Welcome to AB Center, the show which talks about the
technologies, projects and people driving decentralization
and the blockchain revolution. I'm Brian Crane, and today I'm
speaking with Michael Agrov. I thought what if we have voting
power not equal to number of tokens, but what if we lock the
tokens and the voting power will be proportional to number of
tokens and time left before unlock.
So if you lock tokens for like the maximum of four years, you
have maximum voting power, but if you lock tokens for one year,
your voting power is 4 times less.
What do you think would be the kind of yield that people would
be able to earn? For like 20% it can go down if
liquidity in yield basis starts suppressing Bitcoin volatility
globally. And question is where is this
limit? Something around 50 billion TVLI
guess right So. Welcome to AB Center, the show
which talks about the technologies, projects and
people driving decentralization and the blockchain revolution.
I'm Brian Crane and today I'm speaking with Michael Agroff,
who is the Co founder and CEO of Curve Finance, which was one of
the most influential, original and most successful D5
protocols. And more recently actually a
very recent, it's just a few weeks ago has launched a new
protocol called yield bases, which is also very interesting
and it's tackling one of the most tricky problems throughout
AMS, automated market maker impairment loss.
So I'm really excited to talk with Michael about this today.
So just before we get into that, I would like to share a few
words from our sponsors this week.
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start exploring at nosis dot IO. Thanks so much for coming on
today, Michael. It's really great to have you
back on. And so we had you on I think
four years ago, over 4 1/2 years ago already to talk about curve.
So it's been quite a while. Yeah, yeah.
I guess it's the time flies. So you said I'm a Co founder of
Curve but there is no other founder that's?
Right. Yeah, yeah, The only founder,
right? So I guess yeah, I guess Co
founded with with my with my laptop.
Yeah, with your laptop, Yeah. I should also mention disclaimer
that through my company course one, we are an investor in yield
basis as well. So let's maybe we can, I mean, I
think mainly we want to speak about yield basis.
But for those who are not familiar with curve, maybe it's
just a few minutes. Can you give like a very quick
background on, you know what curve is and what are your
biggest learnings from? Curve.
Oh, absolutely. So a curve is, I would say,
probably best known as the the venue for my exchanging and
providing stable coin liquidity to swap between stable coins and
between I would say between LSTS as well.
I started it back in 2020 because well, with one reasons,
one of the reasons being because I was a big user of maker doll
borrowing die against ETH because I didn't want to sell
pressures ethers and but I needed some funds.
So I borrowed against ETH and you know, you could borrow,
sell, die on I don't know, somewhere and withdraw USDC as
USD in in Coinbase or something. But I found that actually
exchange between stable coins was very, very sub optimal
everywhere on centralized exchanges, on taxes, like yeah.
And at the at the same time I was thinking about making
liquidity for, you know, what we now call LSTS, liquid staking
derivatives. And I thought about actually the
same algorithm is applicable to stable coins.
So I launched Curve with making the ability to make stable coin
liquidity and already at 1,000,000 TBL, it's outperformed
everything in existence in this area.
And yeah, it just grew since then.
And of course it since then expanded to Bitcoin wrappers,
staked ethers, even volatile pairs.
And actually what powers your basis is some modifications of
crypto poles for making liquidity between the vault in
in volatile pairs. So, and after that, Curve
actually created its own stable coin Curve USD as well as
lending protocol with some very interesting mechanisms like on
liquidations and and also, of course, Curve is governed by
Curve Dow, for which I invented VE tokenomics and I iterated
further on that in yield basis because I think it was well, it
would be it was nice to somewhat update.
What about token economic designs do?
Yeah, absolutely. I think there's a lot of stuff
there to go into just to write to zoom out a little bit, right.
So I guess the the thing in something like a unisop or write
to traditional MMM right. If you'd basically let's say you
have like a USDCUSDT market and then you know, people provide
liquidity on both sides and then as you put in let's say USDC,
then the price of USDC goes up, right?
So it becomes more and more like a little bit no, no down, yeah,
yeah, yeah. Like you putting it down, right.
You, you putting in UCC, taking on USDT and then price keeps
going down. And then very quickly because,
because the, the, the sort of protocol thinks that means it's
losing value, right, Because it doesn't have, it's sort of an
internal price predictor, right, based on the trading volume of
the exchange. So then for, especially for
stable pairs, right? It doesn't make any sense,
right? Because they're, you know,
they're basic. Well, varies pricing, so price
is not set to 1 in curve. Actually it never was, but curve
has what we now call concentrated liquidity.
