1 00:00:00,120 --> 00:00:02,720 Early lending avoid protocols were restricted just like the 2 00:00:02,720 --> 00:00:06,440 short tail of assets. So like Ethan and USCC and 3 00:00:06,440 --> 00:00:08,800 Bitcoin. So we started building Euler as 4 00:00:08,800 --> 00:00:12,640 like an integration with Uniswap at the time actually to enable 5 00:00:12,640 --> 00:00:15,200 people to lend and borrow not just the short tail, but also 6 00:00:15,200 --> 00:00:17,840 the long tail of assets. If you get liquidated on Euler, 7 00:00:18,040 --> 00:00:21,480 the because it's a fair auction, the bonus tends to be basically 8 00:00:21,480 --> 00:00:24,280 the fair market rate, like however much it should cost to 9 00:00:24,280 --> 00:00:26,200 do the liquidation plus a little bit extra. 10 00:00:26,400 --> 00:00:31,360 The actual cost of it might be a few $100, whereas the cost of it 11 00:00:31,360 --> 00:00:34,160 on another platform might, might be yeah, literally hundreds of 12 00:00:34,160 --> 00:00:35,440 thousands or millions of dollars. 13 00:00:35,880 --> 00:00:39,040 When tap is drained in protocol, they a lot of the assets come 14 00:00:39,040 --> 00:00:41,640 back in terms of like USDC or USDT, right? 15 00:00:41,640 --> 00:00:44,160 And Circle and Tether. If, if they get requests from 16 00:00:44,160 --> 00:00:46,200 law enforcement or they know that funds have clearly been 17 00:00:46,200 --> 00:00:48,920 stolen, they have the ability to put freezes on asset. 18 00:00:49,080 --> 00:00:52,160 A lot of attackers will just effectively auto convert any 19 00:00:52,160 --> 00:00:56,640 stolen funds into E or an asset that's like more decentralised 20 00:00:56,640 --> 00:00:58,720 and more difficult to kind of freeze basically. 21 00:00:58,720 --> 00:01:01,680 So that's what this guy did. The recovery period while we 22 00:01:01,680 --> 00:01:04,239 were tracking down and negotiating the recovery, the 23 00:01:04,239 --> 00:01:07,800 the price of East rallied. And so actually it was kind of 24 00:01:07,800 --> 00:01:11,040 like the attacker put on a long position on behalf of all of our 25 00:01:11,640 --> 00:01:13,800 users. Welcome to Epicenter, the show 26 00:01:13,800 --> 00:01:15,840 which talks about the technologies, projects and 27 00:01:15,840 --> 00:01:18,480 people driving decentralisation and the blockchain revolution. 28 00:01:18,480 --> 00:01:21,280 I'm Brian Crane and today I'm speaking with Michael Bentley, 29 00:01:21,720 --> 00:01:27,440 who is the CEO and Co founder of Euler or the labs or the 30 00:01:27,440 --> 00:01:32,920 finance, which is a very innovative defy lending 31 00:01:32,920 --> 00:01:35,280 protocol. So I'm really excited to talk 32 00:01:35,280 --> 00:01:38,320 with Michael about that. So just before we get started, 33 00:01:38,320 --> 00:01:40,600 we'd like to share a few words from our sponsors this week. 34 00:01:42,280 --> 00:01:45,400 If you're looking to stake your crypto with confidence, look no 35 00:01:45,400 --> 00:01:49,240 further than course one. 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To learn more and start building 71 00:03:32,080 --> 00:03:34,400 on the open Internet, head to nosus dot IO. 72 00:03:35,200 --> 00:03:38,160 Nosus building the open Internet one block at a time. 73 00:03:39,400 --> 00:03:40,800 Cool. Thanks so much for coming on, 74 00:03:40,800 --> 00:03:43,320 Michael. I'm really excited and looking 75 00:03:43,320 --> 00:03:47,720 forward to this one. I'm curious tell, tell us maybe 76 00:03:47,720 --> 00:03:50,280 a little bit about yourself and how did you get into crypto 77 00:03:50,280 --> 00:03:52,160 first? Yeah. 78 00:03:52,160 --> 00:03:53,960 So first, thanks for having me on. 79 00:03:54,280 --> 00:03:57,360 Yeah, looking forward to it. How did I get involved? 80 00:03:57,360 --> 00:04:00,920 Well, I used to be before, before this life. 81 00:04:00,920 --> 00:04:02,600 I used to be a research scientist, used to be an 82 00:04:02,600 --> 00:04:07,240 academic. My specialism was evolutionary 83 00:04:07,240 --> 00:04:10,800 game theory, so I used to do like lots of population 84 00:04:10,800 --> 00:04:13,840 modelling of biological systems and how they change over time 85 00:04:13,840 --> 00:04:16,880 effectively do. I was more on the math side, but 86 00:04:16,880 --> 00:04:19,079 I used to collaborate a lot with like computer scientists and 87 00:04:19,079 --> 00:04:23,920 biologists and other people. I started as a bit of a script 88 00:04:23,920 --> 00:04:28,000 crypto skeptic when I first heard about it in 2015, didn't 89 00:04:28,000 --> 00:04:30,080 think it sounded very cool. I just mistook it must look 90 00:04:30,080 --> 00:04:33,200 Ethereum for like some kind of boring database like solution or 91 00:04:33,200 --> 00:04:35,040 something. I just wasn't, wasn't 92 00:04:35,040 --> 00:04:37,920 interested. But by 2017, like maybe late 93 00:04:37,920 --> 00:04:41,720 2016, early 2017, like the, the, the markets had kind of got a 94 00:04:41,720 --> 00:04:45,360 bit frothy and I kind of got drawn in at that time and 95 00:04:45,360 --> 00:04:50,080 started I think later that year I started building braiding box 96 00:04:50,080 --> 00:04:52,120 and things for some of the primitive decentralized 97 00:04:52,120 --> 00:04:55,680 exchanges at that time, something called Index that I 98 00:04:55,680 --> 00:04:58,560 used to, to trade on and Etherdelt. 99 00:04:58,560 --> 00:05:01,400 So I don't remember that one. These are like literal order 100 00:05:01,400 --> 00:05:05,320 books on Ethereum, so quite slow, quite clunky, but they 101 00:05:05,320 --> 00:05:08,520 were kind of like a good introduction to like markets and 102 00:05:08,520 --> 00:05:12,200 how theory works and stuff. And then, yeah, stuck around as 103 00:05:12,200 --> 00:05:14,880 things like deteriorated in terms of the market conditions 104 00:05:14,880 --> 00:05:19,200 over the next few years and got more interested in a bunch of 105 00:05:19,200 --> 00:05:24,400 other stuff in 2019, in early 2020, like D5 was sort of 106 00:05:24,400 --> 00:05:27,160 starting to emerge as like this kind of force to be reckoned 107 00:05:27,160 --> 00:05:30,440 with. It was like unis law and, and 108 00:05:30,440 --> 00:05:32,160 yeah, and things like that were becoming popular. 109 00:05:32,160 --> 00:05:34,920 And that's when I got sucked in and started studying interest 110 00:05:34,920 --> 00:05:38,400 rates and, and things. And so I actually started Euler 111 00:05:38,400 --> 00:05:42,200 off the back of doing hackathon project where I'd created a 112 00:05:42,200 --> 00:05:44,680 novel interest rate setting mechanism that was more 113 00:05:44,680 --> 00:05:47,800 decentralized for like less dependent on on third parties 114 00:05:47,800 --> 00:05:50,800 than than the ones that were being used on on compound at the 115 00:05:50,800 --> 00:05:53,560 time. What was the original vision 116 00:05:53,560 --> 00:05:58,560 for? So we wanted to make something 117 00:05:58,560 --> 00:06:00,440 where you could lend and borrow any asset. 118 00:06:01,000 --> 00:06:04,560 A lot of the early lending environment protocols were 119 00:06:05,040 --> 00:06:07,880 restricted to, to just like the short tail of, of assets. 120 00:06:07,880 --> 00:06:12,440 So like Ethan and USCC and Bitcoin and maybe a handful of 121 00:06:12,440 --> 00:06:17,160 others. And yeah, I guess, I guess in my 122 00:06:17,160 --> 00:06:21,360 hackathon I was like, I was sort of inspired by like, how do you 123 00:06:21,360 --> 00:06:23,520 set interest rates? If you want to expand that set 124 00:06:23,520 --> 00:06:27,480 to like everything, you need an interest rate model that's that 125 00:06:27,480 --> 00:06:29,840 can adapt over time and adapt itself. 126 00:06:29,840 --> 00:06:33,680 You don't want necessarily like like a slow process of 127 00:06:33,680 --> 00:06:36,640 governance or third party like changing interest rate bottles. 128 00:06:36,640 --> 00:06:39,760 So we wanted to see, yeah, could we could we, could we that 129 00:06:39,760 --> 00:06:41,120 lending environment happen for anything. 130 00:06:41,120 --> 00:06:45,080 And so we started building Euler as like an integration with 131 00:06:45,440 --> 00:06:49,960 Uniswap at the time actually. So Uniswap V2 had oracles for an 132 00:06:49,960 --> 00:06:52,760 inbuilt Oracle for the value of assets. 133 00:06:52,760 --> 00:06:56,920 We plan to use that to enable people to lend and borrow not 134 00:06:56,920 --> 00:06:59,240 just the short tail, but also the long tail of assets. 135 00:06:59,520 --> 00:07:01,800 Create, create lending, borrowing markets for all of all 136 00:07:01,800 --> 00:07:04,280 things. Didn't actually work out like 137 00:07:04,280 --> 00:07:05,720 that. We had to pivot, pivot a few 138 00:07:05,720 --> 00:07:08,400 times as as the punching room. But that's that's that was one 139 00:07:08,400 --> 00:07:09,680 of the early visions, I think. Yeah. 140 00:07:11,200 --> 00:07:12,280 OK. OK. 141 00:07:13,120 --> 00:07:19,200 And then I'm curious, is this, it sounds like something where 142 00:07:19,200 --> 00:07:26,000 maybe your evolutionary game theory was that background 143 00:07:26,000 --> 00:07:31,200 knowledge very applicable here? Oh, I mean, massively right. 144 00:07:31,200 --> 00:07:35,640 It's yeah. I mean, in that day job, you're 145 00:07:35,640 --> 00:07:38,320 often like, what was wrong? What was I actually doing? 146 00:07:38,320 --> 00:07:40,880 You know, How do you build these models You like consider like a 147 00:07:40,880 --> 00:07:45,360 set of things are entities, people, biological organisms, 148 00:07:45,800 --> 00:07:48,280 and they're like kind of playing strategies in this big like 149 00:07:48,400 --> 00:07:50,520 competitive game and they interact a lot. 150 00:07:51,160 --> 00:07:53,640 And so you have to like model that out and think, you know 151 00:07:53,640 --> 00:07:57,600 what, what will be the, the like equilibrium state of if, if 152 00:07:57,600 --> 00:07:59,760 you've got like two different entities playing different 153 00:07:59,760 --> 00:08:02,040 strategies, right? And that's very similar to what 154 00:08:02,040 --> 00:08:04,160 happens in markets, right? You have like lenders and 155 00:08:04,160 --> 00:08:09,240 borrowers, you have like people striving to like optimise 156 00:08:09,240 --> 00:08:12,400 profitability or optimise some kind of metric like risk 157 00:08:12,400 --> 00:08:15,720 adjusted return or whatever. And so, yeah, there's a huge 158 00:08:15,720 --> 00:08:20,320 amount of overlap in terms of designing a like AD 5 protocol 159 00:08:21,040 --> 00:08:24,840 that that can facilitate like markets and designing a model 160 00:08:24,840 --> 00:08:29,200 about how, how, yeah, populations change in response 161 00:08:29,200 --> 00:08:31,120 to their environment. It's it's, yeah. 162 00:08:31,120 --> 00:08:33,440 If you just abstract everything, then it's, it's actually very, 163 00:08:33,440 --> 00:08:37,280 very similar kind of task. So yeah, it was, yeah, 164 00:08:37,280 --> 00:08:40,440 definitely My background was very relevant to what I do now. 165 00:08:42,480 --> 00:08:46,840 So I, I imagine you're pretty unique among the five protocol 166 00:08:46,840 --> 00:08:50,760 founders having like that kind of perspective and background. 