Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - ‘Aave v4 Will Unify Cross-Chain Liquidity’ - Stani Kulechov

Episode Date: July 5, 2024

One of the bluechip DeFi projects and backbone of Ethereum liquidity markets, Aave has recently announced their V4 upgrade proposal, which aims (among others) to unify crosschain liquidity.We were joined by Stani Kulechov, founder & CEO of Aave, to discuss the DeFi (r)evolution since ETH Lend to Aave V4, expanding to non-EVM chains and potentially even building a self-sovereign chain. Topics covered in this episode:The evolution of AaveAave V3 risk management & MakerDAO feudAave V4Unified liquidity layer & risk pricingGHO stablecoinHow the unified liquidity layer improves UXRWA & liquidation strategies in Aave V4Expanding to non-EVM networksBuilding a self-sovereign chainAave’s role in the future of DeFiHow stablecoins will evolveDeFi institutional adoptionFuture roadmapEpisode links:Stani Kulechov on TwitterAave on TwitterLens Protocol on TwitterSponsors:Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.ioChorus One: Chorus One is one of the largest node operators worldwide, supporting more than 100,000 delegators, across 45 networks. The recently launched OPUS allows staking up to 8,000 ETH in a single transaction. Enjoy the highest yields and institutional grade security at - chorus.oneThis episode is hosted by Sebastien Couture & Friederike Ernst.

We were expecting to maybe get the same amount of value because obviously, DFI had a really big peak. But what happened more recently is that it got a lot of more traction. There is somewhere between, I think, 13, 13 above billion worth of value locked. Over the past years, the stakes are growing in terms of what we're actually having in Defi in terms of value, how much we have to secure, and also how incredibly well the space is growing, still being very small. The reason Go exists today is because Abe had from time to time liquidity crunches.

To avoid these crunches, we could actually have a protocol-owned stable coin that could be minted into these pools for users to borrow against. But what's important here is this liquidity premium is actually, and pricing the liquidity, is the answer to these types of situations that happen incur because... This episode is proudly brought to you by NOSIS, a visionary collective committed to fostering and expanding applications for a decentralized future. NOSIS is at the forefront of innovation with NOSIS pay, circles, and Metri, revolutionizing open banking and creating a superior form of money. With Hashi and NOSIS VPN, they are building a more resilient and privacy-focused open internet.

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You can even offer high-year staking to your own customers using their API. Your assets always remain in your custody so you can have complete peace of mind. Startsaking today at chorus.1. Welcome to Epicenter, the show which talks about the technologies, projects, and people driving decentralization and the blockchain revolution. I'm Sebastian Quichu, and I'm here with my co-host, Federica Ernst. Today we're speaking with Stanii Kulachov, who is the founder of CEO at AVE Labs and Avarra. We'll be diving deep into the recent Avey V4 proposal.

and what that means for the protocol, and also talking about defy and the future of decentralized finance in general. Cool, Stani. Thank you so much for coming on again. I mean, I had to like talking to you two legends. It's always a pleasure. Thank you.

So we're here to talk about Ava V4 today. There has been a number of proposals that just very recently passed. Before we dive into that, can you maybe walk us quickly through the evolution of Ava V1 through 3? Well, yeah, it's definitely been really, I would say, even long journey. So as some of the listeners might know, and I started building decentralized finance in 2017, 2016, already kind of like thinking of ideas and what to build and what's important for the ecosystem as a product. And what came out of that was a project called ETHLAND, shared for Ethereum lending.

And I had this idea that if you can actually swap assets on chain, you could also use those assets as a collateral and borrow against as well and also earn yield. The way I started was more of like a peer-to-peer setup in a market because mainly a lot of these assets were very low liquid and there wasn't this concept of pulling yet. But later with Unisvap and a lot of the innovation pooling assets became more of a common thing and we iterate it into AVE protocol, which is essentially a pool model where you can get liquided, the access to liquid it right away, and then use whatever you supply as a collateral to draw, basically borrow any other asset. And the difference between what you pay for supplying,

so you receive as an interest as a supplying and pay for borrowing, the net is your different cost difference cost there and looking at each deployment we had I guess Idland was more of experimentation I was still studying in university

I've been I've been built there for quite a long time I built fentic and various web applications back in the Rubion Rails and Web2 era and I think

of a protocol was something that evolved as a kind of like an ideal way of actually gaining on-chain liquidity. And when we launched, I think our expectation was that maybe the protocol will have 10 or 20 million worth of value in the smart contracts and

based on like the TVL memetic metric of value lot in. And ended up having several hundred millions. And by the V2, our goal was to basically create a better protocol and being more capital efficient, more risk management tooling. And that ended up being, what we expected to have maybe a few hundred million became a protocol that had a few billion worth of value. And then V3, which is our most recent development of the of a protocol from Avalabs.