The very first concentrated liquidity was Curve, but it's
not that concentrated liquidity where you handcraft your
liquidity distribution. It's a concentrated liquidity
where it's distributed according to some special bonding curve
which concentrates liquidity around the price 1.0.
So because like you know that maybe maybe having liquidity at
price 0.5 is kind of useless in stable point world, right?
So you probably want everything be to be around 1.0.
And apparently the bonding curve, which is in curve that's
hence the name is actually very efficient.
So I, I don't think, I don't think anything in existence
provides significantly or bigger efficiency than that.
Yeah. For stable coins in place.
Yeah, maybe let's talk about the V tokenomics, because I think V
tokenomics is something you know, that you've seen come up
in other places. I think a lot of people ended up
copying it. But can you explain what was,
what was the problem you're trying to solve?
And like how how do V tokenomics?
Work so the actual the original idea was aligning the governance
with the long term success of the protocol and the problem is
this imagine that someone controls the protocol with
tokens or shares or whatever. So the more tokens or shares
they have the more volatile power they have.
What if they for example well, let me just pretty one one
example which I think what have happened maybe maybe it's not
that, but maybe it is so it's still a good example.
You remember how back in the days there were several crashes
with Boeing Max aircrafts, right And well, the the real reason
for these crashes was essentially low quality of well,
low quality of production because the company was trying
to save money on everything. But why did they try to save
money on everything? Well, it appears that they
switched a bunch of revenues to share buybacks and didn't spend
much money on on improving quality.
So, well, shares went up, but they didn't have much money for
the for the company to operate, so they had to fire some good
engineers and of course quality of aircrafts deteriorated and
well, it led to few catastrophes and well, guess what?
Shares started dropping. But apparently a bunch of
shareholders already sold their shares by that time.
And who knows, maybe they short it.
But then the US government salvage the company and they
bought the deep and well, I mean, shareholders benefited,
but it was not not great for the company at all.
Maybe it's not what happened, but that's how it looked, it
seemed to me. And I thought, well, what's the
fundamental reason for this to happen?
Fundamental reason is that shareholders are not aligned
with the long term success of the company.
So what if we do this? What if we align token holders
with the long term success of the project?
How do we do it? OK.
So and and how did you use tokenomics then to align these
incentives in the protocol? Right.
So I thought, what if we have voting power not equal to number
of tokens, but what if we lock the tokens and the voting power
will be proportional to number of tokens and time left before
unlock. So if you lock tokens for like
the maximum of four years, you have maximum voting power, but
if you lock tokens for one year, your voting power is 4 times
less. Or if you lock tokens for, I
don't know, for one week that your voting power is I think
0.5% of someone's voting power if they locked for four years.
So that's essentially the idea. So someone who has longer term
alignment, hopefully maximum, has the biggest say in the
future of the protocol. And that indeed worked.
Indeed, this produced some long term alignment, not necessarily
of physical people, but also long term alignment of protocols
built on top of curve, like convex or stake down or wire.
And they are all passionate about moving curve forward.
So this in a sense worked. But that was not the only thing,
as you can imagine. Right.
Because I guess that the way I'd imagine people would sort of
like, so work around it is if you, if you can just then like
you put that into some pool and that stakes for the maximum
duration. And then the issue like a liquid
token, right? That you can like true
immediately. That is, that is of course true,
but then you of course give your voting power to that protocol,
right? So that critical decides how to
use this voting power. That's one thing.
Another thing, if people who do that decide to exit, then this
derivative wrapper of of the lock token will depend and it
will go down from parity and people will stop selling it
because there is not enough liquidity to do it.
So you turn essentially. Well, you turn.
You turn this waiting for unlock into the market discount.
Yeah, yeah. And then what was the impact or
or like what do you think were some of the positive effect of
evaluating this tokenomic? Right, one positive effect which
I didn't necessarily think of. Well, it appears that locking
the tokens removes them from circulation actually way faster
than buy back and burn would do, around three times faster.
So if Curve basically collected revenues which the protocol has
and bought CRV tokens from the market and burned, it would have
removed three times less tokens from circulation than than
locking removed. So it appears that VE economics
actually practically is more efficient for for decreasing
their circulating supply, which is what?
Well, I had no idea that this will be the case when I started
this. So it's a very interesting
economic consequence. So I mean, I don't know.
And if you are now, as you kind of started working on a new
protocol, are there particular things you feel like you've
learned are your biggest lessons from building curve where you
felt like this is something I want to do differently?