167 00:08:50,760 --> 00:08:56,000 Do you think that, you know, did that just help you maybe design 168 00:08:56,000 --> 00:09:02,640 or learn a little bit, you know, have better models for different 169 00:09:02,640 --> 00:09:05,000 risk events? Or do you think it also ended 170 00:09:05,000 --> 00:09:08,960 up, you know, just in in a different protocol design 171 00:09:09,800 --> 00:09:11,360 because of that background you had? 172 00:09:12,960 --> 00:09:19,800 I think I think, yeah, I think it's, I mean, yeah, I mean D5 173 00:09:19,800 --> 00:09:21,880 founders tends to come from really varied backgrounds, 174 00:09:21,880 --> 00:09:23,480 right. And then there's like trade-offs 175 00:09:23,480 --> 00:09:26,400 having different to all those backgrounds. 176 00:09:26,400 --> 00:09:30,040 You know, like I think famously Euler, we're very like 177 00:09:30,040 --> 00:09:32,960 engineering driven. A lot of the things that we 178 00:09:32,960 --> 00:09:36,520 build are like really, really strong on the engineering front 179 00:09:36,520 --> 00:09:41,200 and well like well architected. And so we have like very strong 180 00:09:41,200 --> 00:09:44,120 attention to detail to like low level processes and mechanisms 181 00:09:44,120 --> 00:09:45,320 and things. So like, for instance, 182 00:09:45,800 --> 00:09:48,520 liquidations on Euler, I think we have the best liquidation 183 00:09:48,720 --> 00:09:52,920 during in, in all of defy a lot of a lot of liquidations when, 184 00:09:52,920 --> 00:09:55,160 when they happen on other lending growing protocols, 185 00:09:57,240 --> 00:09:59,120 effectively, the borrower just has like some of their 186 00:09:59,120 --> 00:10:01,400 collateral, like slashed and sacrificed. 187 00:10:01,400 --> 00:10:05,400 And then that's used as a reward for the, for the people that 188 00:10:05,400 --> 00:10:06,840 that are performing liquidations. 189 00:10:06,840 --> 00:10:09,400 And it's often really costly, really, really costly, 190 00:10:09,400 --> 00:10:11,280 especially if you're a big borrower, you've got like, you 191 00:10:11,280 --> 00:10:13,040 know, 10s of millions of dollars at risk. 192 00:10:13,360 --> 00:10:16,760 These bonuses, you know, this, these kind of slashings can be, 193 00:10:17,400 --> 00:10:19,680 and that can be worth like hundreds of thousands of dollars 194 00:10:19,680 --> 00:10:23,640 or millions of dollars on Euler. We use, we use a different 195 00:10:23,640 --> 00:10:25,560 mechanism. So we don't take like a fixed 196 00:10:25,560 --> 00:10:27,640 amount of the class. Well, instead we, we have this 197 00:10:27,640 --> 00:10:30,920 like auction that plays out. It's a Dutch auction that plays 198 00:10:30,920 --> 00:10:32,520 out on the bonus. That's, that's, that's 199 00:10:32,520 --> 00:10:35,120 distributed. What's neat about that is that 200 00:10:35,120 --> 00:10:38,400 if you get liquidated on oil, the because it's a fair auction, 201 00:10:38,680 --> 00:10:41,520 the bonus tends to be basically the fair market rate, like 202 00:10:41,520 --> 00:10:44,360 however much it should cost to do the liquidation plus a little 203 00:10:44,360 --> 00:10:47,960 bit extra to kind of justify it. And so like the equivalent, if 204 00:10:47,960 --> 00:10:50,800 you're a large bar on oil and you get liquidated, the actual 205 00:10:51,200 --> 00:10:56,680 cost of it might be, I don't know, a few $100, whereas the 206 00:10:56,680 --> 00:10:59,680 cost of it on another platform might might be literally 207 00:10:59,680 --> 00:11:01,400 hundreds of thousands of millions of dollars. 208 00:11:02,000 --> 00:11:05,360 And so that just think that that like process that like focus on 209 00:11:05,360 --> 00:11:08,040 on auctions and how they can drive efficient outcomes. 210 00:11:08,040 --> 00:11:11,040 I think was very much driven by like who we are as builders at 211 00:11:11,040 --> 00:11:14,800 Oiler, which is is effectively just a team of engineers or 212 00:11:14,800 --> 00:11:19,080 scientists. Yeah, all of our backgrounds 213 00:11:19,080 --> 00:11:22,280 have like a strong influence over how how Oilers architected. 214 00:11:22,280 --> 00:11:26,320 I think it's, yeah, certainly, certainly always been a bit 215 00:11:26,320 --> 00:11:28,280 different to other, other platforms in that regard. 216 00:11:29,760 --> 00:11:33,560 And so the the high level vision then where you guys ended up was 217 00:11:33,560 --> 00:11:38,440 basically like a lending protocol where you can borrow 218 00:11:39,640 --> 00:11:43,040 like any asset and use any asset as collateral. 219 00:11:43,040 --> 00:11:46,800 That's kind of the I. Think that was the that was the 220 00:11:46,800 --> 00:11:50,920 original vision and and then as we as we adapt as we grow over 221 00:11:50,920 --> 00:11:53,840 time, we realise actually allowing anything to use this 222 00:11:53,840 --> 00:11:57,360 class all is there are other other like factors that come 223 00:11:57,360 --> 00:12:00,120 into play right like even if you could do that, you need to find 224 00:12:00,120 --> 00:12:02,240 like counterparties or willing to sit the other side of that 225 00:12:02,240 --> 00:12:04,880 trade and the truth is that there's just not a market for 226 00:12:04,880 --> 00:12:09,000 that like there's I'd love to use my like long tail mean coins 227 00:12:09,000 --> 00:12:11,360 or whatever that I've got in my wallet as collateral, but who 228 00:12:11,360 --> 00:12:14,240 wants to lend to that like who's going to take the the other side 229 00:12:14,240 --> 00:12:16,120 of that trade? There's just not really anyone 230 00:12:16,120 --> 00:12:18,400 available. And it's kind of like, you know, 231 00:12:18,480 --> 00:12:20,880 the that's that's true in real life, right? 232 00:12:20,880 --> 00:12:23,200 Some, some assets just make really good collateral and you 233 00:12:23,200 --> 00:12:26,480 can go to a bank and say we want to take our loan against a 234 00:12:26,520 --> 00:12:29,800 certain stock portfolio or so a house or a car or whatever. 235 00:12:29,840 --> 00:12:32,480 But but some things just, you know, don't make for good class. 236 00:12:32,480 --> 00:12:34,600 Well, even though their paper value might be quite high, 237 00:12:34,600 --> 00:12:36,600 doesn't mean that they're strong collateral. 238 00:12:36,600 --> 00:12:39,240 So, yeah, I think there were a lot of learnings we made in 239 00:12:39,240 --> 00:12:43,720 those early years as well about like actually there's some 240 00:12:43,720 --> 00:12:46,960 things you can technically do, but whether or not they they 241 00:12:46,960 --> 00:12:49,320 have like product market fit is a very different question. 242 00:12:51,240 --> 00:12:54,720 So if you if you kind of go back to, you know, sort of the 243 00:12:54,720 --> 00:12:57,400 history of Euler, right? So you talk about this hackathon 244 00:12:57,400 --> 00:13:01,640 and then how it evolved into this vision of having this, you 245 00:13:01,640 --> 00:13:03,960 know, very flexible lending protocol. 246 00:13:06,440 --> 00:13:08,880 I know at some point you guys had a big hack. 247 00:13:08,880 --> 00:13:12,080 I don't know when did that or like can you tell a bit like how 248 00:13:12,080 --> 00:13:15,240 did things progress from that point onwards? 249 00:13:16,720 --> 00:13:18,560 Yeah. So we there was a, there was a 250 00:13:18,560 --> 00:13:24,200 big exploit unfortunately and yeah, in 2023. 251 00:13:24,200 --> 00:13:28,160 So it was actually at the time when all the protocol being like 252 00:13:28,160 --> 00:13:31,040 growing very rapidly and taking market share from incumbents. 253 00:13:31,040 --> 00:13:35,720 At that time Euler V1 was like a very, very heavily audited 254 00:13:35,720 --> 00:13:37,640 platform. Like we'd had more audits than 255 00:13:37,640 --> 00:13:39,320 most people. We did. 256 00:13:39,320 --> 00:13:41,360 We, you know, we worked with Satora who do do formal 257 00:13:41,360 --> 00:13:44,680 verification. We had the largest bug bounty of 258 00:13:44,680 --> 00:13:48,720 anyone in that kind of vertical. So we, we took security really 259 00:13:48,720 --> 00:13:50,960 seriously. But what happened effectively 260 00:13:50,960 --> 00:13:54,640 was that we had this, we had this bug bounty open and 261 00:13:54,640 --> 00:13:57,200 somebody came and reported a pretty smart and a bug on all 262 00:13:57,200 --> 00:13:59,600 this. So there's this smaller, smaller 263 00:13:59,600 --> 00:14:02,880 issue that that first depositors in a brand, whenever you open a 264 00:14:02,880 --> 00:14:05,360 brand new market, the first depositor has some funds at 265 00:14:05,360 --> 00:14:07,920 risk. And because it was a funds at 266 00:14:07,920 --> 00:14:12,440 risk bug, we awarded them a bounty, a pretty small bounty 267 00:14:13,160 --> 00:14:15,200 because the amount of funds at risk wasn't huge. 268 00:14:15,200 --> 00:14:18,480 But because there were some funds at risk, our security 269 00:14:18,480 --> 00:14:21,440 partners when we talked to them said, yeah, you could probably 270 00:14:21,440 --> 00:14:26,120 fix this, right. So we developed the fix and it 271 00:14:26,120 --> 00:14:28,960 looked, it looked good on paper and we had it re audited. 272 00:14:28,960 --> 00:14:31,240 So we were with the security partners, they audited the fix. 273 00:14:32,360 --> 00:14:36,120 But I think ultimately the fix probably when you, when you do a 274 00:14:36,120 --> 00:14:39,280 full audit the first time around, you're considering 275 00:14:39,280 --> 00:14:41,360 absolutely everything. You know, you're not just 276 00:14:41,360 --> 00:14:43,520 looking at them a small part of the protocol. 277 00:14:43,520 --> 00:14:46,560 And so when you know full audits are fantastic, right. 278 00:14:46,560 --> 00:14:50,800 But when when they were auditing the smaller fix and when we were 279 00:14:50,800 --> 00:14:53,280 developing this like solution for this this much smaller 280 00:14:53,280 --> 00:14:57,720 issue, it was much more of a contained, you know, it was more 281 00:14:57,720 --> 00:15:01,080 like a focus on that thing. And then we weren't both 282 00:15:01,080 --> 00:15:03,960 ourselves and the auditors weren't seeing that bigger like 283 00:15:03,960 --> 00:15:06,960 holistic vision. It turns out that by developing 284 00:15:06,960 --> 00:15:10,760 that fix, we'd actually inadvertently introduced a much 285 00:15:10,760 --> 00:15:15,200 more fundamental error of much more fundamental issue into the 286 00:15:15,200 --> 00:15:18,960 protocol. And that's how nine months after 287 00:15:18,960 --> 00:15:22,480 we deployed that fix, somebody was able to come in and 288 00:15:22,480 --> 00:15:26,040 effectively exploit a large amount of funds and take a lot a 289 00:15:26,040 --> 00:15:28,840 large amount of funds from what I love everyone, which brought 290 00:15:28,840 --> 00:15:32,520 down the input type protocol. What was that error that you 291 00:15:32,520 --> 00:15:37,400 guys introduced? So the the solution to the 292 00:15:37,400 --> 00:15:41,200 problem, well then just very briefly, I mean the, the problem 293 00:15:41,200 --> 00:15:44,200 itself was caused by an uninitialized exchange rate. 294 00:15:44,360 --> 00:15:48,360 The very when a fair very brand new markets created and there's 295 00:15:48,360 --> 00:15:52,000 no users yet or anything, there was 11 exchange rate between the 296 00:15:52,240 --> 00:15:54,680 receipt token and the deposits that was not initialized. 