Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Joey Santoro: Fei Protocol – Introducing Fei v2

Episode Date: December 16, 2021

Fei Protocol is a decentralized, liquid, and scalable stablecoin platform, based on a new concept called Protocol Controlled Value (PCV). After a rocky start, Fei is now back on the road to growth with an upcoming v2 and one of the biggest token mergers in crypto history.On the day before the Fei v2 launch, we were joined by Founder Joey Santoro to chat about the differences between v1 and v2, how the platform works on a PCV model, TRIBE and protocol governance, and the Rari merger.Topics covered in this episode:Joey's background and how he got into crypto and stablecoins specificallyThe Fei launchThe mechanisms of Fei v1RedeemabilityUse cases of FeiThe Fei PCV system and Balancer's roleThe Rari MergerWhat's next for FeiEpisode links:Fei ProtocolDiscordFei on TwitterJoey on TwitterSponsors:Tally: Tally is a new wallet for Web3 and DeFi that sees the wallet as a public good. Think of it like a community-owned alternative to MetaMask. - https://epicenter.rocks/tallycashGnosis Safe: Gnosis Safe is a smart wallet for securely managing digital assets and allows you to define customized access permissions. - https://epicenter.rocks/gnosissafeThis episode is hosted by Sunny Aggarwal & Statelayer. Show notes and listening options: epicenter.tv/422

Welcome to Epicenter, the podcast where we interview crypto founders, builders, and thought leaders. I'm Sunny Agarwal, and I'm here today with State Layer. State Layer is a guest host today. He is a, for anyone who doesn't know him, kind of NGMI, I guess. But, you know, for anyone who does it, he is a prolific Twitter Anon who, you know, just has awesome thoughts on crypto and wanted to come on today and guest hosts an episode. And so here he is today. Today we're speaking with Joey Centero. He's the founder of Faye Protocol, which is a stable coin being built on Ethereum, and takes a lot of ideas and the long lineage of stable coins and applies them, which we'll learn about today.

So before we talk about Joey about Fay, we'd like to tell you a little bit about our sponsors for this week. So the first up is Talley. Tally is a new wallet for Web3 and DFI that sees the wall. it as a public good. Think of it like a community-owned alternative to MetaMask. It has all the same features as MetaMask, but the difference is that it's 100% open source under a GPL V3 license. And it's also 100% user-owned with all the profits flowing to the community, not a corporation. The launch of Talley is coming in the new year, but there's an early version available right now called the Talley Community Edition, which is before the Dow launches,

on December 15th. And because it's this community wallet, they're ready for feedback and want to know how they can improve. So, you know, if you have any features that you're looking for in your ideal wallet or something that annoys you about your current wallet, you should, you know, post on the Discord and let them know. And so that way it can be a really community-oriented front project. The community calls feature a new partner each week and have about 500 people attending.

And so all the info you need is at tally.cash. Also sponsoring today is NOSSAFE. Digital assets today on Web3 are usually controlled by a single private key. I hope that tribe multi-sig or something is not. And this is a challenge because single private keys are often lost or compromised and all the funds are gone. And they often have to trust individuals holding these private keys to govern them. NOSA safe solves this problem by being a smart wallet that enables users to control digital assets with much more granular permissions involving multiple private keys, a subset of which is

required for executing transactions. These keys can then be stored on a different wallet or softer wallets and even shared across multiple people. NOSA's extra layer of security and personalization make it the most trusted Web3 asset management solution for individuals, teams, and Dow's, and it's already being used to store over $100 billion U.S. dollars worth of virtual assets today. On top of that, NOSIS SAVE also provides opportunities for developers to plug into the platform and build their own DAPs and permissionless modules. Visit NOSIS-saf.io to learn more and get started with setting up your own save today. Cool. So, Joey, welcome to the podcast.

I'd like to start off just with a disclaimer that I was an investor in Faye. So that should tell everyone that I love Faye a lot, and this is why I'm so excited for this episode. but just want to give a fair disclaimer before jumping in. So, Jerry, welcome onto the show. Hey, thanks, Sunny. It's good to be here. And, yeah, it's been a ride. Been, you know, awesome, like having you around and state, too.

He hopped in later when it wasn't cool. And so for that, I think he brings a very good context as well. So, yeah, very excited to be here. You want to maybe start off with just telling us a little bit about your background. and, you know, what got you into crypto in the first place? What were you doing before? I think we first met at the SF blockchain week hackathon a few years ago back in, like, 2019, and you were like, you were building something there.

Was that your first foray into crypto or was there stuff you were doing before that, too? Yeah, that was my first time building something sort of in public. But I've been into crypto, Ethereum, since, like, 2017. I definitely hopped in that last, you know, cycle. And I was trading shit coins. I was, you know, buying a bunch of stuff and losing money, making money all over the place. After everything went down, I maintained a very strong, you know, intellectual love for Ethereum and for all the apps that were being built. Back then it was basically just compound and maker it out and, you know, uniswap.

But then, like, slowly, like more apps came out, read every white paper. paper could get my hands on. I even taught a class on solidity at Duke where I went to school. And then when I graduated, I came out to the bay. They had the SF blockchain week. We built a really cool, like, it was kind of like Furu combo or like, I don't know, like, insidap or whatever where you could like chain actions. And it was built on AVE using their flash loans, which I thought were the coolest thing ever. Like when I, when I first heard of flash loans, I was like, this is going to be sick. And it feels like people like, now, Now Flashlins are just like, oh, you got rugged because there was some bug that a Flashline exploited.

And that's like why Flashlines are still relevant. But anyway, very technical. I'm a developer. I wrote all the code for Favie 1 and a lot of the code for V2. But now we have some sweet devs on the team that aren't just me. And yeah, like always trying to innovate. I care a lot about Defi and where we're going. And that's kind of how I got here and how I built Faye.