Yes, absolutely. So there were there were some
details about how VE to economics works, which I wanted
to change. Well, for once VE to economics
actually wants to resist this wrapping.
And this wrapping happened anyway.
But it created an obstacle of locking for multi 6 essential.
So I removed this obstacle in VEYB.
So even multi 6 can can lock VEYB.
That's fine. Another thing in the E
tokenomics, one of the function of VE tokens is boosting your
token emissions. So let's say if you put money in
the pools, take it to learn to earn CRV tokens, then you can
earn more CRV tokens if you have VECRV, which seems to be a nice
function of VE tokens. That's right.
But it encourages creation of natural monopolies in who hold
VECRV. And that is not necessarily bad
because they did a good function, but nevertheless, it's
a little bit less decentralization.
Well, they are decentralized within themselves, but it, it
felt like it still felt like something wrong about that.
So I and also increasing boosting token production by
having VE tokens is a little bit technically difficult.
So I decided to remove that faction from the from the EYB.
So it's the EYB is not doing that thing.
Another thing which is not necessarily directly VE
tokenomics which I wanted to try is splitting, splitting revenues
between staked and unstaked. So in Curve there is no reason
to not stake your liquidity. So if you provide liquidity on
curve, you earn of course fees of the pool and if you stake you
also earn CRV tokens. And there is no reason to not
earn CRV tokens because like value, if you don't do that,
then it just earn less, right? So buy, earn less.
And people who earn CRV tokens, they sometimes they don't need
CRV tokens. So they kind of sell them.
And yeah, so it's, and it's a complication for integrations.
So I thought, why not do it differently?
Why not make it so that there are two kinds of people.
One, people want to earn natural yield, right?
So natural yield protocol is earning.
So they have auto compounding value which is growing in their
wallet. And those who don't want want
natural yield, those who who just want to hold the stable
value of what they put in and earn protocol tokens, YB tokens.
And that's what I did in yield basis.
So you essentially split between two kinds of liquidity
providers. And I think that is good for
integrations because for integrations it's actually much
easier to integrate something which doesn't doesn't earn
tokens, something which just automatically compounds value.
And it's allows to split between two kinds of people who want to,
who want to collect valuable governance tokens and not sell
it, hopefully. And who want to just earn real
yield and they would have sold the governance tokens but they
just can earn real yield in the 1st place instead.
So that's their idea and. I So that's kind of similar to
what Pendle did, no? I don't know.
Actually, I think the encouragement for me was not
Pendle, it was how you split yield in In Convex you can stake
CVX, CRV and can choose whether you earn CRV tokens or you earn
stable coins. Yeah, no, absolutely.
I think that makes perfect sense, right?
And it, it seems like a sort of win, win from both sides, right?
Because on the one hand, somebody wants to use yield
basis, they want to earn yield, then they mainly just want a
higher yield, right? And, and right, if they can get
higher yield, that's fantastic, right.
Then other people really want to but on the the token and then if
if they if you can sort of segregate that.
I think this it is very elegant. Right.
But this design leads to even more consequences which you
don't think of at the start. I think you, you mentioned to
limit cases 1 is when everyone wants to wants to earn
governance tokens, right? Well, and no one wants to earn
real yield. Pretty easy to imagine what
happens then. Of course stock and inflation is
probably is it has added Max at its maximum.
But nobody wants real yield. If nobody wants real yield,
where does the real yield go? And you probably can guess it,
it would go to all to admin fees in this case.
So admin fees would be very big if everyone wants to earn
governance tokens. Or imagine the opposite.
Imagine that everyone is, I don't know, like Bitcoin maxi
who don't really want to deal with those shit coins.
They want only Bitcoin. What happens?
Well, they own, they all want to earn real fees, real yield, so
they all don't stake. They have value of Bitcoin
growing, that's fine, but nobody wants to earn your governance
tokens. Nobody staked.
So is there any reason to have token inflation if that
happened? Well, apparently not.
So inflation of YB token is dynamic and depends on how many
people staked and if nobody stakes that inflation goes to 0.
So that is all dynamic and all driven by free market.
Cool. So let's let's we have actually
haven't yet talked about what your basis is.
So maybe explain what is the vision or how would you describe
your basis? Right.
So I would describe it as essentially I would say a vault,
right, or a set of vaults of which are built on top of curve
AMS which eliminate impermanent loss.