297 00:15:55,240 --> 00:15:58,680 It turns out that for technical reasons, an exploiter could 298 00:15:58,760 --> 00:16:01,560 potentially front run a deposit if they set up a bottle or 299 00:16:01,560 --> 00:16:04,080 something, they'd have to do quite a bit of work for it, but 300 00:16:04,080 --> 00:16:07,640 potentially they could like front run the first deposit and 301 00:16:07,640 --> 00:16:10,840 only that deposit and then use that to to take some of the 302 00:16:10,840 --> 00:16:15,080 first depositors funds. So the fix that we, we developed 303 00:16:15,080 --> 00:16:18,920 was, well, you know, why don't we take the first depositors 304 00:16:20,000 --> 00:16:23,720 deposit and we will, before they actually add the deposit to the 305 00:16:23,720 --> 00:16:26,960 account, we'll use like one way or like some really small amount 306 00:16:26,960 --> 00:16:29,760 of that deposit to initialize the exchange rate. 307 00:16:30,640 --> 00:16:33,640 So there was this function that was added to the, the code base 308 00:16:33,640 --> 00:16:36,240 called donate to reserves. And the donate to reserves 309 00:16:36,240 --> 00:16:41,480 function was only intended to be used as a, as a, as a, as a way 310 00:16:41,480 --> 00:16:42,960 to initialise this exchange rate. 311 00:16:43,760 --> 00:16:45,600 And, you know, first deposits wouldn't even know what's 312 00:16:45,600 --> 00:16:47,800 happening. Now what, what turns out, So 313 00:16:47,800 --> 00:16:50,840 what someone realised, unbeknownst to us was that you 314 00:16:50,840 --> 00:16:57,360 could use donate to reserves as a borrower as you donate your 315 00:16:57,480 --> 00:17:01,960 collateral to the reserves, if you do it in, in some unique 316 00:17:01,960 --> 00:17:05,560 circumstances, you could drive yourself towards like a less 317 00:17:05,560 --> 00:17:08,599 collateralized position. And then if you can force 318 00:17:08,599 --> 00:17:12,839 yourself into a liquidatable state, you could then lose money 319 00:17:13,240 --> 00:17:15,440 and, and, and, and liquidate the account, right? 320 00:17:15,440 --> 00:17:17,920 And so you might be thinking, well, why would anyone want to 321 00:17:17,920 --> 00:17:20,400 lose money? It turns out we remember, we've 322 00:17:20,400 --> 00:17:22,319 talked about those liquidation bonuses earlier. 323 00:17:22,680 --> 00:17:26,400 Turns out that there was, there was some like parameter space 324 00:17:26,400 --> 00:17:30,360 effectively where you could lose, lose less money on the 325 00:17:30,360 --> 00:17:33,080 liquidatable account than you could make as the, the person 326 00:17:33,080 --> 00:17:34,760 liquidating. So the person liquidate would 327 00:17:34,760 --> 00:17:38,360 get the bonus. And so it wasn't a huge 328 00:17:38,360 --> 00:17:40,600 difference, but it doesn't need to be because it turns out that 329 00:17:40,600 --> 00:17:43,200 the attacker could then effectively kind of like loop to 330 00:17:43,200 --> 00:17:46,360 amplify the amplify both the losses and the gains. 331 00:17:46,840 --> 00:17:51,200 And so with this, this looping strategy, they're able to to 332 00:17:51,200 --> 00:17:53,960 withdraw a lot more and drain, drain more funds from the 333 00:17:53,960 --> 00:17:56,040 protocol than normally it would allow. 334 00:17:56,920 --> 00:18:00,000 And so that was, yeah, that that's how it happened. 335 00:18:00,680 --> 00:18:04,440 What was it like TBL back then and how much did the hacker 336 00:18:04,440 --> 00:18:09,320 manage to steal? So we had, I think total 337 00:18:09,320 --> 00:18:13,720 deposits were were sort of around 5600 million. 338 00:18:14,160 --> 00:18:19,160 The the Taco was able to take out 200 million from the 339 00:18:19,160 --> 00:18:24,400 protocol. Yeah, like big numbers and and 340 00:18:24,520 --> 00:18:27,480 you know, I can talk about like the, the recovery process. 341 00:18:27,480 --> 00:18:30,480 But we did, I should say upfront, we recovered all of the 342 00:18:30,480 --> 00:18:33,960 money and more. So we were able to recover 240 343 00:18:33,960 --> 00:18:36,920 million from the exploiter over a period of several weeks 344 00:18:36,920 --> 00:18:38,960 following the attack. So we were able to track them 345 00:18:38,960 --> 00:18:43,880 down and negotiate the return of of of all the stolen funds. 346 00:18:45,600 --> 00:18:50,320 Oh, so yeah, to tell us about that, like how did how did you 347 00:18:50,320 --> 00:18:54,640 guys tracked the guy down and how, how did you, why did they 348 00:18:54,640 --> 00:18:59,880 agree to return these funds? There could be an entire, like, 349 00:19:00,160 --> 00:19:03,320 I am not kidding, like an entire documentary series on on this 350 00:19:03,480 --> 00:19:07,040 exploit. It's one of the most harrowing 351 00:19:07,480 --> 00:19:10,680 moments of my life. But also retrospectively now, if 352 00:19:10,680 --> 00:19:13,400 you look back on it, one of the most interesting sort of the 353 00:19:13,440 --> 00:19:17,560 exploits in TV history. I think so, yeah. 354 00:19:17,560 --> 00:19:20,160 I mean it firstly, we reason it was particularly awful. 355 00:19:20,400 --> 00:19:22,800 I mean, it's awful for everybody involved when something like 356 00:19:22,800 --> 00:19:24,600 this happens. But for me personally, it was 357 00:19:24,600 --> 00:19:26,360 only four days after the birth of my son. 358 00:19:27,160 --> 00:19:33,160 So I was on yeah like the the weekend my son was born like, 359 00:19:33,200 --> 00:19:38,120 you know, the early hours of Friday morning by Friday 360 00:19:38,120 --> 00:19:43,840 afternoon, there's a banking crisis in the US in circle asset 361 00:19:43,840 --> 00:19:46,720 USDC was de pegging so it's called into action to like deal 362 00:19:46,720 --> 00:19:50,160 with this crisis issue with USDC over the weekend. 363 00:19:50,960 --> 00:19:52,920 So they didn't really get a chance to spend any time with my 364 00:19:52,920 --> 00:19:57,960 son then And then on on Monday morning, I had some alarms going 365 00:19:57,960 --> 00:20:01,520 off and I assumed it was related to the USDC de peg event, but it 366 00:20:01,520 --> 00:20:04,360 turns out it was actually an Euler specific attack. 367 00:20:05,360 --> 00:20:10,480 And so yeah, my. Yeah, the next few weeks were 368 00:20:10,480 --> 00:20:13,920 were then spent with him, my son like in the background and me 369 00:20:13,920 --> 00:20:16,360 like maybe trying to negotiate a return of all this money. 370 00:20:17,880 --> 00:20:19,600 The actual. I mean, there was so many twists 371 00:20:19,600 --> 00:20:21,880 and turns. The exploiter like tried to. 372 00:20:23,200 --> 00:20:24,520 Yeah. Well, you know, we tracked them 373 00:20:24,520 --> 00:20:26,840 down through various means, like I can't really reveal all of 374 00:20:26,840 --> 00:20:29,040 them, but you know, you have to do a lot like a huge amount of 375 00:20:29,040 --> 00:20:32,320 data gathering and. So can you figured out the 376 00:20:32,320 --> 00:20:37,000 identity of the person? Eventually, yes, although not, 377 00:20:37,000 --> 00:20:39,440 not initially. I mean, we, we had like AI think 378 00:20:39,440 --> 00:20:42,280 we had a list of of around 10 candidates, can't remember. 379 00:20:42,280 --> 00:20:46,000 But like we, we developed a list of people that, that we quite 380 00:20:46,000 --> 00:20:49,000 quickly over that over about 24 hours, we had a list of people 381 00:20:49,000 --> 00:20:51,800 that we thought could be involved based on, on available 382 00:20:51,800 --> 00:20:54,720 evidence. And, but yeah, we didn't 383 00:20:54,720 --> 00:20:57,480 actually know the identity of the person until quite a long, 384 00:20:57,720 --> 00:20:59,560 long time after. Like even when we first started 385 00:20:59,560 --> 00:21:03,280 talking to them, we, we, we wanted them to believe that we 386 00:21:03,280 --> 00:21:05,560 knew who they were, but we didn't actually know which 387 00:21:05,560 --> 00:21:09,040 person they were about list or whether they're on our list at 388 00:21:09,040 --> 00:21:13,320 all, in fact. But yeah, they were they, they 389 00:21:13,320 --> 00:21:16,800 started getting, I mean, they tried to do a donation to the 390 00:21:16,800 --> 00:21:20,560 North Korean address to make it look like it was a North Korean 391 00:21:21,920 --> 00:21:25,200 exploit, because if North Korea exploits the protocol, the funds 392 00:21:25,200 --> 00:21:26,520 don't come back, right? You don't. 393 00:21:27,480 --> 00:21:29,280 Then they're they're they're gone from. 394 00:21:29,280 --> 00:21:34,000 Negotiate with North Korea. No, no, I mean, so, so it's 395 00:21:34,000 --> 00:21:36,400 over. So I suppose, I suppose he was 396 00:21:36,520 --> 00:21:38,960 his gambit. There was, hey, if they think 397 00:21:38,960 --> 00:21:41,960 it's North Korea, then maybe maybe they'll just like go away. 398 00:21:41,960 --> 00:21:45,120 But at that point where there was already like strong 399 00:21:45,120 --> 00:21:48,440 indications from our side that we that we knew it wasn't North 400 00:21:48,440 --> 00:21:50,160 Korea. So we were kind of able to call 401 00:21:50,160 --> 00:21:55,360 his bluff on on on those on those donation gambits and and 402 00:21:55,360 --> 00:21:59,160 then try to provoke more of a response from him and then try 403 00:21:59,160 --> 00:22:02,400 and try and just get closer and closer whilst trying to 404 00:22:02,600 --> 00:22:04,680 negotiate the turn. And then the funds start coming 405 00:22:04,680 --> 00:22:06,720 back in dribs and drabs. It wasn't like they all came 406 00:22:06,720 --> 00:22:10,200 back in one big block. Actually, they were probably, 407 00:22:10,720 --> 00:22:16,520 they came back in maybe a batch of batches of like, I don't 408 00:22:16,520 --> 00:22:18,720 know, yeah, maybe like 8 different times, like different 409 00:22:18,720 --> 00:22:20,360 amounts of funds, like would come back. 410 00:22:20,360 --> 00:22:24,800 And he tried to play games like trying to pretend to be multiple 411 00:22:24,800 --> 00:22:28,560 attackers at one point and and do all sorts of like really 412 00:22:28,640 --> 00:22:32,120 crazy stuff. So it was a, it was a wild goose 413 00:22:32,120 --> 00:22:35,160 chase and it lasted for weeks. Yeah. 414 00:22:35,800 --> 00:22:37,920 Wow, wow. Interesting. 415 00:22:38,200 --> 00:22:41,960 And then in the end, he said, he recovered more than what he had 416 00:22:41,960 --> 00:22:43,600 stolen. Yeah. 417 00:22:43,600 --> 00:22:49,280 And I mean in dollar terms, because the he when, when, when 418 00:22:49,280 --> 00:22:52,200 the SAP is draining protocol, they, a lot of the assets come 419 00:22:52,200 --> 00:22:56,000 back in, in terms of like USDC or USDT, right? 420 00:22:56,000 --> 00:22:58,520 And Circle and Tether. If, if they get requests from 421 00:22:58,520 --> 00:23:00,560 law enforcement or they know that funds have clearly been 422 00:23:00,560 --> 00:23:04,200 stolen, they have the ability to put freezes on assets. 423 00:23:04,200 --> 00:23:07,320 So a lot of assets, a lot of attackers will just effectively 424 00:23:07,320 --> 00:23:13,760 auto, auto convert any stolen funds into E or an asset that's 425 00:23:13,760 --> 00:23:16,800 like more, more decentralised and more difficult to kind of 426 00:23:16,800 --> 00:23:18,800 freeze basically. So that's what this guy did. 427 00:23:19,320 --> 00:23:23,200 And then in the period of the recovery period where we were 428 00:23:23,200 --> 00:23:26,160 tracking down and negotiating the recovery, the the price of 429 00:23:26,160 --> 00:23:29,160 East rallied. And so actually it was kind of 430 00:23:29,160 --> 00:23:32,360 like the attacker put on a long position on behalf of all of our 431 00:23:32,920 --> 00:23:38,280 users on East. Yeah, whilst it whilst it was 432 00:23:38,280 --> 00:23:41,640 going up in price. So when, when we finally 433 00:23:41,640 --> 00:23:45,160 recovered all, you know, all of the funds the the users got 434 00:23:45,160 --> 00:23:48,160 back, there was an extra, there was a surplus, a $40 million 435 00:23:48,160 --> 00:23:51,360 surplus of, of assets basically. So yeah. 436 00:23:51,440 --> 00:23:53,480 Wow. So then you guys paid that out 437 00:23:53,480 --> 00:23:55,760 to the users or how did you? Yeah. 438 00:23:55,840 --> 00:23:58,680 I mean, yeah, we, yeah, it was well paid out to the users. 