We were expecting to maybe get the same amount of value because obviously, Defi had a really big peak, but what happened more recently is that it got a lot of more traction again. And we have all these different network

deployments that the community developers are deploying. Nowbe is now over 13 different markets. There is somewhere between, I think, 13 above billion worth of value locked. So it just showcases kind of like how over the past years the stakes are growing in terms of what we're actually having in default in terms of value,

how much we have to secure, and also how incredibly well the space is growing, still being very small, but still exciting to see how things have been evolved. and that's basically where we are now and the V4 is something that we want to build a lasting protocol which should be the last

like a major iteration but I give you a little bit of warning because every time we are building a new iteration we think it's final and we don't need to do much changes a year goes past or two and we're still you know finding things that we can do better new innovation and it feels like whenever we say this we still have some work to do in the

future. Stani, you and everyone else. I think this is what happens to our builders. So let's quickly just say on V3 before we deep dive into kind of what you're planning for the future. So you guys have a stable coin called Go that works similarly to makers die. There was recently, an escalation between Maker and Ava regarding the use of certain collateral. Can you quickly walk us through what happened and why it escalated? No, it's an interesting topic because what happened factually is that from the maker community, there was an initiative to actually use ethinos, EUSD, which is essentially kind of like an on-chain yield fund, where the cost.

collateral is in these different centralized exchanges, and you're capturing the yield of that type of activity that the stable code had in the underlying model. Now, the model is very interesting, and the project is extremely interesting and got a lot of traction, but obviously it's still very new. And what we saw from Maker is that there was this initiative

to actually mint, a lot of dye against this collateral, which basically meant to the extent of a couple of billions of words over the short time horizon. So this is kind of like interesting because from AVE Protocols perspective and the Avedao and risk management perspective, holistically, the Avedo and risk management has to go and is seen through asset-by-asset perspective and risk parameter perspective. So this changed the risk profiling of make it out, but also specifically die with this initiative. So it was a question of the conservative die and maker as a system is basically taking more opportunistic approaches and that risk to be reprised.

and there was a lot of discussions in the Abedau how to reprise this risk and also signal of change of a risk profile within the Albi protocol and greater defi community and that was essentially like

what was it all about and I think that the actual question is that the underlying collateral itself could be in Maker at some extent, the way it's, for example, to some extent in, as of today in RVV3, but it's a question of magnitude and risk profiling as well. So that's the kind of series of events that happened.

So MAKES deployments are actually just deployments of the RV3 contracts, right? So kind of do you think the difference between Maker and AVE at this point is kind of just risk apotipet in terms of underlying cholesterol or where do you see the differences? Yeah, I mean, the tech that we usually build from the

Arve Labs perspective and the tech I see in wider of a community, it's very innovation driven. So even things like Go, the underlying technology, Go stability module in compared to

what exists today out there, we usually don't fork directly code. What we do, we actually figure out things that could be improved and innovate on top of the existing status quo. So do you think that they vary different type of technological risks, and over time they mature, especially more air pairs come? So kind of like the last bastion of risk, and I think this just doesn't apply specifically only to Avey and Maker, but in general the whole DEFI ecosystem is the risk management on the underlying asset. So what is actually backing all that activity, all those borings or mints of go or die?

And so what is the kind of like a last standing collateral there? And I do think that maker's risk profile has changed since if we go back in, for example, in a couple of years, obviously D3M, a module where you can print Maker into different protocols that existed for a while, and that's been very useful for the AVE protocol as well. But essentially the way to think about these two different protocols is there's two different risk management communities that are seeing risk differently. And this is important because previously, you know, everyone was relying upon die and maker and there was so much vested interest

because it was one of the main projects on Ethereum and DeFi, the main decentralized stable coin. And now there's options. And I think this optionality is really important because it allows the AVE risk management community to decide what direction to take go, for example, and monitor as well what direction the maker community takes die and reflect towards.

Yeah, I mean, at the end of the day, it's all about communities and how decentralized governance decides about what risk parameters, the community wants to accept for, in this case, the collateral types on their protocol. Yeah, let's talk about V4. I think this is quite an ambitious proposal to move, as you said, towards what might be the final version of AVE. I have doubts about that. I think there'll be further versions and possibly more innovation. But what inspired this development of V4?

And can you maybe just give us an overview of some of the main things that ABE4 innovates on with regards to like V3? Yeah, I think two important, I would say, categories of innovation. pretty much is consistent with all of these other protocol releases. There is a focus on risk management and the tools that protocol enables regarding risk management. And the second is capital efficiency, yeah, and also in V4, we have these two categories as well that we focus quite a lot,

and a lot of these features are actually improvements of existing way of managing risks, bringing more flexibility as well, bringing more capital efficiency. But there's two additional categories, and one of them is actually related to both risk and capital efficiency, which is a pricing component. So for example, given the way the AVE market is built, it's actually built in a really user-friendly way. So users can come and supply different kinds of cryptographic assets that are eligible and then pull the liquidity that they need. So effectively, you can utilize pretty much your portfolio on whatever you need to borrow. You can repay.