So you essentially provide liquidity and it is for the
user, it's looking like essentially A yield bearing
Bitcoin, if it's for Bitcoin of course or for raft bitcoins.
Right, because impermanent loss is a weird thing, right?
That I think people who have been liquidity pride is in defy,
you know, often have sort of, you know, painfully experienced
and, and other people, they, they have no idea what it is,
but basically, right, it's, it's in AMM, right?
So let's say you have a pairing and AMM something like if
Bitcoin and then if you put, let's say you put in $100 worth.
If when you put it in $100 worth of Bitcoin.
Now let's say the Bitcoin went up by 50%.
You know, if I just add $100 worth of EVE and and EVE stayed
the same, then normally I would have $250.
But if I put have both of those in the AMM actually sort of
asked if Bitcoin goes up, I'm selling some Bitcoin and I'm
buying more EFF and so I end up with less than $250, I end up
with Iron 200 and 42130. So some number like that I don't
know exactly. Actually this is easy to explain
quantitatively with with Uniswap 2 AMM, although it works the
same with Curve crypto swab AMM, right?
So imagine you have the simplest AMM you can imagine, same as
Uniswap one actually. So you put Bitcoin, 50K worth of
Bitcoin and 50K worth of U.S. dollar in this AMM, right?
So if Bitcoin goes up it sells a little bit of Bitcoin.
If Bitcoin goes down and buys a little bit of Bitcoin or well to
to the traders. So how does the price of your
liquidity behave? Apparently it is proportional to
square root of a Bitcoin price plus the fees it it earns on the
way. So imagine that Bitcoin went up
by factor of 4 right? Then your value in your AMM goes
up by sqrt 4 by factor of 2. So your 100K turns into two
100K. Well, sounds good, but what
happened if you did not put funds in the AM?
Well, 50K worth of Bitcoin goes up by a factor of four turns
into two 100K. But you have also these 50K of
USD so you'd have had 250K and in AMM you have two 100K which
is less. So sounds like you kind of
missed out when you were in the AMM.
And weirdly, if Bitcoin goes down it's kind of the same
thing. In AMM you have less than if you
have your funds sitting on a shelf.
Of course it's not exactly like that because AM Ms. also earn
fees and you get a little bit more in the AM, but fees usually
don't cover this gap because Bitcoin tends to go up faster
than AMM earns fees somewhat. So this was a problem for people
all the time. Yeah, absolutely.
And I've definitely experienced that in the past, right, where
I've been in like liquidity providers and A&M's with like
liquid. I have anecdotal.
I have anecdotal evidence from people who LP D between CRV and
ETH and they've been very happy. They LP that in uniswap 2 for
several years and they've been up both in terms of CRV and in
terms of ES. But it is one of the rare
examples where fee were actually bigger than the IO.
Yeah, exactly. But so the challenge, like let's
say if you take the Bitcoin example, you guys focus on
Bitcoin at least initially, then, you know, people tend to
want to hold on to their Bitcoin.
So they're kind of reluctant to put it into any kind of AMM
because they're like, well, you know, chant, there's a good
chance that I'll end up with less Bitcoin in the end because
every permanent loss and like, I don't want that, right?
So so how does yield faces get rid of impermanent loss?
Yeah. Well, as I mentioned, the price
of your of fuel liquidity, but like base price is proportional
to square root of Bitcoin price. So it feels like it's actually
not a real loss. It's kind of almost a
mathematical loss. So you, you, you really want to
get rid of that square root somehow.
And apparently it is possible and you just need to construct
some position which inverse is this square root function.
And well what position could that be?
Apparently this position is leverage but it's not a typical
leverage, it's compounds in leverage.
So leverage where you keep loan to value ratio constant all the
time. To have leverage of factor of 2
you need 50% LTV and if you maintain that then your leverage
makes your position being square of the price of your collateral.
And if your collateral is your MMM position then you have
square of the square root. So it cancels out and that will
be proportional to Bitcoin price plus the fees it makes minus any
any sort of expenses or losses you have on the way about this
would be not impermanent plus. So it's so you can get rid of
impermanent loss this way. But then you have to have to
check are you actually net positive or no, right.
And it appears that you are actually net positive if you use
the right AMM under the hood. Right, So basically, right, so
we, we said before I'm trying to, so let's say you have like
the 50K USD and you have the 50K Bitcoin.
That's kind of like the traditional way, right?
But now we want to somehow get rid of the improvement loss.
So instead of a person putting in USD and Bitcoin into let's
say the curve AMM directly, they put just Bitcoin into into the
yield basis. That's right.