439 00:23:58,680 --> 00:24:00,960 I mean, it's a very complex calculation figuring out how 440 00:24:00,960 --> 00:24:05,280 much users, you know, have in a protocol, you know, lending 441 00:24:05,280 --> 00:24:08,320 buying protocol, like the users have like a net asset value, 442 00:24:08,320 --> 00:24:12,160 right, snapshot point in time. But that that net asset value 443 00:24:12,160 --> 00:24:14,920 changes a lot over over a period of three weeks. 444 00:24:14,920 --> 00:24:17,160 That can depending on what kind of positions you got. 445 00:24:17,160 --> 00:24:19,240 Have you got loans? Have you just got deposits, you 446 00:24:19,240 --> 00:24:21,360 just lending and so on. But yeah, it was all distributed 447 00:24:21,360 --> 00:24:28,120 back to the to the users. So that was the recovery period, 448 00:24:28,120 --> 00:24:31,120 which itself took, you know, a long time and was very, very 449 00:24:31,320 --> 00:24:37,040 difficult. And because the TBL went down 450 00:24:37,040 --> 00:24:41,160 to, when did it went down? Pretty much 0 no or. 451 00:24:41,560 --> 00:24:44,000 I mean, the protocol wasn't viable after after that 452 00:24:44,000 --> 00:24:46,440 happened. I mean, yeah. 453 00:24:46,440 --> 00:24:50,480 So it wasn't like there was it wasn't, it wasn't like there was 454 00:24:50,480 --> 00:24:53,280 a live protocol anymore. It was basically a dead a dead 455 00:24:53,280 --> 00:24:56,280 protocol. So it had to be the, the, the 456 00:24:56,280 --> 00:24:59,240 option was effectively it, it turns out, by the way, that 457 00:24:59,240 --> 00:25:02,480 there was the, the, the, the way to prevent this was like there 458 00:25:02,480 --> 00:25:05,960 was like a, a single single thing missing from this donator 459 00:25:05,960 --> 00:25:08,080 reserves function. The donator reserves by itself 460 00:25:08,080 --> 00:25:11,920 wasn't the wasn't the biggest, wasn't, wasn't the issue. 461 00:25:11,920 --> 00:25:15,000 It's just there was a missing like check in this in this 462 00:25:15,000 --> 00:25:18,400 function. And so had had that function had 463 00:25:18,400 --> 00:25:20,760 the missing check, then it would have been fine. 464 00:25:20,760 --> 00:25:24,760 So in principle, at that point, we could have just, if we wanted 465 00:25:24,760 --> 00:25:27,720 to, to continue from there, we could have just made that, that 466 00:25:27,720 --> 00:25:31,240 fix to donate to reserves. And then we launched Euler V1 467 00:25:32,360 --> 00:25:33,720 because it was a very good protocol. 468 00:25:33,720 --> 00:25:36,200 And I think it's, there's actually a fork of it somebody 469 00:25:36,200 --> 00:25:39,080 else has been using on one of the other networks, I forget its 470 00:25:39,080 --> 00:25:40,840 name, that's been going strong ever since. 471 00:25:40,840 --> 00:25:44,240 So yeah, it's, it's a very good protocol aside from that, that 472 00:25:44,240 --> 00:25:49,200 one crucial flaw. But we decided for, for other 473 00:25:49,200 --> 00:25:53,680 reasons actually to not to not go with relaunching V1. 474 00:25:53,720 --> 00:25:56,120 You know, we decided as a team to stick together after that. 475 00:25:57,400 --> 00:26:00,480 Took us a while to come to that decision, like a few weeks, but 476 00:26:01,240 --> 00:26:03,440 you know, do. You guys also think of like just 477 00:26:03,440 --> 00:26:06,280 shutting down or? Oh yeah, yeah, of course. 478 00:26:06,280 --> 00:26:09,920 I mean, it was extremely traumatizing for the team and 479 00:26:11,760 --> 00:26:15,040 and obviously going to be really hard to recover from that, but 480 00:26:15,160 --> 00:26:17,040 we had a very good reputation defy. 481 00:26:17,040 --> 00:26:20,400 I think up to that point, you know, it wasn't like this had 482 00:26:20,400 --> 00:26:23,640 happened out of carelessness or or because, you know, there was 483 00:26:24,520 --> 00:26:26,920 we hadn't got the audits or wherever we were, we were like 484 00:26:26,920 --> 00:26:29,720 above, we went above and beyond the, you know, with all the all 485 00:26:29,720 --> 00:26:31,680 the gold standards at that time were kind of followed. 486 00:26:31,680 --> 00:26:35,240 And so we had a lot of support from the border defy community 487 00:26:35,240 --> 00:26:38,600 and from the security community and so on to to continue. 488 00:26:39,200 --> 00:26:41,640 And the question was, could we, could we restore the fate of 489 00:26:41,640 --> 00:26:43,160 like potential users though, right? 490 00:26:43,160 --> 00:26:47,160 Like is, it's, it's one thing having a security reach is that 491 00:26:47,160 --> 00:26:49,840 researchers say, well, yeah, they, they, you know, they, they 492 00:26:49,840 --> 00:26:52,160 did their best and, and still, still this happened. 493 00:26:52,160 --> 00:26:55,320 But it's another like finding that faith with the users again. 494 00:26:55,320 --> 00:26:58,720 So there's a lot of concern, I suppose that like, even if we 495 00:26:58,720 --> 00:27:01,320 wanted to, we wouldn't be able to come back reputationally 496 00:27:01,320 --> 00:27:05,880 from, from, from this. But yeah, we, we talked about it 497 00:27:05,880 --> 00:27:09,600 a lot and decided that we all liked each other and wanted to 498 00:27:09,600 --> 00:27:13,440 work in D5 still and try and try and try to keep moving the space 499 00:27:13,440 --> 00:27:15,080 forward. And that we had had kind of a 500 00:27:15,080 --> 00:27:18,040 special team. And so we thought we would 501 00:27:18,040 --> 00:27:21,160 rather than disperse and go and like join new projects or, and 502 00:27:21,160 --> 00:27:23,560 try and like rebuild a new project, we thought, we'll, 503 00:27:23,680 --> 00:27:27,200 we'll give it a go. We, you know, we still had, we 504 00:27:27,200 --> 00:27:29,680 still had the finances to do it. Fortunately from our investors, 505 00:27:29,680 --> 00:27:32,200 we had the backing of all of our investors to go out and rebuild. 506 00:27:32,200 --> 00:27:36,320 And so, yeah, we said, so let's, let's give it a shot. 507 00:27:36,440 --> 00:27:38,920 And so that's how we started building all the all the V2 at 508 00:27:38,920 --> 00:27:42,640 that point. And what were the biggest 509 00:27:42,640 --> 00:27:47,800 changes in V2? Yeah, quite a lot to be honest. 510 00:27:47,800 --> 00:27:52,920 I mean VV one was we had a lot of, we learned a lot about from 511 00:27:52,920 --> 00:27:55,400 V1 about like the market and the product market fit like we 512 00:27:55,400 --> 00:27:58,720 discussed earlier about you know what, well, the like it's one 513 00:27:58,720 --> 00:28:00,960 thing to just build something, but like this, does it really 514 00:28:00,960 --> 00:28:03,240 have demand? The main thing we learned, I 515 00:28:03,240 --> 00:28:06,000 think was that there's, there's not just like A1 size fits all 516 00:28:06,000 --> 00:28:08,880 in D5 for lending and boring. Like every single user has a 517 00:28:09,000 --> 00:28:10,880 slightly different risk reward preference. 518 00:28:12,360 --> 00:28:14,880 You know, some people like really conservative, like simple 519 00:28:14,880 --> 00:28:17,920 markets that are low, lower yielding, but they do one thing 520 00:28:17,920 --> 00:28:20,960 and do it really well. Others like things like Ave. 521 00:28:20,960 --> 00:28:24,880 which are more like larger monolithic protocols, probably 522 00:28:24,880 --> 00:28:28,360 like more capital efficient, but like with an elevated level of 523 00:28:28,360 --> 00:28:31,520 risk. And so like, it's not clear that 524 00:28:31,520 --> 00:28:33,640 there's, there, you know, there's, there's just this like 525 00:28:33,640 --> 00:28:38,080 1 perfect way to do credit markets that fits all users. 526 00:28:38,080 --> 00:28:40,080 There's, there's a diversity of preferences. 527 00:28:40,080 --> 00:28:44,400 And so we thought, how can we, and by the way, although like an 528 00:28:44,400 --> 00:28:47,120 increasingly like diverse number of assets as well. 529 00:28:47,120 --> 00:28:49,920 So it was like lots of, you know, new stable coins and, and 530 00:28:49,920 --> 00:28:52,040 like state teeth and things were emerging and so on. 531 00:28:52,040 --> 00:28:53,920 So lots of different asset types. 532 00:28:53,920 --> 00:28:56,680 And So what we realized was rather than building like this 533 00:28:56,680 --> 00:28:59,600 one protocol that's like designed as a, as a particular 534 00:28:59,600 --> 00:29:04,080 product for specific users that we said, why don't we build a, 535 00:29:04,440 --> 00:29:08,320 why don't we build the, the infrastructure for making credit 536 00:29:08,320 --> 00:29:11,320 market products? So we decided to build more of 537 00:29:11,320 --> 00:29:16,520 like a modular, A modular protocol where you could have 538 00:29:16,520 --> 00:29:19,240 these like plug and play pieces that you can fit them together 539 00:29:19,640 --> 00:29:21,480 effectively to then rebuild products. 540 00:29:21,480 --> 00:29:25,920 And so you can rebuild oil of V1 using this tool kit that we've 541 00:29:25,920 --> 00:29:28,320 got for oil of V2. But you can also build other 542 00:29:28,320 --> 00:29:30,520 types of credit markets as well that might have a different 543 00:29:30,520 --> 00:29:32,600 design that might be more conservative on the respect for 544 00:29:32,600 --> 00:29:35,640 more or whatever. And then the, the idea with V2 545 00:29:35,640 --> 00:29:39,800 is that other people can then come and build products in their 546 00:29:39,800 --> 00:29:42,560 own image and tailor them to the, the user bases that they 547 00:29:42,560 --> 00:29:46,320 have in mind and the risk reward demands that they, they have on 548 00:29:46,320 --> 00:29:49,480 the protocol. So all the V2 is, is not a 549 00:29:49,480 --> 00:29:52,880 product, a single product. It's a, it's a, it's like a 550 00:29:52,880 --> 00:29:55,440 rainbow of products. There's just all sorts of all 551 00:29:55,440 --> 00:29:58,200 sorts of different types of things going on with V2 and, and 552 00:29:58,200 --> 00:30:00,640 different operators as well for the, for those products. 553 00:30:00,640 --> 00:30:03,880 There's lots of thing, lots of entities called risk curators or 554 00:30:03,880 --> 00:30:06,880 or curators that come and build their own, build their own 555 00:30:06,880 --> 00:30:09,000 credit markets Anoila. And that wasn't really something 556 00:30:09,000 --> 00:30:13,080 we had in the new one. So does it make sense to think 557 00:30:13,080 --> 00:30:17,440 of like today, if you think on like lending credit protocols, 558 00:30:17,440 --> 00:30:21,640 you have like are they that's, you know, of course, the best 559 00:30:21,640 --> 00:30:28,400 known and which is, you know, very simple protocol. 560 00:30:28,400 --> 00:30:32,440 And then I guess more for is a bit more flexible. 561 00:30:32,440 --> 00:30:35,880 And then you guys are even more flexible and even more modular. 562 00:30:35,880 --> 00:30:41,080 Is is that like a reasonable way of or or like how do you compare 563 00:30:41,520 --> 00:30:45,360 Euler sort of in the landscape of different define lending 564 00:30:45,360 --> 00:30:49,000 protocols? Yeah, I think, I think I would 565 00:30:49,000 --> 00:30:52,680 say like at its core it's a tool kit for making Defy protocols. 