So I'm happy to jam more on that as we, you know, as we as we as we, as we, as we, chat. Cool. And so then how did you, you know, in this process, how did you choose to, you know, I remember you were working on some things around flash loans and stuff. How do you decide to like, you know, stable coins? That's what I want to go fix stable coins as opposed to the many other things you could be doing.

Yeah. So I think though, like when you're a builder, like at heart, the way that you want to go about like starting a project is you have to see a need that you feel like you're the right person to solve. And so it wasn't that I'm like obsessed with stablecoins or anything. Like I just care about defy and crypto. And I saw that like our options were tether, ew, USDC, like cool, but, you know, not long term. And die, which was like slowly becoming not cool.

Like I still love MakerDow. I think it's like, you know, foundational infrastructure. But at least, you know, especially in like the 2020 time, MakerD out was not like the coolest thing in Defi at all. And I think that they've really like, you know, made some strong moves. Kind of they're setting themselves up to do, you know, real world assets and a lot of like ESG stuff. I think that's a really cool niche that I think they'll continue to fill. And they'll continue to be dominant. But anyway, like, those were the options.

And I was like not very inspired. And I saw all these cool lending markets and derivatives and things popping up. But stable coins were going nowhere. And then there was all these algo coins that were like really shaking it up. those were not going to make it. Like, I was involved in empty said dollar. You know, I did a little bit of development work there. And I tried to make it like less of a Ponzi and more of an actual stable coin.

But, you know, we saw how that turned out. And it was really cool because it was super decentralized project. It really got my like my brain kind of thinking about stable coins. And I realized that like where we want to go with stable coins, we want to have like asset back stable coins that have more algorithmic management. redeemability. We want to have like protocol controlled liquidity. That was a big theme.

And one of the reasons why empty set dollar failed versus things like Olympus are kicking ass right now is because of protocol on liquidity. So that was a big idea behind Fay. And I was like, why is no one doing this? I'm going to quit my job as an enterprise software engineer and just like go build it. And that's how that's how we got here. So it wasn't like I was obsessed with stable coins, but I was very much like trying to follow the pocket in defy. and Fay is just kind of, you know, it was so in the zeitgeist that we had the crazy launch that we're going to talk about. And that's because it was like, we hit it on the nose with the idea, but then the execution was, you know, a little bit behind the idea, at least in the initial stages.

But Faye B2 is going to be really sick. And so I'm super excited to just like tell the whole story and where we are now. Cool. Yeah. Maybe you want to let's jump into that story. So like, you know, okay, so let's say, what is it, November 2020, ESD just fell over and you are like, okay, I'm going to take these learnings and start to do something with it. What was the story? What were the steps?

Did you just start working on it by yourself? Do you start to put together in a team? Did you come up with the idea first? Or did you start just like, yeah, what was the step from there until? Yeah, and you launched relatively pretty fast, right? because you went from like, you know, almost idea to, you know, raising and launching within, what, three to four months? Yeah.

So the, I was involved in empty set dollar and call it October 2020. And I had the idea for Faye, like right around the end of October. So it was literally like, I was in empty set dollar. I was like, guys, we need protocol owned liquidity. And they were like, eh, whatever, let's just keep incentivizing people. they were like having a lot of fun and mdose set dollar continued to blow up through December like in a good way like i mean not in a good way but in like a tvl kind of way like it went up to like 600 million um supply and that's while i was building fay because i i realized like mdb set dollars is probably not going to make it they actually

wanted me to build their v2 or be at least be one of the devs on v2 and um i told them like oh i'm i'm busy with work but I was building Faye. And so, so yeah, like I had the idea for like protocol on liquidity. I was, I was jamming on a bunch of mechanisms in my head. If you want to,

like, hear more about like Fay v1. I've done like several podcasts about it. The Delphi one was really good. As like historical context. But the TLDR was, the market was like crazy. It was,

$600 when I went in October. By the time we launched, it was 2000. So we were like really trying to just like get the idea out there. Like it was like a ship or die kind of mentality. In retrospect, that was a mistake. And that was probably the biggest one. Which was like we just wanted to get Faye out there because we felt like stable coins.

There were so many competitors, you know, Fracts was coming out. Olympus, I guess, was like kind of a stable coin. But now it's clearly like not a stable coin. But it's still pretty similar to Faye. And then, you know, empty set dollar V2. You know, they finally shipped that. It didn't really go very well. But there was all these other Algo coins, so much competition.

So it was really like, we raised a round with, you know, some investors that I like knew and friends. And then Andreessen wanted to invest. And I was like, no, I'm building. And then we did another round like within like a month and a half. And we probably didn't need to do that round. And it definitely attracted a lot of attention. And all those backers are awesome. They're cool to work with.

but it really elevated the stakes a lot. Like, yeah, Sunny, Sunny was in there. It elevated the stakes a lot because now, like, all eyes were on us. And, you know, we were moving so fast already that, yeah, and the market was going crazy. It was, it was honestly, like, a surreal experience to be a part of that. You know, very small team, very ambitious idea.

And so I would say, like, one of the mistakes was, like, just trying to get to market as fast as possible. possible, like, just because it was like, that's what everyone was doing. There was so much pressure from, like, the bull market and all the competition. I would say, like, do things right. Like, take your time, like blinders on. That would be, like, the big lesson there is, like, don't just do things because you feel like pressure from anyone else. Like, do things the way that you want to do them because that's the way that you want to do it. That's the one of the, I would call it, like, two biggest lessons. And then the other one was, like, like keep things super, super simple. The launch, so Favie 1 itself was very ambitious. The launch was also an ambitious type of launch. I think it was actually super close to being really good. But there was a couple of things we did wrong.

One was it was uncapped. And two was there was this like weird air drop that was kind of mixed in with the launch plans. Where people would get like more dollar value than what they put in in terms of So everyone who came into Genesis thought they were going to make 20% immediately. And if you've been around for long enough, you know that that's when you should be very worried. And like we tried to tell people like, hey, here's how Genesis works. We put out all these articles. We gave spreadsheets.