And, and so let's say they put in 50K worth of Bitcoin.
And actually I think better to explain it like 100K worth of
Bitcoin. OK, 100K worth of Bitcoin, and
the protocol borrows 100K worth of Curve USD, pairs with that
Bitcoin, and uses this 200K position to collateralize your
100K loan. So the net value of this
position is 100. K yeah, so the exactly.
So you putting in 100K where for Bitcoin the protocol borrows
100K of stables and then it has this LP token and the LP token
basically represents the 100K work with PTC and the 100K work
of stable. That's the collateral.
And of course, that's. Yeah, yeah.
And this that kind of cancels out on average the curve USD
part. The tricky part is that this AMM
is actually is having concentrated liquidity.
So it's not XYK, it's XYK only on average, but in different
moments of time it can deviate from ideal balance.
So it can be not 5050, but you know, 4555 or I don't know, 6040
of something. And so it fluctuates like that.
And now that the loan is actually the loan is 50% and
actually that well on average AMM is also doing 50%, but it's
fluctuating around this ideal value and that is what is making
it work because that's like inevitable property of
concentrated liquidity that you have, you have it going out of
balance a little bit. Yeah, yeah.
So I'm curious under which scenarios and, and what's
interesting, right, is you guys launched your braces just before
we had this, you know, massive liquidation event.
You know, I guess it was a week ago.
Was it the two weeks? It was October 10.
Yes, two weeks ago, right, which you know caused lots of chaos
and some recent some centralized exchanges, some protocol depart
protocols. How did yield bases handle the
the volatility and liquidations that happened there?
Right. So I actually started this quite
a bit. So first thing I checked, there
are actually 2 MMS in the yield bases, 1 is curve AMM and
another is a re leverage MMAMM which keeps the leverage
constant. And there is a spread between
these two AMS. When things are very calm,
spread is actually huge. It's like, I don't know, 2% or
something. But when things are volatile,
spread can go down to almost zero.
But the weird thing, if arbitrage is not happening, then
spread can go negative because it's not, well, it's not worth
the guess for arbitrage traders to trade.
And that is what happened on October 10th.
And I thought, Oh my God, this should be inherently lossy when
the spreads are negative because like MMM gives out value.
And now that's happening because gas was very high and it was not
worth the trade for arbitrage traders.
And at the time, TBL was still a little bit small.
So bigger TBL is better. For bigger TBL, gas doesn't
matter, but for smaller TBL it does matter.
So and the TBL was smaller. So I thought, well, maybe TBL is
too small for these gas prices and Malay tweeted about that.
But then I actually started it more.
But did the system actually fundamentally make money or lose
money at that time? Because it could be either.
Because if arbitrage is not happening and it relies on
arbitrage, it appears that actually it not earned money.
So it was that crash was actually good.
Probably it would have earned more money if arbitrage was
happening better. But yeah, it was interesting.
And what's even better, after this crash, someone like turned
volatility on, like Bitcoin woke up, started being volatile, and
volatility is what earns yield in your places.
So it was actually very, very good.
Well, I mean, not to say that I wouldn't call a crash very, very
good, but volatility turning on was was a good one.
And by the way, this crash was well allegedly called by USDED
pegging on finance. But on curve USD did not depend
depend at all. It was super stable.
It's just, I don't know was due to every, I don't know, all
exchanges all all called futures or whatever looking at price on
Binance, but it was their own price.
Thank you. Your microphone is off.
Yeah, that's, that's great to hear that yield pace has
performed so well in that context.
I mean, let's talk a little bit about the metrics around the
launch, like what, what have you learned about the behavior of
the system? And I realize it's still early
phase, right? Still early phase it's capped
and that's good. Our cap was going up gradually,
right? So first the goal was to to
actually verify that everything is working as expected.
Although there were multiple audits and everything you can
never know, right? Well, it, it looked fine.
Then the cap caps were raised and right now the caps are at
150 millions total and that is a healthy number to make sure that
gas is not an issue and system performs as as it should.
A few things. I found a few things on the way
while this was operating. So I would be rolling out a new
version of the pools with liquidity migration.
I think the biggest saying is how value is split between
staked and unstaked when you it really depends on how you
measure profit and how you measure profit.
This metric is inherently volatile.
This volatility of this profit metric it it goes into the value
of staked tokens, right? So you won't want this
volatility to be as small as possible.