566 00:30:52,680 --> 00:30:55,800 So you can build Morpho with Euler or you can build RV with 567 00:30:55,800 --> 00:30:58,600 Euler or build something in between those two. 568 00:30:58,600 --> 00:31:00,880 But you there's that's not true the other way around, right? 569 00:31:00,880 --> 00:31:04,400 You can't, you can't build the primitive using that their 570 00:31:04,400 --> 00:31:07,440 toolkit. So like Morpho fundamentally has 571 00:31:07,440 --> 00:31:10,600 these things called markets and markets in Morpho just like 572 00:31:10,960 --> 00:31:16,200 collateral that pairs the the simple isolated pairs and then 573 00:31:16,720 --> 00:31:18,400 they have Milton many, many pairs. 574 00:31:18,400 --> 00:31:20,440 And then on top they have allocators. 575 00:31:20,440 --> 00:31:23,600 So capital allocators will then push capital into the different 576 00:31:23,600 --> 00:31:26,600 pair, into the different pair markets and borrowers will will 577 00:31:26,600 --> 00:31:30,600 borrow from those pairs. Are they by contrast, is this 578 00:31:30,600 --> 00:31:33,800 big monolithic market. So it's a market, but it's 579 00:31:33,800 --> 00:31:36,200 rather than having just a pair of assets, it's got, you know, 580 00:31:36,200 --> 00:31:39,240 30 or 40 assets in it, right. And then they're cross 581 00:31:39,240 --> 00:31:41,760 collateralized and so on. So it's it's more capital 582 00:31:41,760 --> 00:31:44,160 efficient, but but higher on the risk spectrum because now you 583 00:31:44,160 --> 00:31:48,480 don't have this yeah, you don't have this isolation essentially. 584 00:31:48,480 --> 00:31:51,120 So if an asset. It makes it more capital 585 00:31:51,120 --> 00:31:57,360 efficient because basically Ave. has like 1 pool of USTC and you 586 00:31:57,360 --> 00:32:00,680 know, and there's like 1 borrower rate. 587 00:32:00,720 --> 00:32:04,880 And versus like for example, Morfo, there will be like 588 00:32:05,400 --> 00:32:08,760 various different types of UCC pools and maybe some are like 589 00:32:09,480 --> 00:32:14,320 used to the Max and some others are barely used some and that 590 00:32:14,400 --> 00:32:16,280 kind of yeah. Yeah. 591 00:32:16,280 --> 00:32:19,360 So on Morfo, I mean just like the if you think about the 592 00:32:19,360 --> 00:32:22,560 design trade-offs there a little bit like there's, there's this 593 00:32:22,560 --> 00:32:26,840 fragmented USCC pools. Now Morfo tries to solve that 594 00:32:26,840 --> 00:32:30,520 for the lenders by effectively having like a higher level 595 00:32:30,520 --> 00:32:32,480 allocatable. So most lenders deploy into 596 00:32:32,480 --> 00:32:35,320 their like allocatable and then that disperses those funds into 597 00:32:35,320 --> 00:32:39,200 these lower level markets. And that's, that's fine for the 598 00:32:39,200 --> 00:32:41,920 lenders to a degree. But on the borrowers, on the 599 00:32:41,920 --> 00:32:44,440 borrowing side, it still means you have this huge, huge amount 600 00:32:44,440 --> 00:32:48,560 of fragmentation, which means to leads to like variable rates 601 00:32:48,560 --> 00:32:51,840 and, and, and less capital efficiency there. 602 00:32:52,280 --> 00:32:54,760 The other thing about Morpho is that the collateral is always 603 00:32:54,760 --> 00:32:58,160 held in like an escrowed state, which means it's not it's not re 604 00:32:58,160 --> 00:33:01,720 hypothecated at all. In RV the markets cross 605 00:33:01,720 --> 00:33:04,680 classifies and often if you're taking a loan, let's say you're 606 00:33:04,680 --> 00:33:09,360 using ETH to borrow USDC, the ETH is re hypothecated, which 607 00:33:09,360 --> 00:33:12,320 means that somebody else can be borrowing the the ETH from you 608 00:33:12,320 --> 00:33:13,760 whilst you're using it's collateral. 609 00:33:13,760 --> 00:33:17,480 And that makes it more capital efficient because as a, as a 610 00:33:17,960 --> 00:33:24,560 time borrowing USD on RV or re hypothecated market, like we 611 00:33:24,560 --> 00:33:27,640 have an oiler as well. It means that I'm earning 612 00:33:27,640 --> 00:33:30,560 interest on the on the east side and I'm paying interest on the 613 00:33:30,560 --> 00:33:32,400 on the debt. And like sometimes the two 614 00:33:32,400 --> 00:33:34,840 cancel each other out. Sometimes it's actually even 615 00:33:34,840 --> 00:33:37,080 profitable to kind of take loans like that. 616 00:33:37,480 --> 00:33:40,080 Whereas a more for your, your ETH would typically just be sat 617 00:33:40,080 --> 00:33:42,280 in in kind of escrow and it wouldn't earn extra yield. 618 00:33:42,280 --> 00:33:45,960 So it might cost you more if you look at the what's called the 619 00:33:45,960 --> 00:33:48,760 utilization rate of these markets, which is like the, the, 620 00:33:48,760 --> 00:33:52,120 the, the average. If you look across all possible 621 00:33:52,120 --> 00:33:57,680 positions of like the amount of, you know, the basically the 622 00:33:57,720 --> 00:34:00,800 fraction of the fraction of assets which are borrowed on all 623 00:34:00,800 --> 00:34:03,320 of the fraction of assets which are borrowed is around 50% or 624 00:34:03,320 --> 00:34:07,560 above on, on Morpho, by contrast, it would be like low 625 00:34:07,560 --> 00:34:10,480 30s. So there's a big gap between the 626 00:34:10,480 --> 00:34:14,120 capital efficiency of of markets which have re hypothecation or 627 00:34:14,120 --> 00:34:16,560 enable that as a feature and the ones that don't. 628 00:34:16,560 --> 00:34:19,840 And that's one of the, yeah, one of the trade-offs in design 629 00:34:19,840 --> 00:34:21,840 decision differences between oil and morpho. 630 00:34:22,600 --> 00:34:28,320 And so oiler you also has have re hypothecation like in our 631 00:34:28,320 --> 00:34:29,920 way. Yeah. 632 00:34:29,920 --> 00:34:33,520 So on, on Oiler, you, our primitive unit is not a market, 633 00:34:33,520 --> 00:34:35,199 but actually even smaller than that. 634 00:34:35,199 --> 00:34:39,280 It's just a single vault. And users can deploy assets into 635 00:34:39,280 --> 00:34:43,199 vaults and then they can use those assets as collateral or 636 00:34:43,199 --> 00:34:45,159 they can lend and borrow them from the vault. 637 00:34:45,719 --> 00:34:49,080 Now if you want to recreate a Morpho pair, you, you basically 638 00:34:49,080 --> 00:34:51,560 connect two vaults together. You, you have like 1 vault, 639 00:34:51,560 --> 00:34:53,600 which does the lending, borrowing and one vault is just 640 00:34:53,600 --> 00:34:56,080 all the collateral. It's got a single connection. 641 00:34:56,800 --> 00:34:59,320 But on Euler, you can, because it's a tool kit and it's the 642 00:34:59,320 --> 00:35:01,360 modular tool kit. You can actually extend that. 643 00:35:01,360 --> 00:35:04,480 You can say that I'm going to act, I'm going to accept 644 00:35:04,480 --> 00:35:06,960 multiple class walls and then I'd have like more, you know, 645 00:35:06,960 --> 00:35:09,160 different types of class well for my learning role involved. 646 00:35:09,760 --> 00:35:11,720 But you can go. You can also do the relationship 647 00:35:11,720 --> 00:35:13,800 both ways. So you can see that a can borrow 648 00:35:13,800 --> 00:35:16,800 B&B can borrow a. So if you start to build up 649 00:35:16,800 --> 00:35:19,840 markets where you have lots of vaults, which all cross 650 00:35:19,840 --> 00:35:22,400 reference one of those class, well, that's effectively what 651 00:35:22,400 --> 00:35:26,720 what RFA is. So, yeah, under the hood, so you 652 00:35:26,720 --> 00:35:30,160 can reconstruct an RV, the simplest, the simplest possible 653 00:35:30,160 --> 00:35:34,080 RV would be something where you have just, yeah, people can 654 00:35:34,080 --> 00:35:38,120 deposit ETH and borrow USDC and people can deposit USDC and 655 00:35:38,120 --> 00:35:40,400 borrow ETH, right? That'll be like the simplest 656 00:35:40,400 --> 00:35:42,320 possible RV with rehab publication. 657 00:35:44,000 --> 00:35:46,640 There's a protocol called SILO which allows those kind of 658 00:35:46,640 --> 00:35:49,200 markets to be developed. And yeah, Euler has those too, 659 00:35:49,200 --> 00:35:50,440 right? We have some markets which are 660 00:35:50,440 --> 00:35:52,400 just that simple. They're like the simplest 661 00:35:52,400 --> 00:35:54,800 possible RV's. We have some markets where 662 00:35:54,800 --> 00:35:57,200 there's, there's also many assets and they start to, you 663 00:35:57,200 --> 00:35:59,520 know, the market gets much bigger and starts to resemble 664 00:35:59,520 --> 00:36:04,160 more like RV itself. And where do you see the most 665 00:36:04,160 --> 00:36:08,840 traction today? Main net in terms of networks 666 00:36:08,840 --> 00:36:12,520 where it were deployed across 12 different networks and ETH 667 00:36:12,520 --> 00:36:16,000 Mainnet I think is the kind of is, is, is the home of finance 668 00:36:16,000 --> 00:36:19,160 today or the home of D5 today. But there's, we've got a lot of 669 00:36:19,160 --> 00:36:21,560 traction on Avalanche more recently as well. 670 00:36:22,560 --> 00:36:25,960 So recently deployed to Linnea, which is growing quite quickly 671 00:36:25,960 --> 00:36:30,240 and arbitrary. Yeah, there's, it depends on 672 00:36:30,240 --> 00:36:32,760 which network you're on what, what the asset base is there 673 00:36:32,760 --> 00:36:35,560 that all users have different profiles and different networks 674 00:36:35,560 --> 00:36:37,440 we found. And so you see very different 675 00:36:38,320 --> 00:36:40,640 types of markets developing on different networks. 676 00:36:41,600 --> 00:36:45,120 And yeah, I mean stable coins you'll you'll you'll bearing 677 00:36:45,120 --> 00:36:49,320 stable coins and stables more generally is has been the thing 678 00:36:49,320 --> 00:36:52,840 that's driven the explosive growth of both Euler and and 679 00:36:52,840 --> 00:36:55,600 also Morpho. I think there's like just a 680 00:36:55,600 --> 00:37:00,040 diversity of yield bearing assets and you have demand to 681 00:37:00,040 --> 00:37:02,440 borrow. So yield bearing stable coins 682 00:37:02,560 --> 00:37:07,320 where people will like deposit the yield bearing stable coin 683 00:37:07,800 --> 00:37:11,640 and then they borrow against it. That's right, yeah. 684 00:37:12,120 --> 00:37:16,120 So like USDE or or like what? What are the top yield bearing 685 00:37:16,120 --> 00:37:21,080 stable coins in in Euler? I think USD will be like a 686 00:37:21,080 --> 00:37:23,680 massive 1. We also have like some open need 687 00:37:23,680 --> 00:37:25,560 and stuff as well lots of Pendle tokens. 688 00:37:25,560 --> 00:37:29,240 So I mean the the basic trade that is super popular these days 689 00:37:29,240 --> 00:37:32,360 are on oil and other lending protocols is you deposit your 690 00:37:32,360 --> 00:37:36,160 yield bearing stable, let's say it's paying 10% and you borrow a 691 00:37:36,160 --> 00:37:39,080 non yield bearing stable but from a lending market and maybe 692 00:37:39,080 --> 00:37:44,080 you have to pay 7% to borrow. So yeah, if you. 693 00:37:44,080 --> 00:37:46,720 And then you loop that. And then you loop that, yeah, 694 00:37:46,720 --> 00:37:50,360 you so that you rather than getting just your 10%, you can 695 00:37:50,920 --> 00:37:53,560 effectively earn the 10% plus the number. 696 00:37:53,560 --> 00:37:56,920 You can get that 3% or 4% spread, but on a loop. 697 00:37:57,520 --> 00:38:01,800 So you amplify your your you amplify your exposure to the 698 00:38:01,800 --> 00:38:04,280 interest rates and you take on board risk. 699 00:38:04,280 --> 00:38:08,640 If if the if the stable coin D pegs and it falls in price, your 700 00:38:08,640 --> 00:38:11,120 collateral decreases in price and you risk liquidation. 