It's really flexible. The experience there is relatively simple, but also intuitive. And you don't need to go to separate markets and kind of like, you know, put it into another place, put like, let's say another asset, let's say of it to another place and then borrow from here and here and monitor all these positions and manage them, right? So that's kind of like a one part of it. So because you can do all this activity in one same market, it also means that whenever you supply a particular asset that is yielding. So let's say you supply USDC, it also means that you're earning based on what users are borrowing that asset out. And it creates an interesting scenario for the users because it means that USDC is priced across the product. in a one, I would say, price, regardless what is the user's risk positions,

how much they're adding risk, whether they're not adding that much of a risk. And we wanted to change that. So we wanted to change the pricing in a way that it reflects how much risks these users are actually bringing into the protocol. Yeah, and that's the new category. And another category is the governance overhead. So the way we are thinking about the whole protocol, the architecture, it's more modularized. It means that you can fix different parts without actually needing to upgrade the whole protocol, the code base.

It gives a lot of flexibility there. But in this category, we also want to minimize the governance overhead. So how we actually can create, let's say, liquidity layers that are immutable, or we can create, create different kinds of parameters that are immutable or time-based where they only affect from the moment proposal gets into execution and new positions as an example. So these are the kind of things. And I think a lot of these new categories are really optimizing the existing really good product and also removing the overhead of governance, which basically means maturing the protocol

is getting more matured and the technology is getting more matured and reflecting to that. Right. And I noticed you didn't mention the unified liquidity layer. I think this is actually one of the most interesting aspects of B4 is pulling liquidity from all of the different markets that AVE is present in. This is an interesting introbability challenge, I think, that you guys have solved with this Portals product that you released some time ago. What are the main architectural challenges and maybe changes from V3 that folks will notice in V4

with this new unified liquidity layer? And maybe we can then get into what the unified liquidity layer actually offers users. on a high level we're going too much into technical specification I think one of the challenges is that the AVE version tree is a little bit built

in a more like a monolithic model meaning it all the main kind of like ingredients of the protocol are very interconnected and if you have significant changes that you want to change, for example, the borrowing logic, maybe you have changes regarding to, you know, a

liquidation model, you will have to go kind of like into the core protocol layer and make those changes and upgrade a code base that might be affecting 12 to 14 billion worth of value in a smart contract upgrade. Now, we haven't seen those type of upgrades. that many at this level, but as stakes are going high and more value is locked in these protocols, that is something where we have to mitigate also risk. And the way we think about unified liquidity layer and also this new modularized architecture is that the unified liquidity layer is a way to capture liquidity into one specific, like a pool or a layer. And everything else can be connected to that

liquidity. So that ranges from, for example, a borrow modules that might differentiate amongst each other, updating the borrowed logic. It can be a changes to a liquidation engine, different kinds of modules that might affect. It might be also like a portal module that manages the

minting and burning A-tokens between different networks for like a cross-chain type of a use case. And I think this is the fundamentally difference between what we're doing in the V4 and previous versions. So what we want to actually create is that as a, for example, community developer, you can work on a specific module, improve that specific module or create a new module, and by governance process, it can be plugged into the... architecture as well. And you can this way iterate faster. So you can change these different modules

without actually affecting the whole core pool logic. And this also means that this allows institutions in other entities even create their own liquidity layers and somehow manage them as well. And this brings a interesting new opportunity for institutions, for example, to create something towards their own use cases. Maybe let's go into detail us to how the unified liquidity layer handles risk profile of assets across different chains in the market. You were talking about risk earlier and how we risk boring and lend, sorry, how we price borrowing and lending on different assets. Does the unified liquidity layer sort of create a like a single price for an asset across all these different markets or is there a way for users to specify and target certain types of assets that,

you know, may get them a better rate or like a worse off rate depending on what chains those are on? So unified liquidity layer, what's amazing about it, it's simply a place to store value. The actual liquidity and the accounting of that liquidity that who and which users it belongs to, and also there's the connecting points into these different modules. So it's as simple as that. And you can also register your liquidity into a liquidity layer without actually supplying it and keeping it, for example, in a Gnosis safe as an example, which means that you won't be able to lend out your funds,

but you will be able to borrow against. something that is an interesting feature from institutional perspective or mitigating that type of landing risk. But essentially all these other modules, for example, what is the interest rate curves, what are pricing mechanisms and everything else is outside of the unified liquidity layer. And they can exist obviously between different networks. And to give more details about what you mentioned, about the pricing, so we have this new feature called liquidity premiums.