So I started thinking about it after talking to multiple people
and I realized that I actually can reduce this value volatility
by about factor of 10. And I implemented that in one
day. Auditors are still looking at it
and well, I think we are about to put this new version out and
buy great liquidity to the new version of the pools to make
this value volatility smaller because like otherwise you have
like growth happening. It's actually measurable what
the growth is. But the real value, it
fluctuates around this growth. And you know, it's like people
say, oh, Oh my God, I'm, I'm down by 1%.
Why? And then, Oh my God, I'm up 2%
in one day. What's going on?
And but it's really noise around the growth and growth is not
that fast. You cannot grow 2% in one day
and you cannot drop the fundamental value by 2% in one
day. You just have jumping around
happening around this growth. So I'm just, I just figured how
to reduce this growth service volatility somewhat and that's
well that's worth a new version before scaling up more because
the eventual scale, which can be is much, much bigger than it is
now. So we got to figure out
everything before we scale. So regarding scaling right now,
I mean yield basis, right? This is vault where I'm as a
Bitcoin user, I can put my Bitcoin into the vault and then
that provides liquidity in curve, right, For a curve USD
cool, lift these Bitcoin versions.
Of course, you could imagine scaling in a few directions,
right? Like one could be maybe
providing liquidity also on, I don't know, Uniswap or maybe
other types of Amms. Or no, no, you couldn't do that,
I guess. See, I can do that.
I cannot imagine how you can do it on top of your swap.
Really. OK, It's OK.
Like it just wouldn't work. It wouldn't be.
Maybe, maybe you can, but not really I guess.
OK. So, so you think yield basis is
really like will will just serve on curve for dividing the pretty
young curve? OK, yeah.
And then and then initially, right, we have to focus on
Bitcoin. And of course, Bitcoin is the
largest asset by far. It's also something where it's
hard to earn yield in other ways.
Right, right. Well, I guess the idea is that I
want to get a most of Bitcoin background liquidity from yeah
away from centralized exchanges to on chain, just essentially
like it happened for stable coins.
Yeah, yeah. And what is your expectation?
I, I think you did some like modeling with historical amounts
and I guess we have a little bit of, of real data now, but what,
what do you think would be the kind of yield that people will
be able to earn? Well, it's a good question
because after October 10, the natural APR appeared to be super
high like 20%. And I don't know what sustains,
but so far it does for some reason.
So 20% APR in for just from the fees right now.
And I kind of really promise that it stands like that, but
that's what observations show so far.
But 20% APR, I mean, I presume if you remove the caps then
people are going to be like 20% is incredible.
Let me put my Bitcoins in there and you'd end up.
Question is what's Yeah, it's not the token APR.
So it's it has nothing to do with tokens.
It's the APR from Bitcoin volatility.
So if it can go down if liquidity in the yield basis
starts suppressing Bitcoin volatility globally and question
is where is this limit? How high is the liquidity to
suppress Bitcoin price fluctuations?
So the 20% is not something that primarily comes from the trading
fees, but it's. It is, well, I mean it is from
trading fees, but trading he's come from volatility.
Right, because people basically say, oh, it it you have a
decoupling free between the curve pool and like the Yeah, I
know. So it's arbitrage, Yeah.
And it matches the numbers pretty much match the arbitrage
model. So my simulations simulates
arbitrage and it's almost arbitrage.
It's a little bit bad more than arbitrage because you have
natural swaps like by a cow swap or kyber or even curve UI.
But I think around 80% of the trades at least is arbitrage,
and I counted on 100% arbitrage when I was simulating.
If you have natural volume being bigger than than 0 right, then
of course you have more revenues than just arbitrage.
But even just arbitrage is giving you good numbers.
So, so Dineen, you, you think your basis can like how, how big
can it accommodate? I mean, can it can be billions?
Can it be like $10 billion worth of billion or like?
A good question. I tried to estimate when does it
start affecting Bitcoin price and like when will it affects
its own yields by its own liquidity by by the means of
making Bitcoin more stable. I think it's something around 50
billion TVLI guess right? So well, I mean, I mean it's not
unimaginable. It's comparable to RVTVL, right,
Right. So it's not like something we've
never seen. It's just, I mean, it's just
making really good fees. But TBL is not something
unimaginable. Yeah, yeah.
That's that would be enormous. Yeah, that's the goal.
Well, of course, we have not only Bitcoin, we have also ease
and we can make liquidity for ease and who knows, maybe
something else. But we shouldn't really get too
crazy because I'm pretty sure it cannot work with very volatile
coins like I don't know, like defy tokens or meme coins.