701 00:38:11,120 --> 00:38:15,800 But assuming you're, yeah, assuming you're, you're not 702 00:38:15,800 --> 00:38:18,280 worried about that risk, then you can effectively amplify the 703 00:38:18,280 --> 00:38:21,960 interest rate you earn by by kind of looping A yield bearing 704 00:38:21,960 --> 00:38:24,560 stable against a non yield bearing stable and, and try and 705 00:38:24,560 --> 00:38:26,560 perform what's called like a carry trade. 706 00:38:27,800 --> 00:38:29,840 It's very popular in Trad 5 as well as D5. 707 00:38:29,840 --> 00:38:33,000 But like in D5, this has been the, the the big trade of the 708 00:38:33,000 --> 00:38:35,040 the past year. I would say it's it's it's some 709 00:38:35,040 --> 00:38:37,960 kind of carry trade on yielding non yielding stables. 710 00:38:39,560 --> 00:38:41,600 What do you think the future looks like? 711 00:38:41,600 --> 00:38:44,400 I'm curious. I mean, I guess in in the 712 00:38:44,400 --> 00:38:47,360 traditional financial market, right, Like fixed, fixed rate 713 00:38:47,360 --> 00:38:54,000 lending is a huge part. I mean I would guess probably a 714 00:38:54,000 --> 00:38:58,480 majority of that is fixed, although you you probably know 715 00:38:58,480 --> 00:39:00,600 better what the breakdown is there. 716 00:39:00,600 --> 00:39:05,640 Whereas in I think D5 right we have vast majority of lending 717 00:39:05,640 --> 00:39:08,160 happens with variable rates. Do you think this is going to 718 00:39:08,160 --> 00:39:10,760 change? I think it will change, yeah, 719 00:39:10,760 --> 00:39:12,960 for sure. I mean, there's, we've got new 720 00:39:12,960 --> 00:39:16,480 products coming on Euler which are more targeted to fixed rate, 721 00:39:16,760 --> 00:39:20,040 you know, fixed rate borrowing. We've got 22 products coming 722 00:39:20,040 --> 00:39:23,480 actually in that regard. But we're not, we're not alone, 723 00:39:23,480 --> 00:39:25,480 right. I think the other competitors 724 00:39:25,600 --> 00:39:28,680 have products coming too. The reason why they're in such 725 00:39:28,680 --> 00:39:32,560 huge demand, I believe is that, but it's not so much like, you 726 00:39:32,560 --> 00:39:35,520 know, lenders probably fairly happy with variable rates. 727 00:39:35,720 --> 00:39:38,880 A variable rate is probably the like the fair rate that you 728 00:39:38,880 --> 00:39:40,560 should be getting at any one point in time. 729 00:39:41,000 --> 00:39:44,320 The rate reflects like the demand to to kind of borrow in 730 00:39:44,320 --> 00:39:46,320 the market and then like compensation you should get a 731 00:39:46,320 --> 00:39:48,600 lot as a lender based on the risk that you're taking at that 732 00:39:48,600 --> 00:39:50,760 time. So I think for lenders, they're 733 00:39:50,760 --> 00:39:54,840 fine with it, but for borrowers, these carry trades become a bit 734 00:39:54,840 --> 00:39:58,160 unwieldy to carry out. If, if the thing you're 735 00:39:58,160 --> 00:39:59,680 borrowing is very variable, right? 736 00:39:59,680 --> 00:40:02,640 You, you might have your yield bearing staple that's at 10%. 737 00:40:03,400 --> 00:40:06,240 And yeah, maybe, maybe you start and you open up a trade and 738 00:40:06,240 --> 00:40:10,520 you're borrowing at like 7% or 8%, but then the rate spikes. 739 00:40:11,080 --> 00:40:13,720 Now it's actually more costly to borrow the thing than the you're 740 00:40:13,720 --> 00:40:15,480 than the thing you're using as classical. 741 00:40:15,480 --> 00:40:17,640 So now you're in like this negative carry trade. 742 00:40:18,400 --> 00:40:21,200 Where you're actually losing money on on, on a loop as well. 743 00:40:21,200 --> 00:40:23,760 So you're actually like amplifying your losses. 744 00:40:24,320 --> 00:40:26,640 And so that's that's, you know, borrowers are getting 745 00:40:26,640 --> 00:40:28,200 increasingly frustrated with that, right? 746 00:40:28,200 --> 00:40:31,640 They, they would much rather maybe paying, pay a premium 747 00:40:31,640 --> 00:40:33,760 initially to kind of lock in at a fixed rate. 748 00:40:33,760 --> 00:40:38,280 So maybe they started, maybe the variable rate falls 7%, but 749 00:40:38,400 --> 00:40:41,360 maybe they're happy to pay 8% as long as they know that they can 750 00:40:41,360 --> 00:40:43,120 lock in and it won't go above 8%. 751 00:40:43,120 --> 00:40:45,680 So huge demand on the borrower side. 752 00:40:45,680 --> 00:40:48,480 I would say for for for borrowers to be able to lock in, 753 00:40:50,080 --> 00:40:55,440 lock in fixed cost borrowing positions for for sort to medium 754 00:40:55,440 --> 00:40:57,360 term amount, you know amount of time. 755 00:40:59,160 --> 00:41:01,240 OK. And then and then I guess for 756 00:41:01,240 --> 00:41:06,120 the on the lender side, they would also then accept or have 757 00:41:06,120 --> 00:41:09,360 to accept the fixed rate. Yeah. 758 00:41:09,360 --> 00:41:12,440 And this is the question right is, is the are the lenders going 759 00:41:12,440 --> 00:41:17,760 to be just as happy with this? The fixed, fixed rate products 760 00:41:17,760 --> 00:41:22,400 are are definitely favourable for borrowers. 761 00:41:22,400 --> 00:41:24,840 Are they favourable for lenders? And do you have product market 762 00:41:24,840 --> 00:41:28,440 fit on both sides of the on both sides of the the plane here? 763 00:41:29,160 --> 00:41:33,120 I think on the falanders, they would expect a premium, right? 764 00:41:33,120 --> 00:41:37,960 Because they're also sacrificing like the sacrifice, sacrificing 765 00:41:38,640 --> 00:41:40,320 this like fair rate that they're getting. 766 00:41:41,000 --> 00:41:43,400 The borrower should be prepared to pay this premium because it's 767 00:41:43,400 --> 00:41:48,720 clearly, you know, I'd find providing an advantage for that 768 00:41:48,720 --> 00:41:51,000 for that party. So they, yeah, they're 769 00:41:51,000 --> 00:41:54,920 effectively trading like the few they're playing a premium to 770 00:41:54,920 --> 00:41:59,400 like lock in, lock in a profit. So yeah, that premium goes to 771 00:41:59,400 --> 00:42:02,000 the lenders and maybe that premium is enough, but maybe 772 00:42:02,000 --> 00:42:03,960 it's not the other. The other thing the lenders 773 00:42:03,960 --> 00:42:07,680 forgo, I guess, is that flexibility to withdraw. 774 00:42:08,080 --> 00:42:13,840 A lot of lenders, yeah, a lot of lenders like to have that 775 00:42:13,840 --> 00:42:16,320 flexibility to just like withdraw whenever they want, 776 00:42:16,320 --> 00:42:17,640 right? A lot of lending protocols are 777 00:42:17,640 --> 00:42:20,120 designed with that in mind. So they, they often have this 778 00:42:20,640 --> 00:42:23,440 unutilized portion of the pool or idle capital in the pool, 779 00:42:23,440 --> 00:42:25,480 which allow the lenders to withdraw at any one point in 780 00:42:25,480 --> 00:42:28,520 time. If, if you lock in at a fixed 781 00:42:28,520 --> 00:42:30,960 rate, however, you typically kind of get locked into a more 782 00:42:30,960 --> 00:42:33,640 of a fixed term as well, which means you're, you're, you're 783 00:42:33,640 --> 00:42:36,360 losing that flexibility to, to access your capital when you 784 00:42:36,360 --> 00:42:39,120 need it. So yeah, there's, there's that 785 00:42:39,120 --> 00:42:41,680 like clear tension between lenders and borrowers. 786 00:42:41,680 --> 00:42:44,320 And, and one thing we know is that market's a really good way 787 00:42:44,320 --> 00:42:47,560 to like, find like a resolution for that tension. 788 00:42:47,560 --> 00:42:51,480 So it'll be interesting to see when these products ship, I 789 00:42:51,480 --> 00:42:53,920 think, I think it sounds like all, all post fields are 790 00:42:53,920 --> 00:42:56,560 developing slightly different types of fixed rate products. 791 00:42:56,560 --> 00:42:59,080 It'd be interesting to see which ones get the best product market 792 00:42:59,080 --> 00:43:02,320 fit and satisfy satisfy the needs of both the lenders and 793 00:43:02,320 --> 00:43:05,000 the borrowers in a way that's like kind of balances out and 794 00:43:05,000 --> 00:43:08,720 it's fair do. You think the demand on both 795 00:43:08,720 --> 00:43:12,320 sides will be mostly sort of short like I don't know a month 796 00:43:12,640 --> 00:43:18,920 or maybe even shorter duration or do you also see markets 797 00:43:18,920 --> 00:43:22,600 developing for a more long term that? 798 00:43:23,160 --> 00:43:27,440 I think initially it's going to be driven by most borrowers are 799 00:43:27,440 --> 00:43:30,400 kind of like traders and they're working on like time horizons 800 00:43:30,400 --> 00:43:35,400 that are like months, not usually years doing. 801 00:43:35,400 --> 00:43:37,640 You know, as a borrower, if you're doing these strategies, 802 00:43:38,920 --> 00:43:41,680 you could in principle be like rebalancing every day and you 803 00:43:41,680 --> 00:43:44,800 can probably optimize yield by like finding the best strategy 804 00:43:44,800 --> 00:43:47,080 every day or you know, rebalancing very frequently. 805 00:43:47,080 --> 00:43:49,360 But then you have like the cost of rebalancing, right, Which is 806 00:43:49,360 --> 00:43:53,280 not just, it is like gas costs, but like your time, like 807 00:43:53,280 --> 00:43:56,520 planning, like then the added risk of like repetitively 808 00:43:56,520 --> 00:43:58,640 rebalancing, like you might make a mistake in one of those 809 00:43:58,640 --> 00:44:00,760 things. So rebalancing too frequently is 810 00:44:00,760 --> 00:44:03,080 kind of not something people tend to do. 811 00:44:03,440 --> 00:44:07,480 So yeah, usually borrowers like in my opinion, will be looking 812 00:44:07,480 --> 00:44:10,240 for to lock trades in for weeks or maybe like several months at 813 00:44:10,240 --> 00:44:13,280 a time. So yeah, we see this kind of 814 00:44:13,280 --> 00:44:15,880 thing with Pendle, right? Pendle offers fixed rate 815 00:44:15,880 --> 00:44:22,280 products and and allow, allow, allow borrowers typically are 816 00:44:22,280 --> 00:44:25,080 like more like lenders I suppose to kind of like lock in for 817 00:44:25,080 --> 00:44:27,400 three months to six month periods as well. 818 00:44:27,400 --> 00:44:30,240 I suspect we'll see fixed rate products that kind of match that 819 00:44:30,520 --> 00:44:32,840 sort of time frame. So that like, yeah, one month to 820 00:44:32,840 --> 00:44:36,040 six months sort of range will probably be where I put my money 821 00:44:36,040 --> 00:44:40,440 on being the most popular. So you mentioned Pendle right 822 00:44:40,440 --> 00:44:41,720 there. In Pendle, there's another Defy 823 00:44:41,720 --> 00:44:44,280 protocol that has gotten like a lot of traction. 824 00:44:45,240 --> 00:44:50,800 My understanding of Pendle is that it's a lot of around, you 825 00:44:50,800 --> 00:44:58,320 know, points and, and basically, you know, someone will earn some 826 00:44:59,280 --> 00:45:01,880 unknown amount of some other token. 827 00:45:02,000 --> 00:45:05,360 And then they basically they, they basically sell those for 828 00:45:05,360 --> 00:45:09,360 like some fixed, some fixed interest. 829 00:45:11,080 --> 00:45:15,160 And then they get these PT tokens out with a specific 830 00:45:15,160 --> 00:45:17,160 maturity. And and I guess they could then 831 00:45:17,160 --> 00:45:21,240 use that as collateral in something like Euler to to 832 00:45:21,240 --> 00:45:24,040 borrow and to loop it. Yeah, exactly. 833 00:45:24,800 --> 00:45:27,320 Would you also think, or I don't know if it's possible to build 834 00:45:27,320 --> 00:45:29,880 something like Pendle directly in Euler? 