We wanted to like educate people. But it's so hard. The market just like really ran away with it. And then we got so much demand like way more than we possibly could have expected. It was the biggest defy launch, I think, in history still to. this date. Um, 1.3 billion in Eiff. Absolutely nuts.

And, uh, yeah, there's like, uh, those are the two big lessons, I'd say, like, don't rush and keep it as simple as possible so that like, you know, people who only look at your thing for 10 seconds before a thing can like know what's going to happen. And I, yeah, there's a lot more in there to unpack, but that's kind of the very broad strokes of, um, of what happened. And, uh, and then obviously there was like, that's up until Genesis, right? Then there's a whole like what happened after we can go there But yeah what like it looks like you you unmuted I'm curious like what was it like from your perspective or

On the outside like what you know what are your thoughts on like the launch or whatever I'm curious I think I'm gonna I'm gonna take this one actually yeah because I was watching it more from from afar and I like I I I I One thing that that I've realized is that probably even if there was like a lot of like extra like too much like fake creation like you couldn't like like you create like too much fay at first and like probably that that wasn't sustainable at first because there was like so many people that that like tried to participate in the launch but like even then I think which your current design uh without like the penalties and

the incentives like the current design and especially like the V2 design I'm I'm thinking that It's possible that I think it was still still have worked, right? Because if there was like suddenly less demand, then people would just have like redeemed their faith for ETH, like in your current V2 design. And like things would have went smoothly, possibly, I think. Which is kind of interesting. Like even in those like kind of like adversarial like conditions,

like probably would have still worked if like I'm thinking about this correctly. Yeah, I agree completely. And the old like your V2 is. your v1, oh my God, that's never been more true than with Fay. Like, Fay v1 was basically broken, and Fay v2 is really the goal. It's the protocol controlled value backed reserve, you know, one-to-one redeemability, algorithmic risk management. It's like everything that Fay v1 should have been.

And if we had launched with Fay v2, it would have really, like, we would be in a much different position now. and we're already in like an objectively really good position, just from a protocol perspective. Like all the numbers are fantastic. The protocol is making like eight figures a year on yield. You know, like we have a ton of Dow partnerships. Like that's really our product market fit is like working with other DAOs. And yeah, like it took time to get here, but not that much time.

That was six months ago or seven months ago, you know? So it's pretty crazy how fast the space moves. And, you know, we're just trying to learn and stay relevant. and really be on the edge with all these other like DFI 2.0 DOWs or whatever, like that's, that's where we're most comfortable. And I think that we're hitting our stride right now. You don't want to belabor too much on the launch. But in general, you know, I think that, I don't know, I actually think the size of the launch is not the issue. I think the size of the launch is a good thing.

I think that the getting that billion dollar in protocol control value is what gives sort of this flexibility to like sort of really, you know, take this thing to. like have scale and like should start to you know that side of the PCB is what enabled sort of doing some of the Dow to Dow interactions that are going on which we'll get into uh i think that yeah personally i think the only thing that could have that would have been solved would have been like you know like you mentioned that like instant 20 percent increase when instead maybe there should have been a little bit of a delay between the sale and the distribution of tokens and that would have allowed for sort of a, you know, I think that could have fixed it. But, you know, I want to talk sort of maybe let's go a little bit into some of the

technicals of like how FAAV1 worked. And so that way we can use that to like learn how FAYV2 differ. So you want to just give us a brief overview for listeners on what the mechanism of FAYV1 it was and what was sort of the like the main insight that you sort of brought in. Yeah, so FavI1 was just complicated. Like it had two peg mechanisms and one like sort of core engine, which is protocol controlled value. That were absolutely keeping for Favie too. Like that was the big idea that I think is the real staying power.

In terms of maintaining the peg, Favie 1 had direct incentives and rewates where direct incentives were basically a penalty applied on trades. if you're hurting the peg and a reward if you're going back to the peg. Sounded really nice. And like, you know, some simple models basically showed that it was like fine. But the problem was that ETH was like super volatile and that it's a very soft touch kind of mechanism. And when you throw a billion dollars at it, it just totally breaks. Can you talk about how does it break? Like what what specifically breaks?

Yeah, I mean, I mean, look, if you're if you're selling a stable coin and you're facing a 25% penalty. That's not a stable coin. It's worth 75 cents. If you can't sell it for a dollar, it's worth 75 cents. And that was the big problem is that the protocol effectively rugs liquidity when people want to sell. And that is like, you know, from a game theory perspective, like, you would just hold it because you'd be like, well, someone else is going to take the penalty and I'm just going to hold it. But the problem is that game theory is like not a good way to design a defy mechanism. And like I'm gonna I'm gonna stick to that. Like you want to have much like more more savage mechanisms. Like game theory works until it doesn't. We saw

that with empty said dollar. Um, maybe someone will do it like, you know, whatever, but you want to have like hard mechanisms. Uh, three three question mark. I, I would love to talk about Olympus for a second. I like the project. They have an awesome community. Um, in order to, like, we could talk about them if it comes up again, but, but basically, yeah, like, game theory is tough, man, and so you need memes, you need hardcore community, they have it, we'll see how it goes.

I'm, uh, I'm definitely cheering them on. That being said, so, so, like, there's this game theory aspect of direct incentives that didn't really work, uh, especially when you throw like hard adversarial conditions at it. Um, because that's when you're, it's like, if you have any kind of unstable equilibrium,

that is going to get snapped in half if you, if you throw a lot of, of chaos at it. So, and then the rewates were like very innovative and and actually they worked. The thing about rewates, you just bring the secondary market price back up to a dollar. And that's basically like redeemability, you know, but it's redeemability with this time component that you like reweight every, you know, so many hours. So what we realized was that it was just complexity for no real reason. It kind of gives advantages to bots and arbitrager. So we just said, you know what, screw direct incentives.