I cannot think it will work because they tend to sometimes
change the price too rapidly by factor of 2 or something in one
block and stay down or I don't know, stay up.
You cannot really work with that.
Right, because you need to rebalance like quickly enough.
Yeah, you, you, you have the, you have to have the price being
more or less smooth, right? Even with ETH price when I was
modelling, I've noticed that for example, if you look at ETH
prices during FTX collapse, ETH price collapsed fairly rapidly,
like instantly to, I don't know, I don't know from what to what,
but it's caused. It does cause some losses in the
algorithm, like 5 -, 5% on the spot.
And that's if so, imagine what happens if you use some meme
coins. So please don't do your bases on
meme coins. Yeah, yeah, yeah, yeah, yeah.
And then I guess even on October 10th, right, we saw like, I
mean, I, I don't know what it looked like for Etherium there,
but it seemed to drop like super fast.
Yeah, I will include that in simulations when I'm simulating
parameters for Etherium. So before all any theorem out,
all the parameters are really carefully simulated.
Like if you have the range of parameters different from like
seriously different from what it is now, then instead of having
profits, you will have losses, right.
So I'm. Then in in the theorem example,
of course the ease also the ability to stake.
If is it, would you be able to somehow get the staking yield as
well or not? I think so, yeah.
Why not? How would you do that?
Well, I think the simplest way would be to just use, I don't
know, staked ease instead of 5th, right then by the way, then
you, well, what then happens? Yeah, you essentially would earn
a stake in yield on top of your yield basis yield, which is, I
don't know, but not bad I guess. Yeah, yeah, yeah, yeah.
Well, not much, but honest work I guess.
Yeah, yeah. Then do you, what do you, what
do you think about expanding to other chains, you know, like I
don't know like a Solana or or other EVM chains?
Yeah, absolutely it is possible. And I think, well, at least
that's how I planned it. It's possible to do it
differently, but I planned it so that each new chain should get
its own governance token, right. Of course, all the investors
will have their distribution honored in all the new tokens,
But otherwise, the token split can be a little bit different so
that you're aligned with these chains.
I don't know, marketing or whatever, whatever the rules are
on that chain to make sure it's well aligned with the local
ecosystem and whatever. And also you don't really have
to deal with breaches. So you can actually have native,
I don't know, native yield basis which is dedicated to this chain
and you are not relying on some, I don't know, some DBNS or
whatever. So you it's like really living
there and you like you don't introduce more risks in the
system essentially. And so the way you enforce this
is because I guess somebody could just sort of copy it
without information or there is some kind of license.
Or there is of course license, but apart from that it's, well,
it requires some very particular knowledge to figure out the
right parameters and you need to do that from time to time.
And I don't really think that where people yet figured out how
to do it properly. So I I would be fairly surprised
if someone successfully forks it because it's not really well
done. Forking wouldn't really work
here. Yeah, right.
But at the same, but at the same time, at the same time, it is
totally possible to to make some deals with talented people to
maintain something running and whatever like that's a
possibility. But versus the team can also do
that depending on capacity. So yeah.
So I'm also curious about the, you know that the relationship
here between yield bases and curve going forward.
I mean, of course, in some ways it seems very symbiotic, right?
So yield basis kind of becomes a big liquidity provider for
curve. Curve presumably has more
liquidity, more liquid market, maybe earns more fees.
Are there ways in which there are like conflicts of interest
there too or do you see challenges in that kind of
relationship? I think challenges are usually
they usually come with public not entirely realizing how big
of the return would yield bases do for Curve outside outside the
token allocation part. So there is a token allocation
to Curve, but the best use for it is to incentivize liquidity
in Curve USD pools, which is what will be happening very
shortly. For yield basis, it's absolutely
required to the liquidity for Curve USD will be big, and
that's essentially why yield basis may.
Since yield basis shows Curve USD, yield basis makes this
allocation of YB tokens to Curve.
So they will be used to buy votes for Curve USD, stable coin
pools like Curve USD, USD C, Curve USDUSDT and so on.
And that will create a part from big liquidity for Curve USD.
It will create supply sinks for Curve USD, which means that
eventually it will lead to more loans in Curve USD and more
borrow fees. But also all the trading which
is happening in YB pools will create volume in Curve USD
stablecoin pools and these fees generated by Curve USD pools
will go to Curve Dow essentially.
Apart from that there is peg keeper mechanism in Curve USD.