And the way it works is that with liquidity premiums, you as with your position, it's priced, the asset that you're borrowing is priced with the position that you create. So we can take an example where you create a position where you, supply only eat and you borrow USDC. So for example, today you will be paying a certain price for USDC, but also a person that is supplying, let's say, more riskier assets that are eligible in the protocol and borrowing USC, they're paying the same price.

So I don't know if you've remembered there was over a year ago this scenario with CRV where basically the Kerr Founder had a big position in AVE, and basically the Dow started to offboard the collateral by mitigating the loan to value ratios, liquidation thresholds, and effectively the founder went to other protocols, which later today, as of today recently, suffered actually bad debt because they took those positions to their protocols. But what's important here is this liquidity premium is actually, and pricing the liquidity, is the answer to these types of situations that happen in curve, because what you can do if a position is borrowing the same USDC and they're providing more risk, or the market conditions, dynamic market conditions, changed significantly. We can add a liquidity premium much more higher, so basically even if you keep the position,

in the protocol, you're paying more to the protocol and to the Dow for that position. And then it's up to the user to take that additional cost or living out of the protocol. But this also means that actually if you're just supplying EADs and you have the most leanest collateral, you're effectively paying much lower rate than the average because you're essentially having the leanest position within the same market. And architecture-wise, we are not segregating these pools from each other, but it's still in the same market. And I think that's the beauty of it is that you can do all this activity on the same market, but we have a way to price the user's position based on how much they're providing risk into the protocol

and whether there's sufficient reward for the protocol. How does this pricing work? Is it algorithmic or is it something that you kind of need an underwriter function for? Technically speaking, it's essentially just a delegation on the contract, which means that it can be a fixed logic. And that can mean, for example, certain asset could have a certain parameter, which is the risk premium parameter. And I think that's the way to start in the first iteration.

but of course because we have this amazing module architecture, it also means that that type of pricing module could be changed to something or asset specifically, change, for example, that reflects actual market conditions. So for example, if an asset decreases in liquidity, that could automatically increase the premium. And this is the beautiful thing about it is that you mitigate so much of the governance overhead of actually managing these parameters where they could actually be automatized between certain specific accepted range. How do you think the liquidity layer will benefit Go?

So kind of if you look at the Go market cap today, it's about a third or so of the die market cap. Do you think it stands to benefit from this unified liquidity? Yeah. I think Go is quite interesting because Enko as a kind of like a, as a, I would say, like infrastructure within our ecosystem is really fascinating. So when we think about Go in general and the benefits, The reason Go exists today is because ABE had from time to time liquidity crunches, and there was an idea that we had that to avoid these crunches,

we could actually have a protocol-owned stable coin that could be minted into these pools for users to borrow against, to avoid the liquidity crunches. And while we were thinking of this idea, we realized that actually one of the benefits of Go is, and compared to MakerDAO's die back in the days, is that when you supply your assets to AVE protocol, you earn on the collateral while you're borrowing go. So you have this kind of like a capital efficient stable coin. And on the AVE Protocol's perspective,

it also brings to the user's predictability on their interest rates, which is a great feature, especially when all the markets are on variable, rate basis. And when we look from the AVE protocol perspective, what's the benefit of Go, it's quite exciting to look at it because Go doesn't have LPs.

So at the moment you don't supply into the AVE market, it will change in the future. With cross-chain go first in arbitrium and down the line also will be available in Mainnet. But because Go doesn't have these LPs, it means that the reserve factor, which is the way to collect Alba Dow revenue from the protocol, it's actually 100 instead of like 10 that is in USDC. So just to give you a magnitude of the revenue, 100 million worth of go,

minted brings equal amount of revenue to the Alba Dow as 1 billion USDC. And that's remarkable because that revenue then cascates into building and innovating more on the community side and on the technical stack and also figuring out different ways to reward users. And in the V4 perspective, obviously with liquidity layers, there can be different facilitators that mint directly go onto these liquidity layers that can be then borrowed out. But we have in V4, we have basically multiple features

that kind of like make the Go integration more seamless with the protocol. You have Go soft liquidations, which is kind of a feature that the CRVUSD pioneered. So basically you can soft liquidate your positions in Go and vice versa. You can get paid interest, for example, in Go on any asset that you have. that can be done directly under the hood on the protocol. And there's a couple of technical improvements, but V4 will bring the integration between Go and the AVE protocol more kind of like a tidling it together.

I want to ask also about how this changes the UX or how does it improve UX for AVE users. So maybe walk us through an example here. Like hypothetically you have a user, who's on Polygon and has collateral on ETHL1, and they want to borrow against that collateral on Polygon, on the Alvei market on Polygon or at least on the Polygon chain. How does that work for the user and like in the background,

what's happening to those assets? Where are they being sort of locked? And more importantly, maybe like who's paying for the gas fees? Because we haven't talked about this, but the orchestration of the unified liquidity layer, I believe, is still happening on Ethereum Mainnet. So maybe just describing, like, that user flow and what's happening in the background there.