We scrapped those really early. And then rewates, we transition to redeemability model in June, in early June or end of May. And since then, the Phaeg has been, like, airtight. So really, like, I completely disregard those first two months of phase history as, like, you know, learning in public and iterating on a very high-risk mechanism, you know. And we made very safe moves. We moved slowly, carefully since the launch. We got it all sorted. And then since then we were just like put our heads down, planned V2.

Like, Faye's been in this very like transitionary period since June where we've been like scrapping old code, adding like putting diversifying at like buying stable coins doing all this stuff. And now everything is like ready for Faye V2 which is like going to go live basically tomorrow. with an asterisk. But yeah, like really, really, really pumped about, like, the path and where we're going. I remember one of the things that was, like, sort of interesting about V1, what, or just the Faye idea was you were one of the first to sort of really try to tackle how do you do an under-collateralized stable coin. You know, before that, everything was either over-collateralized or, like, no collateralized. And one of the the theses of Faye was that like, hey, is there something somewhere in the middle that gets some of the best of both worlds?

Is that still the goal? Or is that something that has also transitioned away? I'm glad you asked. So basically what I have learned the hard way is that the only way to make a stable coin is to have redeemability. Obviously, like, I don't really believe. in like absolutes. So I'm sure that somehow somewhere someone's going to make a stable coin that doesn't involve redeemability. But if you point to any stable coin that's working at scale, it's redeemable for $1 worth of something on both sides. Terra's like this, fraxes like this,

USDC is like this, dyes like this with the PSM. You know, like any stable coin that works at scale is redeemable, period. Or you have a Rye-like stable coin where it's volatile, but only like a little bit. And that's, the only way because otherwise the volatility has to go somewhere. So redeemability is like absolutely essential. And so it actually doesn't matter whether you're over or under collateralized. If you're redeemable at scale, then it's the other properties of your stable coin that are interesting. Whether you're over or under collateralized is just a symptom of your goals, right? So under collateralization in a vacuum is a negative property. It's like you all things, all things

equals equal if you have redimability, you want more collateral. You want collateral. That's not your own token because that's a systemic risk. If you're collateralizing with your own governance token, when things go bad, they go very bad. And like, it can work. I am very, very, like, you know, curious and optimistic about like Terra and fracks. And, you know, those teams are executing phenomenally. They have great ecosystems. The spirit of Favie, too, is minimize dependence on internal assets. So tribe is like qualitatively different than frax and terra, even though it uses some similar mechanisms. And I will love to get into that. And the idea is like, let's have as much PCV as possible because that's where we win.

You know, like PCB is the moat. So we don't want to be under collateralized. We can be. But like in the long term, the mechanism should converge on either 100% or monotonically, not monotonically, increasing, but like increasing collateralization and reserves. And it all depends on like how much demand there is for FAY versus how fast we can grow PCV. And like the V2 is designed to absorb under collateralization, but not stay there. That's pretty much the, that's pretty much the unlock. It's like you just need to have redeemability. And then all collateral is good collateral. You've mentioned this term redeemability a couple of times. Can you explain what does that mean and What does that look like?

Yeah. So if you have an asset that you can sell for a dollar and buy for a dollar at all times, it's worth a dollar. That's the whole idea of like a stable coin. So when I say redeemability, I say you can mint fe for a dollar worth of something. Right now it's ETH. V2 is going to be Eith and die. And we're going to add like other assets as well. If you could buy it for a dollar and sell it for a dollar, it's a dollar.

That's the idea. So you redeem it for protocol reserves. Same way you redeem USDC for a dollar from Coinbase. Basically, the learning is that that's the only way to have something at exactly one dollar, right? Like, die tried to make this and eventually realize like, yeah, I need something where someone can come in and like literally exchanges for a dollar. Otherwise, it won't be like otherwise it might be at 1.01, 1.02. Like you can't really make something stick at exactly one dollar just with game theory like Joey was saying. Yeah, at least not at this scale of defy where everything is like, you know, 30% volatile a day.

Maybe if we have like, you know, if you talk about like very, very sophisticated financial markets, like if the Fed, if the Fed lowers interest rates by 25 basis points, everyone loses their shit. It's like that that is not the world that defy is in right now. And maybe like you could have more game theoretic like soft touch institutional mechanisms. but I do have this suspicion that like the traditional finance industry is basically just run on like human algorithms. Like, oh, the Fed lowered interest rates. I'm going to go sell all these assets.

Like I don't think there's like it's just like all this like coordination at like a big scale. I don't think there's anything like objective about like interest rates directly affecting the economy on such a fine grain scale. If that makes sense. Yeah. Okay. So Joey, like for the V2, um, Does the redeemability mean that you're like completely going to like ditch the rewates and like directly balancing the uniswap pool? Yeah, so rewates are gone.

And like same thing with direct incentives. Like both of these features in a vacuum are interesting mechanisms that are not gone forever necessarily. But like V2 is going to be fine without them. So, like, what we're going to do is we're going to build on Bouncer. We're really, like, we have a great relationship with that team. We did a treasury swap, like, a couple weeks ago. And Bouncer is kind of perfect for, like, a PCV system. You could have a ton of liquidity.

You can re-hypothicate assets. So if we do any kind of rebalancing, it's going to happen, like, using balancers mechanisms and not using, like, crazy custom code that we wrote. So that's the idea. But V2 doesn't need it. It's probably not going to have it. it, at least not in the same way. It'll look different if we add reweights back in.

And I'm just curious, like, do you think that means? Because right now it's like the liquidity on Faye and Heath is like hundreds of millions, right? Like, are you, do you think you're going to, and that, that accrues like a lot of implement loss, right? Like over time. Do you think like you could like reduce that, that liquidity a lot since you. Yeah, absolutely. we're going to move it all into probably a balancer pool.

