug in that should, should be ready
sort of sooner rather than later.
And that will allow every distributor that we work with to
essentially spin up their own, what we call earn page on their
front end where they can select all of the different current
deals or integrations that we have in place.
They can kind of select which ones are aligned with their
community. Potentially this one is too
risky, so they don't want to sort of show it on their front
end or promote it, or this one is of a competitor, so they
don't obviously want to promote that.
But they can kind of cuss in a very customizable way,
essentially curate their own list of different deals on their
front end. And then whenever user
essentially deploys liquidity through their front end, not
only can they sort of retain the kind of control or retention of
their users, but they'll also be able to, you know, monetize when
their users deploy liquidity into these different protocols.
And more importantly, actually provide their users with some
really, really competitive and interesting, you know, offerings
in the market in terms of being able to utilize their liquidity
in interesting ways by deploying it directly and kind of, yeah,
like a sheet of some of the most competitive deals in the space.
I think one of the challenges still is, right, like, OK, you
have to choose these different strategies, figuring out which
one maybe runs for some time. I know you were saying before
like you don't when you started, you know, you didn't want to do
the kind of vault thing, but I'm sure this is still something
that would that would be quite significant amount of demand,
right? If if like, you know, users can
just say, OK, I'm going to put stable coins into, you know,
Turtle Vault and then I don't know, maybe the doll, there's
some sort of process where, you know, different strategies are
created and it says, OK, I'm going to deploy it into that.
And then maybe it's something else in the future.
Is that a direction you think you want to go in as well or or
that's kind of like a different something that doesn't align
with your vision for Turtle? You know, that's a great
question. So on the base layer of the
protocol, you know, I don't want there to be any smart contracts
meaning tell us a trustless protocol, right?
We we can't get hacked and we can't rob our users saying that
it's clear that the yield market changes all the time, right?
And you know, what was a nice yield source yesterday is no
more. And a new yield source browsers
like sprouts up, right? And as a result, you
continuously, if you want to generate the best risk adjusted
returns, you're kind of forced to move your liquidity
continuously throughout the space to try and move that
liquidity closer to the alpha source, right?
As the alpha source kind of moves around.
And it's clear that because of the UIUX and a bunch of other
stuff, the average, you know, user or even very sophisticated
users, they just don't have the time or just don't want to kind
of manage that whole process manually.
They actually like the idea of deploying liquidity in a vault
that automates that whole process for them.
And there's just a lot of great vault providers now,
infrastructure providers, for instance, total, we just
partnered up with veda dot ET by TBL.
They have the most liquidity in their vaults.
And yeah, there's just like a lot of really great builders in
the space that have just created.
Yeah, great. Like, you know, nice vaults and
and they've, you know, made the whole user experience much
better for the mass market in my opinion.
So I'm not against false. I think they're great.
I just again, just in the first iteration of Turtle, I I didn't
want to take any kind of custodial risk for legal or
compliance reasons, but also, you know, why would I would want
to kind of control the liquidity of my users if I don't have to,
right. But I think after obviously kind
of working on Turtle for like 11 months now, it's clear to me
that many of my, you know, friends or LP's clients have,
you know, been asking us to do this for quite some time.
So we're planning to launch a like our first vault in tandem
with our first ecosystem bootstrapping campaign with TAC
dot build later this month. So really, really excited about
that. The way I'm structuring the
vaults is slightly different in the sense that yes, it's going
to be on the turtle front end, right.
But we're not actually going to use any of our in smart
contracts. So we're going to piggyback off
the vault infrastructure that Vader dot Tech created.
So all of our vaults will be Vader dot tech vaults.
In terms of curation, for legal reasons, according to my
lawyers, I'm I'm not allowed to curate strategies unfortunately.
So I need to work with external curators.
So we'll be working with RE7 on the theorem side, Tuliper
Capital on the BTC side and Edge Capital on the stable side.
So there will be the ones, you know, actually kind of signing
off on these strategies and deploying the underlying
liquidity through default infrastructure provider.
However, given the risk free framework that I developed with
Gonzalo and Cheyenne, the idea is that we want to conduct, you
know, very, you know, thorough risk assessments on every
strategy and protocol that we plug into the vault with the
intention obviously of trying to reduce that risk as much as
possible. I want to actually keep the
vault in terms of risk adjusted rewards very high obviously.
But the underlying strategies, I don't want to, you know, kind of
expose our LP's to too much risk, but we are going to start
developing a secondary market for the receipt tokens of the
vault so that you can, you know, start generating really good
risk adjusted yield on your underlying Ethereum deposits,
Bitcoin stablecoin deposits. And then for those LP's that you
know, want to go up the risk curve and leverage their receipt
token of the vault as collateral and let's say a Morpho or Oiler
or you know, in Curve to generate some additional trading
fees can do that. And as a result, then the LP's
can kind of create different strategies or flywheels are
geared towards their preferences and their risk profiles.
Cool, cool. Anything else you want to share
about what's coming up for a turtle?
Yeah, we've been working on a lot of different things.
It feels like I've aged about five years and over the last 11
months. It was meant to be a kind of a
bit of a hobby to be honest, more of an experiment that has
sort of taken on a life of its own.
And before you know it, I'm, yeah, working a bit more than I
have liked or intended to. But it's been a really enjoyable
journey. I've got to meet a very, you
know, a ton of very, very clever people in the space that I've
learnt a lot from, including yourself, Brian.
So, you know, at the same time enjoyed it a lot.
We will be the, the title team will be at East Denver in full
force. So if you're out and about or if
you're intending to come to East Denver, yeah, definitely reach
out. Would love to meet in person.
But yeah, in terms of a couple of other things, yeah, like I
kind of touched upon, we're developing a lot of different
sort of products and services and we're porting over to our
V2, redesigning the website, launching the vaults, doing an
ecosystem bootrapping campaign with TAP, which is really,
really interested. We are also, you know, very,
very close with the linear teaming ecosystem.
And again, I can't mention too much but but yeah, a lot of
people have been asking me about a token.
So yeah, they should look for a couple of announcements with the
linear team about that. Cool.
Well, thank you so much for coming on AC Really enjoyed the
conversation. I'm super excited about what you
guys are building and yeah, excited for Define General and
and I think that this sort of liquidity layer that you're
building, which I think is super useful.
So thank you so much for coming on.
Thank you for having me Brian. Take care everyone, all the
best.