Yeah, and I can, it's also like the kind of like subsequent iteration of the unified liquidity layer, which is the cross-chain version of the liquidity layer with the portals. And what is effectively means is that the AVE as a protocol can actually move liquidity between these different deployments. And that can be iterated to cross-chain positions. Effectively, you could technically then keep your collateral, for example,

on Ethereum mainnet, for example, Eid, and then you can draw, for example, Go, on another network. work. Portals is just a simple feature of minting and burning unbacked A tokens that then are subsequently backed right away. And they're kind of like a key component of this feature is having caps of how much you can actually do that and what's the purpose. So the original idea of the portals was actually to allow third parties to come and get some sort of credit line up to certain points to be able to use portals.

It's a tool for bridging as well. We see the idea for portals also kind of like a way to move liquidity very fast between networks. I personally believe that maybe most of the users will, they might have their liquidity in one specific network, but you will have users that are operating in multiple networks and it's going to be

very useful. But for, for me, like the most exciting actually UX part of the whole B4 and this works with the portals and unified liquidity layers. is the aspect of the vaults and smart accounts. And it simply means that, for example, if you want to supply liquidity, but you don't want to supply the assets into the liquidity layer for some particular reason, one, you don't want to get the funds lent out.

Two, you want to see the collateral segregated from the other parts. and you want to keep it three, you want to see it in your, let's say, smart account. So what we are essentially doing is that you can see your, you can register your collateral in the protocol, but you don't need to supply it so you can keep it in your NOSIS safe, and then you can draw the liquidity against it. And obviously this is like a really, interesting thing because you don't really need to put your assets into the protocol and you

keep them segregated. And this also opens up some interesting institutional use cases as well. You can provide some assestation to AVE that the liquidity is in a contract. It might be locked there that liquidity is, that the position is backed by something. even though it's not in a pool on the protocol. Yeah, exactly. So that's the key difference. It's mainly of kind of, for some users, it feels more intuitive to see those assets

in their basically smart accounts. And then you can still borrow without having to kind of like, we don't seeing your assets leave. and I think that's a interesting thing. And then obviously using smart accounts itself is a big UX improvement because that enables things like, for example, gasless and signless transactions

and a bunch of other interesting things that can be built upon that even a further. Cool. Stanie, can you talk about the role of real-world assets in Avivore? Yeah, there is obviously, see the segregated vault applies also to

the real world asset type of a use case and could be very useful a way maybe there is some sort of extension of like tokenization, tokenizing, storing your own vault, borrowing

against. What I'm excited quite a lot about the V4 is that it allows to have with this new V4 liquidation. engine, it allows to have liquidation strategies.

So typically the way these protocols are learning protocols are built is that when liquidation happens, there's certain rules for that. And that might be, for example, you have a liquidation bonus that happens when a certain price range

is hit and the liquidator keeps that portion. It might be Dutch auctions as an example. But what liquidation strategies actually allow is that you can have a different type of liquidation strategy depending what the asset is. And why this makes sense is that

not all of these assets that will exist on chain will have the same liquidity profile or the same redemption time period or profile as well. For some and most of the assets that are listed today, their redemption profile is really similar where you can go and swap the asset on a secondary exchange and replace it and you created a successful liquidation.

The protocol is healthy. But in more kind of like a real-border asset of chain assets, there might be, for example, a time period of like two windows a day once a day, every couple of days where an asset, for example, the underlying assets you can redeem it, liquidate it, take the proceeds, and return it to the protocol. So these type of liquidation strategies allows to onboard these type of assets where, for example, you have to,

you have some sort of like a time component involved. And that's where I'm very excited about as well. And of course, I combined that with the idea of segregated bolts, it's quite appealing for an institution to consider using AVE. Yeah, absolutely. So Mecha Dow also has a very alive RWA offering. Can you compare that to kind of what you will be offering? Yeah, I would say that most likely, obviously depending on

what direction that Dow chooses on the RDA to proceed with. But I would say that there's going to be a lot of similar profiling. But with the aspect of liquidation strategies, that extends to new type of use cases or things that, for example, didn't exist as a collateral because, you know, let's say in institutional context, Bitcoin might be stuck somewhere in a custody for 10 hours so you can't liquidate it right away. So those kind of scenarios.

So I would say that what we're trying to achieve is that capturing the ability to technically support the existing use cases in RWA operations. But at the same time, innovating to support anything that is new, or assets that they don't have yet a similar support from like technical perspective. So there is going to be a little bit of similarity, but hopefully we see also new exciting use cases with RWA's with the V4. And obviously Go by itself is really helpful

because that Go works in a way that there is this concept of facilitating, that can be created to Mint go against some sort of strategy, and that can be also real-world assets. That can be anything that fits the Dow's risk profiling. Yeah, I mean, maybe taking a step back on RWA's a little bit here, which asset classes do you think are most likely to really take off in the next like 12 months? and which of those, like, you think will have a significant impact on AVE markets?