And we might like weight it more towards EF, like maybe 70, 30 or something. So that way we're like maintaining some upside exposure to EF. And yeah, like I think we're going to focus a lot more on what asset allocation do we want. And like kind of putting, using balancer as a tool to have that asset allocation and algorithmically rebounce it versus like, oh, let's just have liquidity everywhere. That was a very like V1 mentality. And I don't think that's scalable because like in permanent loss and these things like we'd rather leverage solutions like Bouncer and Tokomac and whatever to have the right liquidity in the right places and make the PCB composition what we want. That's like far more important, I think, than just like liquidity in a vacuum. Yeah, you mentioned that earlier about like the PCB composition and like how like, you know, the goals would be like increasing.

releasing the PCB, would it be like fair almost to like in one way think of like tribe as this or like the PCB as this like fund that's being invested in and fit and like the fay that's outstanding are bond are like bonds and then the tribe is like shares in this like fund. And so basically, like, Tribe is, this fund is like borrowing money from the bondholders will pay them back and then like the excess is captured by these shareholders. That is certainly a mental model that you could use for at least some of the mechanisms. Obviously, Tribe is, you know, a governance token. But given what it, what it controls, it's a lot more than that. And so like Tribe is kind of a direct, they are responsible for the future of the PCV.

tribe holders vote on these assets. There's a buyback in FAAV2 that's algorithmically managed by the mechanisms. Tribeholders are heavily incentivized to protect PCV, grow PCB, maintain, you know, and grow the FAA supply. Because Faye is like, you said, like debt against PCV. So really, it's leverage for tribeholders. Trib holders can earn yield on the whole PCV and it can send Faye into circulation, earn yield on that. and it can have a productive, useful stable coin that, like, makes DeFi better. So really, it's like an awesome, awesome mechanism that's really healthy, if done right.

You know, and it's very flexible, which means there's a lot of booby traps and dangers, which is why, like, you know, Faye Labs is higher in quantitative traders. We're, like, we're really trying to, like, go deep on how to make sure that we can keep PCB safe and make the protocol safe because it's powerful. And with great power comes response. And like I think that these PCB-backed mega-dows like they and Olympus and frax are gonna just absolutely take over in the you know in the next wave of defy so that that's pretty much the thesis there And I'm curious if you can talk about like my favorite like potential use case for fay is like to solve the problem where like all these CDP collateral collateralized debt positions table coins like

like they need a they need a PSM which is like this this thing where you like can redeem you can redeem die for like one dollar of something in right now is USDC but think my favorite potential use case is um instead of using USDC you could use like you could use Faye instead because Faye is directly redeemable for a dollar of something so that I think yeah that's my my favorite use case potential maybe if you can talk about that. Yeah, absolutely. So Faye really, like the vision for Faye is to be decentralized USC. That's what it is. It's like only decentralized assets in reserves, which are obviously volatile. So that means that we have to have very sophisticated portfolio

management. And the problem is that there's not a lot of liquidity for hedging opportunities, like assets that can be stable relative to, you know, relative to the dollar. Like you can't put, like, write a bunch of put options on EF, you know, on chain right now. You can, but there's just no liquidity for that. So we have to resort to other mechanisms. Right now, Faye is like semi-dependent on other stable coins. And that's on purpose. We have LUSD dye and Rye in the PCV right now.

We're looking at other options as well. So if we can get to a point where the market is mature enough that we can basically hedge portfolio volatility and continue to like earn reliable yield, then Faye becomes an extraordinarily compelling PSM asset. It's basically the on-chain USDC. That's been the vision. It's like, if you can buy it for a dollar, sell it for a dollar at all times, it's a dollar. And then we can truly break away from our dependence on USC as an ecosystem. And I want Faye to play a huge part in that. And so that's that's really like, I would say we have like two north stars. one is like being the decentralized usc and two is being a home for douse like a place for douse to

have a ton of financial services you know the merge has a lot to do with that we're building some really sick products for next year once v2 is shipped it's going to be like heavily focused on on douse and yeah those are like the two big use cases so i think you hit it on the nose we actually talked to daniele and mim is considering fay for its PSM for um you know for MIM, which I think would be really sick and kind of just validates this narrative, which I'm all about and is like one of our main goals. So it's pretty exciting to see the project get to that stage. It's basically like two sides. So is that a right way to think about it? Is that you do, you need like the, you need like the customer, right? The person that like wants Faye. So because of that

there's assets in the in the PCV. Because without people holding Faye, you know, you won't have assets, right? So it's like someone like MIM would be like a holder of Faye and like a kind of like a depositor in the in the fade out yeah exactly you have like the the people on the other side the other side of the metal is the people like want to like that can benefit from the the PCV which is like dows right like people that that need like LPN people that need like just services in general that require capital but without the depositors you can't have anything because you don't want to have money in there right? Yeah, so basically we're building a two-sided marketplace, right, where you want people to hold Faye because it's the most decentralized and scalable stable coin or at least one of them,

right? And so MIM is exactly like a perfect, or, you know, spell, I guess, so that protocol is like a perfect candidate for this. And that's what I said by going hard on DOS. We want to make use cases for DOS to hold Faye. That's our like, that's how we build the demand side. And then the supply side is easy, or rather like the demand to hold Faye, right? Like to make more supply, we just mint it. You know, we mint Faye into fuse pools. We mint Faye into Avey. We mint Faye, like, all over the place.

That's easy as long as you're careful about your collateralization ratio and making sure that, like, all the mechanisms are sound. So, yeah, it's really, like building that demand side through DOS and through the narrative that, like, Faye is on-chain USDC, that's the real, like, vision. I think Faye is very well positioned for like, you know, you know, the next, the next phase. We're trying to stay on the edge of DFI. We want to keep innovating. We're partnering with very innovative teams, staying on the edge, staying innovative, staying competitive,

that's always been the vision. It's like a very like execution innovation focused style. Okay. And another one. What's the, what's the like a breakdown? Because you do need to think. think eventually, like, what do I actually want to hold in the treasury, right? In the PCV, right?

What's the, what do you think, like, I imagine, like, it's not you, it's the doubt, right? But what do you think, like, which should be, like, a right breakdown for, like, what's you're holding in general? Yeah, absolutely. So, this is entirely dependent on the collateralization ratio. I actually think the current asset allocation is approximately perfect, which is, you know, it's good, right? Like we have $220, $50 million in stable coins.