835 00:45:31,320 --> 00:45:33,640 It would, yeah. I mean, you could definitely, 836 00:45:33,640 --> 00:45:35,720 definitely do that with the kind of fixed rate products we've got 837 00:45:35,720 --> 00:45:37,000 coming. But like you say, I think 838 00:45:37,000 --> 00:45:40,440 Pendles, but Pendles are exceptionally powerful is by it 839 00:45:40,440 --> 00:45:46,040 allows people to effectively convert intangible, intangible 840 00:45:46,040 --> 00:45:50,560 like incentives and rewards into like a concrete fixed rate. 841 00:45:50,560 --> 00:45:54,080 So the the you have people earning, earning points and 842 00:45:54,080 --> 00:45:56,040 other things which are like quite hard to value. 843 00:45:56,960 --> 00:45:59,040 And so they don't really know what they're worth and they like 844 00:45:59,040 --> 00:46:00,920 sell them off. They're kind of like lock in 845 00:46:00,920 --> 00:46:04,760 some like for like make it real, basically like make the make 846 00:46:04,760 --> 00:46:06,760 those points real and turn them into like something that they 847 00:46:06,760 --> 00:46:09,400 can actually trade on a proper secondary market. 848 00:46:09,400 --> 00:46:11,440 And that's where like Kendall services that need. 849 00:46:13,360 --> 00:46:16,680 And yeah, as you said, then once you've once you've converted 850 00:46:16,680 --> 00:46:21,840 that into a kind of like a real kind of yield, then people want 851 00:46:21,840 --> 00:46:25,080 to loop that yield and like amplify it on places like Koi Lo 852 00:46:25,080 --> 00:46:27,440 where they'll come in and use collateralize the Pendle token 853 00:46:27,440 --> 00:46:30,440 and do a carry trade and borrow non yielding stables there. 854 00:46:31,000 --> 00:46:33,360 The loopers end up being kind of like junior capital. 855 00:46:33,360 --> 00:46:35,760 They're taking, they're like seeking higher risk, but like 856 00:46:35,760 --> 00:46:38,840 taking, sorry, seeking more reward, but taking on higher 857 00:46:38,840 --> 00:46:42,120 risks, liquidation and performing all these loops and 858 00:46:42,120 --> 00:46:43,720 all the rest of it. And then the lenders on the 859 00:46:43,720 --> 00:46:46,400 other side of that trade become more like senior capital where 860 00:46:46,840 --> 00:46:48,680 they're, yeah, they're not getting paid as much, but 861 00:46:48,680 --> 00:46:51,000 they're they're kind of protected and they're protected 862 00:46:51,000 --> 00:46:55,080 through effectively the over collateralization of the of the 863 00:46:55,080 --> 00:46:58,280 borrowers. That's been the big popular 864 00:46:58,280 --> 00:46:59,560 trade, I would say on that front. 865 00:46:59,560 --> 00:47:02,280 But yeah, you can, you can build Pendle in Euler, but it's not 866 00:47:02,280 --> 00:47:04,880 like where where there's no plans to build that Pendle up 867 00:47:04,880 --> 00:47:08,920 to, not in all of Franklin. It's a different kind of fixed 868 00:47:08,920 --> 00:47:10,880 rate that I think people want to lock in in for. 869 00:47:11,840 --> 00:47:13,880 What? What do you see as the future 870 00:47:13,880 --> 00:47:21,160 for Euler? I mean, I think, I think all the 871 00:47:21,160 --> 00:47:22,960 finance is coming. So I've been saying this for 872 00:47:22,960 --> 00:47:24,280 years. I think all the finance is going 873 00:47:24,280 --> 00:47:29,640 to come unchanged. I think if you use swap products 874 00:47:29,640 --> 00:47:32,760 in your swapper, you have no loyalty to who use right. 875 00:47:32,760 --> 00:47:35,160 You just put it through one inch or cow swap, whatever else and 876 00:47:35,160 --> 00:47:37,320 just get the best possible swap rate you can. 877 00:47:38,400 --> 00:47:41,120 But on credit markets, people don't do that right. 878 00:47:41,120 --> 00:47:42,200 There's not going to be 1 winner. 879 00:47:42,200 --> 00:47:47,360 There's going to be, there's going to be a diverse selection 880 00:47:47,360 --> 00:47:52,080 of, of protocols because people want to diversify the risk. 881 00:47:52,480 --> 00:47:55,800 If you're putting assets into somewhere or taking out loans 882 00:47:56,840 --> 00:47:59,200 over extended periods, you're exposed to extended periods at 883 00:47:59,200 --> 00:48:01,080 risk. And the, you know, the, there's 884 00:48:01,080 --> 00:48:04,280 this saying, right, that the, the only free lunch in finance 885 00:48:04,280 --> 00:48:09,040 is like diversification. So I think Oiler is going to be 886 00:48:09,560 --> 00:48:14,040 one of the largest credit protocols in the future of 887 00:48:14,040 --> 00:48:17,560 finance, frankly. And I think we won't be the only 888 00:48:17,560 --> 00:48:18,880 one. There'll be others other big 889 00:48:18,880 --> 00:48:21,200 protocols too, but certainly we'll be up there. 890 00:48:21,560 --> 00:48:26,440 And over time I imagine that we'll all slightly specialized. 891 00:48:26,480 --> 00:48:29,280 Usually what happens in markets is you find specialization. 892 00:48:29,280 --> 00:48:33,400 So Euler will will develop a specialization for for certain 893 00:48:33,680 --> 00:48:36,360 classes of trades probably and do those better than anybody 894 00:48:36,360 --> 00:48:38,680 else whilst the other competitors end up specializing 895 00:48:38,680 --> 00:48:42,280 on other things as well. Yeah, in the short term, I think 896 00:48:42,640 --> 00:48:45,080 right now we're we're still dealing with very crypto native 897 00:48:45,080 --> 00:48:48,480 forms of like credit, but I think there's increasing amounts 898 00:48:48,480 --> 00:48:51,240 of more traditional forms of credit coming on chain. 899 00:48:51,240 --> 00:48:54,600 And I think Euler is very well set up. 900 00:48:54,640 --> 00:48:59,120 As you know, the architecture of Euler is very welcoming for, 901 00:49:00,640 --> 00:49:02,320 yeah, real world assets I would say. 902 00:49:02,320 --> 00:49:04,320 And so that that's something that I think we'll be pushing 903 00:49:04,320 --> 00:49:06,520 forward on in the in the months and years to come. 904 00:49:07,400 --> 00:49:09,880 So you think in terms of. You mentioned that different 905 00:49:09,880 --> 00:49:11,560 protocols will specialized in different ways. 906 00:49:11,560 --> 00:49:14,560 So you think for Euler will be more around RWAS? 907 00:49:15,720 --> 00:49:17,840 I think real world assets will be a big part of it, yeah. 908 00:49:18,280 --> 00:49:20,680 We also have like a swap protocol that's built on top of 909 00:49:20,680 --> 00:49:25,960 Euler. Euler swap, which which which 910 00:49:25,960 --> 00:49:28,720 works extremely well with real world assets and can open up 911 00:49:28,720 --> 00:49:31,360 growth opportunities for real, real world assets that aren't, 912 00:49:31,400 --> 00:49:35,280 aren't really there today. So yeah, I think that's today. 913 00:49:35,280 --> 00:49:37,400 That's something that that we see as like a competitive 914 00:49:37,400 --> 00:49:42,000 advantage, certainly. So when you talk about real 915 00:49:42,000 --> 00:49:45,440 world assets, what do you think are the type of real world 916 00:49:45,440 --> 00:49:47,960 assets that will get the most traction? 917 00:49:50,720 --> 00:49:52,960 Well, they'll be the in the short term. 918 00:49:52,960 --> 00:49:55,600 I think D5 has always been a very risk on environment. 919 00:49:55,600 --> 00:49:59,400 So I think like tokenising credit funds will be popular 920 00:49:59,400 --> 00:50:03,440 because they will be they'll generate more yield and those 921 00:50:03,440 --> 00:50:07,080 yields then get will get passed on to to lenders through through 922 00:50:07,080 --> 00:50:11,000 looping where we get like senior, junior tranches just 923 00:50:11,000 --> 00:50:14,000 like we have with the D5 assets today I think initially. 924 00:50:14,000 --> 00:50:18,520 That's like credit funds where people basically, I don't know, 925 00:50:18,760 --> 00:50:25,800 for example, lends a fund that lends dollars to, for example, 926 00:50:26,040 --> 00:50:28,520 businesses like that kind of thing. 927 00:50:28,520 --> 00:50:33,040 And then they somehow like tokenize the fund and put it on 928 00:50:33,040 --> 00:50:34,920 chain. Yeah, that's fine. 929 00:50:35,200 --> 00:50:37,080 Yeah, I think, I think those kind of things they're, they're 930 00:50:37,080 --> 00:50:38,920 definitely higher up the, the risk spectrum. 931 00:50:41,240 --> 00:50:45,280 But but that's, that's the kind of D5 is a very risk on 932 00:50:45,280 --> 00:50:47,800 environment generally. And I think like with the, the, 933 00:50:47,800 --> 00:50:50,160 the people we have here today, that will probably be quite 934 00:50:50,160 --> 00:50:52,440 popular. But over time, I think the space 935 00:50:52,440 --> 00:50:54,600 will continue to mature. We see like all sorts of 936 00:50:54,600 --> 00:50:57,720 fintechs coming on, on and more like traditional institutions 937 00:50:57,720 --> 00:51:01,400 coming on chain as well. And so then we'll start to see 938 00:51:01,400 --> 00:51:06,520 the emergence of of much, much lower risk types of, of real 939 00:51:06,520 --> 00:51:08,600 world assets coming on chain and being popular as well. 940 00:51:09,120 --> 00:51:10,960 I mean, there's, there's already some of those here today, but 941 00:51:10,960 --> 00:51:12,480 they're just not widely used, right. 942 00:51:12,480 --> 00:51:18,440 We like see Biddle, it's yeah, tokenized, tokenized T-bills, 943 00:51:18,440 --> 00:51:21,240 all those kind of things like they, they don't provide juicy 944 00:51:21,240 --> 00:51:24,960 yields and therefore they're not that popular to to trade among 945 00:51:26,120 --> 00:51:31,600 are in D5 protocols today. And there's friction to using 946 00:51:31,600 --> 00:51:33,280 them as well. There's like extra constraints 947 00:51:33,280 --> 00:51:36,960 with moving these assets around Euler and Euler swap helps lower 948 00:51:36,960 --> 00:51:38,960 those frictions, I think makes them more efficient. 949 00:51:38,960 --> 00:51:41,760 But even with those efficiencies, you still need the 950 00:51:41,760 --> 00:51:45,760 types of people that want to trade those assets in, in, you 951 00:51:45,760 --> 00:51:48,560 know, triad fire. You have like repo markets and 952 00:51:48,560 --> 00:51:51,880 money markets and things where you see like really large sums 953 00:51:51,880 --> 00:51:54,600 of money, like changing hands over like short, short periods 954 00:51:54,600 --> 00:51:57,480 of time. And there's just nowhere near 955 00:51:57,480 --> 00:52:00,960 enough liquidity in, in, in D5 today to support those kind of 956 00:52:00,960 --> 00:52:02,200 trades. But increasingly that's 957 00:52:02,200 --> 00:52:04,560 changing. I think we'll that will that 958 00:52:04,560 --> 00:52:07,240 will be very popular in the in the years to come as as the 959 00:52:07,240 --> 00:52:11,480 space matures. I I know one of the things that 960 00:52:11,480 --> 00:52:15,880 was often discussed as a big bottleneck to getting more 961 00:52:15,880 --> 00:52:18,240 financial institutions unchain is like privacy. 962 00:52:19,400 --> 00:52:21,280 Do you have? What do you think is the role of 963 00:52:21,280 --> 00:52:26,040 privacy in the future of D5? I think it's going to be, it's 964 00:52:26,040 --> 00:52:28,400 an, it's an interesting one. There's a huge tension right 965 00:52:28,400 --> 00:52:33,640 between, between the, the, the, the desire for privacy, but then 966 00:52:33,640 --> 00:52:35,600 the, the desire for transparency as well. 967 00:52:36,440 --> 00:52:41,960 And where, where you set on that spectrum, I think depends a lot 968 00:52:41,960 --> 00:52:44,800 on your own personal background, like your experiences, like how 969 00:52:44,800 --> 00:52:46,880 you think it's more like a political thing, right? 