I would expect treasuries to keep growing and see more initiatives to bring treasuries on chain. I think there's a little bit of a slight stagnation of the growth because of the yield on chain is higher than what treasuries are providing. at the moment, but it provides a really nice diversification for anyone that is holding a portfolio on-chain, on-chain yield portfolio, being able to earn on-treasuries, but also diversify their yield sources and also risk profile. I think tokenization of money market funds is going to be also a growing aspect. BlackRock has been doing a pretty nice job there

with the battle tokenization and a fund that they have. So I would expect that growing quite a lot. Centrivich is doing a great job on tokenizing credit. I mean, they're OJs in the space and keep always iterating and bringing you

assets on chain. So I think those type of short-term depth instruments are going to be quite popular for the next I think 12 months. Okay, Stani, let's change gears a little bit. So you guys expanded onto a number of EVM networks with ARV3.

In the ARVVV4 proposal, you guys actually talk about expanding to non-EVM networks as well and kind of introducing a central hub for accessing Arby and Go. I think the rationale why you guys want to do this, that's pretty clear to me.

But can you talk about how you think you're going to achieve this? Yeah. So the way I think about it is that we'll see a lot of L2s where they're growing their own ecosystem and need a financial layer. And when you need a financial layer, When you need a financial layer, you need the usual suspects, obviously on the DFI side,

for actually technology, infrastructure, execution in terms of ongoing support, but mainly of being able to create a financial layer that supports whatever the use cases are on those networks. The way I think about these L2s and EVMs and non-EViams is that they're kind of like they're they're all their own cities or like countries or durations and a lot of cities they actually need banks financial infrastructure and to support every thing they have in their economy and that's has been the case with AVE so far and we have community developers that have been able to deploy across multiple networks with these EVM deployments which have been like a really big expansion. I mean, AVE is leading in, for example, in base, which is now focusing more and more

defy. And it's amazing to see there also Coinbase bringing like more and more of like their business or thinking at least towards an on-chain push her to some extent. The way I think about non-EVMs is that it's kind of a expansion, but obviously you have a different text So which is good and which is also like creates complexity. So good parts is that there might be things that are helpful for, let's say, D5, from a security standpoint, for code implementation. But it's also a new language and implementation that requires a lot of effort. And the way we think about expansion is that we can go so far with IDMs, but there's big communities. around these deployments which exist in the non-evam ecosystems.

Obviously, that means writing codes from scratch, and I think that's the way to think about it. So we just have to think these implementations we have now, our EVM implementation, and how to get it into a non-EVM implementation. And obviously, it's not as easy as copying pasting, is actually a work of trying to figure out how to build in a completely new environment with a new language

and whether to make that type of effort in the first place. But I do think that it's really important to kind of keep these options open and treat non-evam ecosystem also as users that are coming into space and then obviously that bridges into the wider of a ecosystem which direction to actually go.

There's also discussion whether AVE should be an L1 because just of the matter of like DVL there is. I personally think that there is argumentation behind of that, but I do think that AVE's roots are on Ethereum and being able to support the Ethereum ecosystem, have Ethereum alignment is beneficial for the AVE protocol and the AVE Tao. there should be bridging towards these newer communities that are also focusing on onboarding newcomers. And we just want to win in the sense that we get to see more of blockchain implemented

into more mainstream and seeing more users. And I think that's how we think. But yeah, the hardest part is actually fighting the code and ensuring it's safe. Yeah, there's a lot of like to unpack there. First, maybe which ecosystems are you guys like looking at? at as potentially being your first steps outside of the EVM ecosystem? We've looked quite a lot into move-based ecosystems and trust. So those are the kind of like main areas.

And obviously that's where our head is at the moment. So it's actually where, and I think it's a lot where the future is going towards in some sort of thrust direction and we want to also

ensure that we have enough know on trust whether it's an implementation or some sort of

back-end services we build and kind of like I have that approach as well but yeah

I think there's going to be more information about concrete plans of how we think about

the expansion to non-evams right so it sounds like it's it's not simply just a copy paste deployment but there's more thoughtful consideration as to you know the specificities of those VMs because I mean on like on movement for example movement does have like an EVM interpreter that it converts down to move into the move op codes you guys are thinking about actually rewriting the contracts in the native languages and maybe making use of some of the unique features there on those blockchains I think so because the interesting part is that all these non-evams,

they decide to build non-EVMs also because they have some sort of concrete direction they want to take and they're going to focus on some sort of kind of like propeller in their ecosystem. For some, it might be, for example, being able to get low-cost on transaction. So it might be, for example, parallelization of transactions. Some might be that they have benefits already of sharding. Some might be just basically certain type of activity in their ecosystem that is basically tailored for somehow more consumer or mainstream. I do think that rust-based and move-based approaches are interesting

and it provides really interesting tooling as well from how to think about the actual implementations from a security standpoint. So they all offer a little bit their own peculiarities and it brings also a lot of complexity at the same time because we have to think from a complete new perspective of these implementations, peculiarities of the non-AVM environments and the changes we have to do.