And that's a mix of dye, rye, and LUSD. And I consider those to be like the three most liquid and decentralized candidates. You know, like dye is extremely liquid and it's censorship resistant. But there's some questions about its collateral composition. LUSD and Rye are there's no questions. It's like totally backed by ETH using CDP style mechanisms. enough Lindy to feel comfortable holding them in size, but definitely not to be 100% dependent on them. So it's just like as much of kind of those type of stable assets as we can get comfortably.

How did it acquire this stable coin PCB? Because I remember it started off with ETHPCP. Yeah. Yeah. So the like I guess to wrap up that last thread, like and then the rest we want to hold like a ton of ETH and then good amounts of other like fully decentralized baskets. We love like kind of the index co-op product suite. Like you have some DPI, maybe some data, maybe some Metaverse index. Those are not in the PCV at the moment because we're kind of waiting for a fade V2.

What's the percentage right now between stable coin versus non? Yeah. So there's two different numbers that are important here. One is the raw like asset allocation. It's about 25% stables. But then if you talk about it in terms of collateralization, we're over 70% backed by stables. So, ETH would have to really, really eat shit for the protocol to be in danger. So it's awesome because we're free-rolling a ton of ETH right now.

And that's a really good place to be in. So we're pretty much like short up for a bear. We're like, like, Faye's going nowhere, basically. And that's the goal. So to answer your question on how we got these stables, we got the dye and rye through bonding curves, where we would like buy them at a small discount. And we just let arbitrageeers kind of fill up our buffer. And then what we realized was that that's kind of like a little bit of like,

it's not like a totally sound mechanism, you know, because you're just giving away like one or two percent spread just to acquire the assets. So what we started doing is we started using liquidity bootstrapping pools to basically auction Faye for assets. And that's how we got $100 million worth of LUSD. with only like about 1% slippage, which is awesome given that there wasn't even that much LUSD in circulation. Like the, you know, I mean, there is, but it's all in the stability pool.

So like the market just kind of took care of it for us, this huge buy order that we placed over two weeks. So we're going to use more like automated tools like Bouncer to do these like asset, rebalancing and acquisition and stuff like that. That's really cool. That's a cool use of the LVPs. Yeah, whatever, if you weren't just sending a transaction on Unisop and getting front run or something like that, so that's cool.

No, dude, you've got to move slowly and carefully when you have that many assets in public. So we're always thinking about how can we get front run, how can we avoid that? How can we, like, you know, make these asset allocations in the open? And it's something that we're building a strong competency for. Who makes these decisions? Is it governance votes or does governance delegate to a more sophisticated treasury manager? Governance is totally controlled by tribeholders with the exception of the optimistic approval multisig, which is currently responsible for our liquidity mining. And it can allocate FAY to some extent.

it can like do like FAY liquidity as a service kind of stuff like in fused pools or with our Ondo partnership but asset allocations are totally controlled by the Dow that may not always be the case in FAY v2 we're going to have risk curbs which are like an automated mechanism for rebalancing using balancer so it's kind of it's kind of like compound has an interest rate curve that tells you programmatically what the borrower interest rate is and what the supplier interest rate is but instead of controlling interest rates, you control asset allocations. And the input parameters, the collateralization ratio. So it's just a really cool, like, automated function.

We're still doing a ton of analysis on how to, like, optimize that before launching it. That'll come in, like, probably March or April next year. We're also blocked on balancers timelines for releasing that feature on their managed pools. But, but yeah, I wrote a really, I, like, I've thought so much about governance that I wrote an article about it that I published last week. Maybe you could put it in the show notes or something, but it's about, it's about governance and like where I see Defi governance going. And I think that there's like three really critical aspects to any sufficiently complicated protocol. You want to have token governance, but you want it to be pretty light. Like token governance should only control really important decisions like,

you know, do we inflate the token supply? Do we change access control? Do we update contracts? Like that should be, like, you know, very big decisions should be managed by token holders. And then I think you can delegate a lot of decisions to, like, a committee or, like, a group of, like, you specialize stakeholders. Most decisions in governance are just on party lines. It's like, everyone votes yes. And to me, that's a sign that we're over-utilizing token governance. Like, token governance is an extremely heavy-handed process.

And if everyone's just going to vote yes on most things, then that's suboptimal use of of resources, of gas, of all these things, of people's time and energy. So where I think we should go is more towards optimistic approval. I first heard of this idea through the gyroscope. I think they're in test net or something right now, but it's basically negative consent governance. It's not anything totally new, but it's that like you appoint a committee, that committee can make decisions, but there's a time lock, and during the time lock, the Dow can veto. And that's so much easier because I think people, when people want decentralization, they just want to say no when something's messed up. They don't want to be involved in every decision. And that's what I think,

like, for example, you know, if people are getting censored on Twitter and stuff, like, because Twitter's centralized, like, the people should be able to vote and say, no, you can't censor that person. But they don't really care, like, what the algorithm does day to day. And so that that's my model for decentralized governance is that the people want to just know what's happening. They want transparency and they want to say no when they don't like something. And I think we're going to start leaning more and more on those type of mechanisms, especially after the merge, because Tribe is going to very quickly become governing like a ton of stuff. So we can't do token governance for everything. Yeah, it's almost like Futarki for governance. We're like, if everyone can

predict how governance would vote, you probably don't need to actually run the governance system itself. Yeah. Dude, see Tarkis, Futearchy is crazy. I'm, I've been, I've been obsessed with Futearchies since I first read that Merkel paper, but it just seems like so hard to program an objective function and like DFI is moving so fast that we can't have decades worth of data. But yeah, that like I can't wait to see smarter people than me solve governance. Like I don't know, State layer might do it, you know, on whatever he does next, but State, are you working on solving governance? Not right now. But I did like that article. I think optimistic governance, yeah.

that's pretty good. Like, you delegate to people and, like the governance holders still remain in control. They can still dissolve the councils or whatever, whatever is in place. I think that's the right model. Yeah, I plan on posting something on the sushi forum, trying to get them to use this model.