So if curve USD slightly D pegs up or down, then peg keeper
steps in and essentially essentially buys or sells curve
USD and it earns money for the Dow on that as well.
Like essentially money on passively trading the Dpegs.
They are micro Dpegs, so you cannot even notice them, but
they do happen and they do turn into returns for curve Dow.
So that's that's another a stream of revenue and it's
actually that whole streams of revenue.
They they are bigger than what I originally thought.
And it looks like curve Dow would earn, I would say
something comparable to what YB Dow earns from your basis.
So this is this is what it seems to me.
OK, so that's. So, so it's actually fairly
huge, it's just not all not direct driving use all the time.
But you know, when volatility of Bitcoin was particularly large,
you probably could see that Curve USD was the the stable
coin with the biggest trading volume on Curve in total already
with just 150 million TB on build basis.
Yeah, yeah. And so the way Curve USD works,
it's it's similar to the maker dial model or.
In a sense you can say that it's ACDP.
So in that sense it's similar to make a dial.
It has few unique features like a reversible liquidations.
So if you, if price goes down and you, your collateral gets
converted to curve USD, but if price goes up, your cholesterol
gets converted back to your collateral and you kind of
didn't lose your cholesterol on the bottom, so you didn't sell
the bottom. That's nice.
That's one of the things why curve USD is so cool.
Another thing is stabilization mechanism of curve.
USD is well something we called peg keeper, which works I think
better than anything else for keeping the peg tight.
Cool. So what are the, what's the
timeline now in the upcoming milestones for your basis?
So you mentioned the protocol upgrade.
Yeah, we do. So the volatility pools whatever
is coming. Yeah, pools upgrade I think is
gonna happen. Well, either, well, maybe, maybe
like maybe on Monday is fine because I will have all the
feedback or and we will implement of all this in UI in
UI, but it's actually ready in code.
So well, maybe possible to do it on weekends, but I don't know if
people are up to that on weekends.
So anyway it's imminent for the upgrade here, but you need
people to actually migrate liquidity because in everything
I build I make non upgradable contracts.
So you cannot upgrade contracts which hold liquidity and that's
by design. But also on Monday, I think the
vote on curve will finish the vote to spend by B allocation on
incentivizer Curve USD pulls. And this this YB will will be
used for buying volts for Curve USD pools.
And that's happening on Monday. That means that on Thursday,
incentives for Curve USD stable coin pools will go up and the
pools will start increasing their size.
And it means that after that TBL of curve of of yield basis can
be further increased with the caps further increasing.
So well, how long after that that will happen is a good
question. But technically in a few days
it's ready. So that's I think the next step.
So we have this upgrade of the pools and then increase of of
the cap and then we really, really need to turn the fee
switch on to connect the admin fees to VEYB so that VEYB earn
those suite admin fees. And after that the system will
be like fully connected. After that it should work for, I
don't know, couple of more weeks in this mode connected.
So first of all, as I said, we would be ready to raise to to
raise the caps after Curve stable coin pulls, get
incentives and the raise what should be then to maybe half a
billion. And then we need to connect
admin fees to the EYB. After that is done.
I think in a couple of weeks we would be ready to raise the caps
a little bit more than half a billion, I don't know 1 billion
or 2 billions or something. We will see and after that we'll
probably should watch and continue raising the caps.
You cannot really raise the caps instantly because you don't want
to affect curve USD stability. You really grow two things
together, yield basis growing up and Curve USD growing up,
because Curve USD is used as the stable coin in your basis.
Of course, I could try to make a deal with some of the
established stable coins. I don't know Teller or
something, but you know, I created Curve USD and Curve USD
is making revenues for Curve Dow and I'm very incentivized to do
it for to do it with Curve USD. So, yeah, cool, cool.
Well, it's fantastic. I, I really enjoyed the
conversation with you in there. I think it's a super
interesting, fascinating protocol.
And I, I, yeah, I think this could absolutely become massive.
So it's been really exciting to talk with you about it and to
sort of be a part, a little bit of this evolution.
And I'm, I'm really excited to see how your place is going to
develop in the next, you know, in the next months, in the next
years. Absolutely, absolutely.
It's a, it's a fascinating thing.
I I'm very excited to see that it actually actually works.
And it actually works as predicted.
So as just the numbers are, they are pretty much matching the
simulations. That's so exciting to see.
Yeah, absolutely. Cool.
Thank you so much, Michael. It's big pleasure having you in
the show. Thank you.