And Ave isn't really the most simplest protocol. It's really quite an architecture and it's a lot of work. Yeah, I can see how that would be a lot of work to rewrite all those contracts in roster, move or some of the language. Coming back to this sovereignty topic, I'm really quite curious to understand how you're thinking about this. here because ABE has become one of the largest protocols in Ethereum, largest lending protocol by far in all of crypto. Yet, you know, the cost of using Ethereum for users and the sort of, you know, challenges that you guys need to deal with regress to MEV and other issues that come with using a generalized purpose chain, you know, could easily be solved by

building your own chain, which would allow you to have specific policies around how you capture AirbnbVE, doing things like on-chain oracles and all of these other support functions that a validator set provides. You know, D-Y-D-X went down this path. I don't know what the kind of status of the maker chain idea are. I know at some point they had discussed maybe doing the maker chain. So like, yeah, just maybe getting your thoughts on like how you think about. about sovereignty for AVE and like what that means, you know, as being sort of Ethereum aligned, what that means for the protocol. Yeah.

Obviously, I think AVE as a community is always kind of like more towards AVE align and doing whatever is best for the AVE community and the future of this protocol and its principles, obviously like creating more access to finance, transparency, and just better execution. And I do think that if there is of a network, which is in the plans, and the question is whether that is what kind of how to you, what kind of differences, it really creates an amazing design space. Because I do think that assets should actually yield wherever users are holding them. So users can subscribe to certain type of phrase or choose not to.

And being able to have a network, it actually means that there are a lot of benefits where the network can be tweak and adjusted towards being very driven by defy behavior and transactioning. And I think that's a really powerful thing to do. I do think that whatever the Ava Dow chooses in terms of like an implementation, I do think that even that design space should be as simplistic as possible.

And just to prove what actually a DFI-specific of a network as a liquidity hub can actually do and benefit for the users, especially the newcomers that don't really mind or care about specifically what network they are, but once to tap into a good brand and a good product. And with the cross-chain liquidity layer, benefit from all these movements

between deployments of AVE across different networks. So what I think is going to be fascinating is to figure out that delta in design space that is going to be really powerful for the AVE users and the whole ecosystem here. And I think there's a lot of benefits that could be created within our network. So zooming out, when you think about DFI or Open Finance

or however we'll call it then in the year 2030, what will that look like and how will Avers role look like within that ecosystem? Yeah, I would say that. It's a great question. I think the idea of the AVE 2030 proposal, which essentially includes a completely new brand identity, you know, taking AVE into a more kind of like approachable, fresh look with the V4, bringing new innovation, bringing a lot of flexibility, modular architecture pace, not only,

good way to build iterations, but also support institutions as well, coming into the space. And I think that's what's going to happen over the next years. And obviously, ABA network bringing efficiency and to the whole kind of like an organization of capital and TBL across these networks with cross-chain liquidity layer, I think just looking at the upcoming years, we have to have to have. have infrastructure that is actually really, really ready for adoption. And I'm thinking about mainstream adoption, institution adoption, and being just a infrastructure that can be used in many different ways with AVE,

with Aved Dow, or whatever that particular use case is. So I think the idea here is that Defy is definitely, you know, better way to organize finance and financial infrastructure, but it will take a decade to actually mature, because it just needs that maturity to scale. And then thinking about the AVE Labs role, we want to build the things that we think are necessary. The Avedao is growing.

There's more contributors. They are technically, technical and non-technical contributors. It's probably most interesting DAOs out there at the moment all the way from the early DeFi days. So effectively, hopefully the Avalabs kind of like moves more towards other types of initiatives that might be supportive for the DAO or the other ecosystem. But the actual technical architecture is solved to the point that if there is any changes in the future that needs to be made, they can be done very locally without upgrading the whole system. I think a lot of inspiration of the Linux ecosystem, kind of like whole way of how things work in Linux Foundation

and how different people can work on different parts and being able to kind of achieve that where certain teams can focus on optimizing liquidation strategies, certain teams can be focusing on improving borough modules and so forth. I think that's the kind of like a big vision here. And obviously governance minimization to the extent that governance can be really much an overhead. And I think when it becomes an overhead, it removes the kind of design to people

what we basically try to go away from. And as Ave matures, some of these parameters can be immutable. data line and reduce that governance overhead. So I think that's the kind of future I would love to see. How do you see the future of stable coins evolve? I think it's a price point question. So the lower the price point, the more adoption we see and also the UX tooling. I actually think that for stable coins, especially getting them into payments,

a validium might be a really good option because you can hit a really low price point for the transaction costs, which is amazing. And with things like smart wallets, account abstraction, embedded wallets, even, you can have an experience that is really smooth. Stable coins have taken adoption in places where there is a lot of uncertainty.