Because I think, like, if they had optimistic governance, all this controversy would have just been like, oh, okay, no, the people voted no. You know, instead of giving absolute control to the Treasury multi-Sig, And I think the sushi team is like pretty on board for this. It would be a big win for everyone. So one other question about the PCB. You mentioned so you mentioned balancer a bunch of times now.

So you're not holding the piece. You're not holding the PCB in like a balancer amm, right? It's like you're holding it. How are you? What do you mean by you're using balancer for this? So right now, Faye is basically a patchwork of PCV deposits, which are just literally like wrappers around like yield generating assets like compound

ABE, fuse pools, whatever. This is not a sustainable architecture. And I'm wrapping up the thread on the initial V2 launch and the merge. And then I'm going to spend a lot of time re-architecting from the ground up like a full stack kind of PCV system that's like more elegant and more streamlined. And that's going to involve balancer very heavily. So what I'm imagining is basically balancer is kind of the top layer where everything is in a balancer pool that decides the macro asset allocation of the portfolio. How much ETH do we have?

How much DPI do we have? How much Rye do we have? How much LUSD do we have? And this is controlled by the risk curves at the very top level. And it should be pretty light. It shouldn't move that much because if you move too fast, you're moving the whole market. And if you move the whole market algorithmically, you're going to get. destroyed by hedge funds and traders.

And so we're doing a lot of analysis to make sure, like, what's a safe mechanism for that? But that's where I imagine the top layer being. And Bouncer has a cool feature where the way that they solve the capital efficiency problem is not by concentrating liquidity, but by actually giving you access to all the liquidity outside of the price ban that you're in. So you could take assets out of Bouncer and put it into, like, some other deposit. it. So what we're thinking is using the fuse yield aggregators or RAR yield aggregators that are aggregating on top of fuse as like a big component of PCB. So it would be bouncing on top

and then yield generation sort of abstractly using these aggregators. And then at the base layer, we'd be using fuse pools that would control kind of where PCB's going. So it's kind of this like full stack integration where you get, you get swapping liquidity, lending liquidity, and yield aggregation, kind of all in a hierarchy. And that is a really nice architecture. I'm going to do a whole write-up on it, come up with a transition plan from our current system. And that's going to be like a big theme early next year, probably.

So that's kind of the alpha leak, I guess, for where we're going after Favie, too. But when you're keeping your PCV in the balancer pool, does that mean that like it's suffering the IL? Because I've always heard like Balancer try to pitch it as like, hey, this is you can build ETFs using balance. By all the side, isn't having it in a pool like a terrible ETF because you're like just, you know, whenever an asset goes up, you're like selling that asset basically. And like so here's the thing. Like when you're market making, like the goal is, or like, whether it's a goal or not, the idea of market making is like, you're always selling the asset that is in demand. Like if someone wants it, you're selling it to them and you're taking fees for that. That is like market making is a trade.

It's a trade that's long volume and short volatility. So impermanent loss is like, it's a stupid name. Like, it should just be called market making. Like, that's the whole game. I guess the question is, why are you market making with your entire PC? So, so, and then there's another question, which is that market making in an AMM is two things. It's, it's actually a portfolio management tool. Like, if you're an LP, you're making a specific trade on your portfolio.

You want to be 50% exposed to ETH and 50% exposed to USD if you're market making ETH. And maybe that's not what we want. But if we know what we want, we just plug it into Balancer. Balancer decides the asset allocation. And, you know, instead of thinking of it as, selling on the way up, think of it as rebalancing. Like you're rebalancing to have the asset allocation that you want at all times. And you're actually getting paid for that because people are swapping on your liquidity,

giving you swap fees to have the asset allocation that you want. Does that make sense? Yes, but I'm going to claim that the balancer amm is the opposite of what you want. Because like you mentioned, you know, 25% of your portfolio for folios in stable coins right now, but it's 70% backed with stablecoin. But the problem is as ETH starts to crash, you guys are going to end up owning more and more ETH, which is crashing and less and less is going to be backed by stable coins.

I would argue that you almost want the opposite, which, by the way, this is something we're working on at osmosis, is you want a leverage EAMM, which actually lets you sell ETH on the way down, rather than buy Eith on the way down. Yeah, that's literally what we're building for Favie 2. We're building risk curves on top of balancer that change the weights of the portfolio as the collateralization ratio changes. So we can actually, we're making an abstract generalization layer on top of balancer that lets us do exactly what you're saying, where we can sell on the way down or buy it on the way down or do nothing on the way down.

And that's totally dependent on the inputs. Like we're providing the function. And so like, yeah, like the answer is whatever. we want we can do and we're doing a ton of upfront analysis we have data scientists quantitative traders on the team who are doing this analysis so that when we put it in we have like a pretty good understanding of what's going to happen and then you know it's a very chaotic system so if something happens we didn't expect then we change the mechanism we change the curve weren't you saying joy that like you were thinking like you might not not necessarily like put the whole thing in the

in the balance your pool right you might just hold like a hold some outside of it right Yeah, so the rollout and the architecture are still totally up in the air. I think that it's very wise to start out. Like, we're going to start moving pools over to Bouncer pretty soon. Like the East Bay pool on Uniswad V2, there's no reason it should stay there. We're not getting any incentives. And, you know, it's like, it's a dumb pool. So we're going to probably move that over to Bouncer.

We're going to make a tribe pool on Bouncer probably. So we're just going to keep, like, moving assets over to Bouncer. And then eventually, I do imagine that near 100% of PCB will be in Bouncer. And maybe it's not 100. Maybe it's, like, 50. But we want to build an ecosystem. We want to build a stack that we're, like, I believe in, like, concentrating your resources, both from an architecture perspective and from, like, an alignment perspective.