970 00:52:46,880 --> 00:52:52,480 I mean, I think if you look historically at like protocols 971 00:52:52,480 --> 00:52:56,360 that are provided like a really high degree of privacy in in D 972 00:52:56,360 --> 00:53:03,640 Phi, it's been fairly heavy use of like illicit finance by by by 973 00:53:03,640 --> 00:53:07,960 bad actors and that that puts traditional finance off 974 00:53:07,960 --> 00:53:09,720 actually. Like they don't then you're not 975 00:53:09,720 --> 00:53:14,560 going to see, you know, institutions mixing funds with, 976 00:53:15,080 --> 00:53:19,320 with, with illicit fund, like funds that were taken in in 977 00:53:19,320 --> 00:53:22,280 hacks and like, you know, mixing with other sorts of illicit 978 00:53:22,280 --> 00:53:23,920 finance. So that's, that's one form of 979 00:53:23,920 --> 00:53:26,720 privacy. That's yeah, I just don't, I 980 00:53:26,720 --> 00:53:29,480 think it's going to struggle to get adoption, honestly. 981 00:53:29,560 --> 00:53:33,000 But on the other hand, institutions also don't want to 982 00:53:33,000 --> 00:53:35,200 you to always know what they're trading, right? 983 00:53:35,200 --> 00:53:37,080 Like especially if it's a directional trade. 984 00:53:37,440 --> 00:53:41,400 I don't want to be putting on a trade on Bitcoin or whatever 985 00:53:41,400 --> 00:53:44,040 else and let everybody else just like pick me off because they 986 00:53:44,040 --> 00:53:46,760 can see that I'm like got, I'm long and I've got certain types 987 00:53:46,760 --> 00:53:50,560 of exposure. So yeah, there's a huge tension 988 00:53:50,560 --> 00:53:52,080 and I don't know where it will resolve. 989 00:53:52,080 --> 00:53:54,760 I don't think it's, it's not like it's not that the we, we 990 00:53:54,760 --> 00:53:56,960 don't have the technical capabilities to make these 991 00:53:56,960 --> 00:53:58,680 protocols. It's more of like a political 992 00:53:58,680 --> 00:54:01,480 thing. And how much, how much, how much 993 00:54:01,880 --> 00:54:04,360 should we trade off between transparency, which tends to 994 00:54:04,360 --> 00:54:09,280 make like fairer markets versus privacy, which is like arguably 995 00:54:09,280 --> 00:54:12,640 fairer for individuals and their personal freedoms, right. 996 00:54:12,640 --> 00:54:17,560 I yeah, I just don't know in, in like most regulations in, in 997 00:54:17,560 --> 00:54:20,960 Triadfi seem to be driving towards more transparency, not 998 00:54:20,960 --> 00:54:23,600 less. But if you ask any individual 999 00:54:23,600 --> 00:54:25,240 person, like should I have more privacy? 1000 00:54:25,240 --> 00:54:27,640 I think most people would, would want more privacy, right? 1001 00:54:27,640 --> 00:54:30,960 And that's, that's only right. So yeah, there's this huge, huge 1002 00:54:30,960 --> 00:54:35,200 societal and and tension there between those two things. 1003 00:54:36,080 --> 00:54:38,680 Yeah. And I guess the other thing, I 1004 00:54:38,680 --> 00:54:40,800 mean, maybe that is a solvable issue, right. 1005 00:54:40,800 --> 00:54:43,880 But of course one of the advantage of D5 on the 1006 00:54:43,880 --> 00:54:48,680 transparency of D5 is also much easier to assess where the risks 1007 00:54:48,680 --> 00:54:52,200 are. I mean, hard enough, but at 1008 00:54:52,200 --> 00:54:55,680 least the the information is there and someone can try to do 1009 00:54:55,680 --> 00:54:57,880 it. But then if if you add more 1010 00:54:57,880 --> 00:55:02,160 privacy that that probably also makes it much harder to 1011 00:55:02,160 --> 00:55:05,280 understand where the risks are. And you know, if this fails, 1012 00:55:05,280 --> 00:55:10,680 what else does it result in? Yeah, I mean, I was, I entered 1013 00:55:10,680 --> 00:55:16,560 the like labour market in August 2008 and I joined a bank in the 1014 00:55:16,560 --> 00:55:20,080 UK called the World Bank of Scotland, just as the entire 1015 00:55:20,080 --> 00:55:21,800 system was like collapsing, right. 1016 00:55:22,640 --> 00:55:26,120 And I remember hearing from that, you know, after that, 1017 00:55:26,520 --> 00:55:30,760 after people like went through the, went through everything 1018 00:55:30,760 --> 00:55:32,920 afterwards and they tried to like piece it all together and 1019 00:55:32,920 --> 00:55:34,320 it was just like an absolute nightmare. 1020 00:55:34,320 --> 00:55:36,560 And I still don't think people completely understand what 1021 00:55:36,560 --> 00:55:39,520 happened because like actually mapping it all out and like, you 1022 00:55:39,520 --> 00:55:41,600 know, looking at when all these different banks collapsed and 1023 00:55:41,600 --> 00:55:44,000 everything like what, what actually went wrong, what was 1024 00:55:44,000 --> 00:55:45,880 the, the trigger? And like, whether, you know, 1025 00:55:45,880 --> 00:55:48,120 whether the funds flowing on the rest of it is very hard to like 1026 00:55:48,120 --> 00:55:51,880 process it. And I think that at least in D5, 1027 00:55:51,880 --> 00:55:54,280 that's all easily mappable on chain. 1028 00:55:54,280 --> 00:55:56,480 And if someone wants to do it, they can. 1029 00:55:56,960 --> 00:56:00,840 It's not not necessarily like easy as you say, but it's much, 1030 00:56:00,840 --> 00:56:02,440 much more transparent in that regard. 1031 00:56:02,440 --> 00:56:05,040 And I think that will be healthier for financial markets 1032 00:56:05,040 --> 00:56:08,640 in the long run, even though it does pose its own challenges. 1033 00:56:09,040 --> 00:56:12,000 There may be, you know, we may yet see technologies emerge 1034 00:56:12,000 --> 00:56:15,200 which actually are able to kind of balance that tension out 1035 00:56:15,200 --> 00:56:22,840 where, yeah, you, you can kind of have like, like privacy is 1036 00:56:22,840 --> 00:56:26,080 like the de facto norm, but like it can kind of, you can like 1037 00:56:26,080 --> 00:56:28,480 under certain conditions, like reveal certain things or 1038 00:56:28,480 --> 00:56:30,640 whatever. If it's, if it's essential to do 1039 00:56:30,640 --> 00:56:34,320 so, to make sure that you aren't, you aren't like mixing 1040 00:56:34,320 --> 00:56:37,040 funds with illicit finance and so on. 1041 00:56:37,040 --> 00:56:39,240 But I didn't, I don't know. I mean, it's, it's not 1042 00:56:39,240 --> 00:56:42,400 something, it's not something that I'm working on personally 1043 00:56:42,400 --> 00:56:44,160 or at the moment. We're working with what we've 1044 00:56:44,160 --> 00:56:47,880 got, which right now is it's mostly like Max transparency I 1045 00:56:47,880 --> 00:56:51,000 would say on open public blockchains. 1046 00:56:52,360 --> 00:56:53,960 What's your biggest focus right now? 1047 00:56:55,680 --> 00:57:02,720 Oh, I mean, personally, we have new products coming or we've 1048 00:57:02,720 --> 00:57:06,840 discussed on fixed rate side, we've been working on growing 1049 00:57:06,840 --> 00:57:11,200 our swap post call. And from my side, like a lot of 1050 00:57:11,200 --> 00:57:17,280 my time is spent like going and, and, and meeting, meeting new, 1051 00:57:17,280 --> 00:57:19,880 new types of users, like institutions and other people 1052 00:57:19,880 --> 00:57:24,320 that and talking to them about how our oiler works effectively 1053 00:57:24,320 --> 00:57:27,360 and educating them about how how the system works and seeing if 1054 00:57:27,360 --> 00:57:30,040 they can be encouraged to come and use the protocol, you know, 1055 00:57:30,040 --> 00:57:31,720 new types of asset issuers and so on. 1056 00:57:32,440 --> 00:57:34,880 There's just almost not enough hours in the day at the moment. 1057 00:57:34,880 --> 00:57:38,880 Like it really there's, yeah, there's just a massive, massive 1058 00:57:38,880 --> 00:57:44,760 shift in the past year and growth opportunities absolutely 1059 00:57:44,760 --> 00:57:46,240 everywhere in D5 right now, I'd say. 1060 00:57:47,640 --> 00:57:51,560 What do you think about the the impact AI is going to have on 1061 00:57:51,560 --> 00:57:58,960 D5? Oh, I mean, as we mentioned, I 1062 00:57:58,960 --> 00:58:01,640 think like one thing that's that's certainly, certainly 1063 00:58:01,640 --> 00:58:03,520 likely to happen. You know, we've talked about 1064 00:58:03,520 --> 00:58:06,080 like rebalancing strategies and all the rest of it and making 1065 00:58:06,080 --> 00:58:10,840 sure that you're able to able to kind of monitor positions and so 1066 00:58:10,840 --> 00:58:12,440 on. I imagine that that's something 1067 00:58:12,440 --> 00:58:14,640 that's going to be handled by by AI. 1068 00:58:15,040 --> 00:58:17,640 We've already like internally like played with some some like 1069 00:58:17,760 --> 00:58:20,800 machine learning algorithms for like optimizing yield basically 1070 00:58:20,800 --> 00:58:23,280 by like rebalancing, like lending positions and so on. 1071 00:58:23,720 --> 00:58:25,280 I think you could do that with AI as well. 1072 00:58:25,280 --> 00:58:28,720 I have like smart boring, basically where you rather than 1073 00:58:28,720 --> 00:58:30,880 you having to sit at the computer and like with all your 1074 00:58:30,880 --> 00:58:35,840 spreadsheets, like the, you know, the financial analysts 1075 00:58:35,840 --> 00:58:38,280 going through things pouring over data like right, right, 1076 00:58:38,280 --> 00:58:41,720 really intelligent bots that can basically under some 1077 00:58:41,720 --> 00:58:45,280 constraints, move, move the funds on your behalf to either 1078 00:58:45,280 --> 00:58:48,600 optimize the yield as like the the senior transfer to, to 1079 00:58:48,600 --> 00:58:50,960 optimize the lending and borrowing positions as the the 1080 00:58:50,960 --> 00:58:55,240 kind of junior branch of things. So I think that will be yeah, or 1081 00:58:55,240 --> 00:58:58,680 will will change things a lot, lead to more efficient markets 1082 00:58:58,680 --> 00:59:00,720 overall. There's huge inefficiencies in 1083 00:59:00,720 --> 00:59:03,400 D5 today. Rate optimization is not really 1084 00:59:03,400 --> 00:59:06,880 a thing. It's there's this protocols like 1085 00:59:06,880 --> 00:59:10,360 iPod and others and and that's, you know, do it like it's the 1086 00:59:10,360 --> 00:59:12,960 kind of what year and introduce like when I first started back 1087 00:59:12,960 --> 00:59:16,000 in 2020, like I think because we're doing this kind of thing, 1088 00:59:16,000 --> 00:59:18,520 but it's still, it's still a very inefficient market. 1089 00:59:18,880 --> 00:59:21,440 You know, by and large, I think AI is going to change that. 1090 00:59:22,920 --> 00:59:24,840 Cool. Well, thank you so much for 1091 00:59:24,840 --> 00:59:27,240 coming on. It was really cool to dive into 1092 00:59:27,240 --> 00:59:35,280 Euler and yeah, I think I think what you pointed out before like 1093 00:59:35,280 --> 00:59:40,320 you know, if traffic and and RW as coming on chain, a lot more 1094 00:59:40,320 --> 00:59:44,360 capital coming on chain. This is going to be an you know, 1095 00:59:44,360 --> 00:59:47,320 I think T5 will continue to be an extremely interesting space. 1096 00:59:47,320 --> 00:59:49,880 So really excited for what you guys are building. 1097 00:59:50,720 --> 00:59:52,320 Thank you. Yeah, thanks for having me on. 1098 00:59:52,320 --> 00:59:55,600 It was a really good chat, lots of different topics and it was 1099 00:59:55,600 --> 00:59:56,880 great. There's just so much to do right 1100 00:59:56,880 --> 00:59:58,960 now. It's very, very exciting time.