Argentina is a really great example where stable coins have taken adoption and there's numerous other examples and I mean in general they work better like it's so amazing to send someone go and then seeing it on chain directly that the transaction landed you don't need to deal with banks

and figure out whether someone received whatever part it is. It's just like kind of like the middle where or like the ends the end of the whole stack is where it's broken. The offboarding onboarding, but once we solve that, I think we will see a lot of stablecoin adoption and especially

in payments. So when talking about adoption, you know, one thing that I think about is just the demographics or the kind of persona of crypto and defy users. I think it's safe to say that the majority of liquidity in defy markets today are crypto-native users and institutions. But we haven't, I don't think we've seen so much crypto-native institutional capital using defy. And I think that I feel like there's a lot of potential here for crypto-institutional debt to enter defy markets, specifically in the context of restaking where protocol on liquidity will be very useful to build out the restaking kind of market. When it comes to protocol on liquidity and creating a more fluid market for that liquidity,

a lot of these deals now are I think are being done kind of manually with multi-sigs or perhaps even without multi-sigs. What's the role that lending markets like Ave might play in allowing a lot more crypto-native of institutional capital to enter lending markets? This is a really, really fascinating question because institutions usually have their own kind of needs and requirements, and we're still in a phase where the markets in DFI aren't clear or strong enough for institutions to draw more and more attention

into it. And for me to explain what I am saying is that if defy is overly appealing as a market and there's enough clarity how to you track with defy, there's tooling and everything, it's basically the institution adoption will come just basically from as a market opportunity. and what I think is we're in a stage where institutions are describing kind of like their own preferences and needs and figuring out with their compliance teams

and figuring out with their own kind of like teams of how to manage funds, custody risk and various types of new risks because Defi is a leap frog technology from existing financial technology that we have. It's just so much advanced what we have. And I do think that people will still do paper agreements, people will do a lot of simple, boring stuff in closed doors of chain,

but it really creates a unique, kind of like a global, borderless market. So once we hit to a point where, we have more institutions doing these experimentations with their own kind of requirements in collaborating with DFI projects like, for example, AVE, maybe we see more and more excitement around the space and more education. But I do think that once we hit into a point where

the risk profiling is acceptable and maturity is acceptable for institutions, we're just going to see more and more kind of like an inflow. And obviously, the more clear it is on how to interact from regulation perspective, from tooling perspective, that will help quite a lot. So now we're in between where we see the most bravest, the smartest institutions, the big brains actually here in DFI and trying things out, building and experimenting. But we don't yet see actual this kind of like a high inflow.

But I do think that will happen over time. That's why I mentioned earlier that it will take a decade for DFI to get adoption. Well, as we're nearing the end of the podcast here, we've been

a little bit long. I do want to just maybe circle back to this V4 proposal, which I think you mentioned earlier is has passed and that the payload will be going on chain as we're recording this on July 1st. What's the next steps here and how can the AVE community get involved? And yeah, what's your call to action to the community?

Yeah. So we are essentially building at the moment. So our work has started and our goal is obviously to give. ongoing monthly reports to the ABA DAO and explain the progress. And we collaborate quite a lot with existing Dow participants and service providers in terms of brainstorming and different areas. So I do think naturally, organically, some of these service providers or DAO members will going to contribute to the V4.

And obviously, once the actual implementation is done, the security contributors will contribute and then the risk contributors will contribute as well, whereas they have to set different type of parameters, a lot of these different strategies as well

and kind of like the economical pieces together and get ratifications from the Dow. So yeah, it's kind of like a heads-down type of phase for us, but we're super excited about this because hopefully this moves

of a further in terms of innovation institutional adoption but also brings just better tools and infrastructure for everyone using defi so we're super excited about this and also nice to see that the Avedau has a lot of

blessing for us on this proposal and we're able to do this and build it so it's really appreciated cool well stani thanks so much for coming on the podcast once again and learned a lot today about aave v4 excited to see avey moving more into a cross chain multi-chain world and definitely like pushing the boundaries of defy innovation um so yeah thanks once again and hopefully we can get you back on in a couple months when aave v4 is deployed and uh you know we'll have have ample questions, I think, about the progress there.

Yeah, definitely. Maybe it takes more than a couple months, but hopefully we have a test net by then. No pressure for us. Good. Fantastic. Thank you. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast. Go to epicenter.tv slash subscribe for a full list of places where you can watch and listen.

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