Like, we want to own a ton of BAL. We want to be a part of the Bouncer ecosystem. We want to pump TVL there, pump volume there. Same thing with the merge. Like the Rari merge is like, we want to put as much PCV into fuse as possible and into Rari Vaults as possible because like we're going to become one protocol. So that's the idea there. It's like maybe not at once.

For technical reasons and security reasons, we'll roll it out. But eventually we're going to put as much as we can there, assuming that we have the properties that we want of PCB. Like the end goal is to just have the acid allocation we want in PCB at all times. And we're going to use balancer as a tool to get there. Can you still have like some of it in like in balancer but like just like static? Like just like not actively being like market made market made with or? That's possible.

At that point we might as well just keep it outside of balancer. So it's it's really like that's what I mean. Like maybe we don't want to put our index in balancer because we want to make sure we're not ever selling it because we want to maintain 1% of the fully diluted supply of index. we'll just keep that outside of balancer. And we could do that with any amount of PCV. Like maybe we just like always want to have 100,000 eth no matter what. And we're just going to keep that outside of balancer forever and put it in stake teeth and just leave it there.

Like, you know, we could do stuff like that. Definitely like I don't believe in doing anything arbitrarily. Like we shouldn't put it on balancer just because. We should do it because we have a very specific goal. So having a lot of smart people in the community like you and, you know, all the various stakeholders kind of pitching in and deciding like what we want to make this thing that is what I'm going to support and provide technical resources for it. So we talked a lot about what happens in like the over over collateralized regime.

Like you know, ideally everything is one for one redeemable for something in the PCB. What happens when the PCB gets, if the PCB gets completely drained? And, you know, because we offer this one-to-one redeemability now that that means that there's outstanding faith. What happens next? You're saying we're under collateralized in this scenario or what? Yes. Yeah, yeah. What happens if we're under collateralized? But you know, you still keep, and you keep offering one-to-one redeemability, but then we're all out of and we get, and all the PCB gets wiped out. Yeah, I mean, that's a textbook bank

run. So that's the V2 is designed to avoid that. We have two mechanisms to avoid that. One if we go under the target collateralization ratio, we backstop with tribe. And that's the only scenario where tribe is used to absorb volatility on the downside is if we go under the collateralization ratio. The target's going to be 100%. There's technical reasons why it shouldn't be over 100%. And we can actually lower it. We can lower it to like 90 or maybe even 80, but you want to keep that number pretty high because you don't want anyone to be scared. Like if people are like, oh, Faye is 90% backed, that's going to be fine in pretty much all market conditions. So as long as there's this like guarantee from the protocol to backstop with its own equity

when shit hits the fan, that's like a really good way for people to kind of like feel comfortable. We also have a rate limit on how much tribe can be inflated at a given time so that tribe holders are not freaking out and like dumping to front run any inflation. And then like I said, the risk curves are going to be selling into stables basically as PCV goes down. So there's all these mechanisms to kind of stop us from getting under collateralized. But if we do, like Tribe is there as a backstop. And if we get so under collateralized like Black Thursday, like, you know, I guess in an extreme

scenario, phase zero is out. That's like, you know, we're doing everything in our power to make that not happen. And I'm extremely confident in the mechanisms. But like if things had gone much worse on Black Thursday, MakerDow wouldn't be here right now. So that's kind of the, yeah, I think it was Black Thursday or Monday. I don't know, whatever. Whatever happened in March of 2020, if it had gone much worse,

MakerDow would be toast. And so, like, that's the risk and that's what we're building to protect against. But, yeah, like, you know, it's defy. You can't have an airtight mechanism when you're doing something this complicated. So it's all about, like, on-chain incentives, asset reallocation mechanisms to protect against a backstop event. That makes sense. one funny thing I was thinking about before while prepping for the show was if you actually

allowed redeemability or mintability of tribe first right before it is at the cloudization ratio it kind of becomes like terra but with a with like an eith backstop so you know the whole thing with like terra is like how does it work well the tfl balance sheet is backstopping it but here it's like hey, there's this on-chain balance sheet, which you create Terra, but this on-chain balance sheet is what's backstopping the protocol, which is kind of cool. Here is the difference between Fay and Tara. And I love this analogy. I think it makes a lot of sense to me.

So, like, let me know if it doesn't make sense. But basically, Luna is absorbing volatility in UST demand directly. When LUNA, when UST goes over a dollar, Luna gets bought and burned. when UST goes under a dollar, Luna gets minted and inflated. Faye backs the peg with hard assets, if other stable coins like PCV. So the peg is completely managed by PCV, and Tribe is absorbing volatility in the PCV.

So it's kind of like Luna with an extra step where it's managing volatility in the assets, not in demand for the stable coin. Yeah. I think, like, for me, I remember, like, I was always very skeptical of terror, and I guess I just never understood it, until I saw understood Faye. And I think Faye, to me, was, like, this, like, stepping stone where I, like, at least I understood the game theory of terror.

I'm not, it's still something that's a little bit, you know, will it blow up in a good way or a bad way? I don't know, we'll see. But I think that that definitely helped me understand Tara much better. Yeah. And then the reason why we're obsessed with being fully collateralized is because we're nervous about mechanisms like Terra. Like we've seen Titan zero out after a $2 billion supply. And like there's a bunch of things that went wrong there. But the market has been in our favor for a year and a half now.

That's not going to, it's not going to be like that forever. So, you know, we don't want to have a mechanism that can weather the storm and like a really gnarly storm. Because I think, you know, I remember March 2020. I remember, you know, 2018. Like, shit is not always very pretty. It's like, it's brutal sometimes, you know? I was like a hypothetical, like, scenario. Like, the only way I could see, like,

Faye become, like, close to Luna would be, like, if Faye would swallow up, like, so much, that, like, ETH would be, like, really, like, like, ingrained, like, with, uh, with Faye itself, right? Like, then that would be closer to Luna, right? Because basically, there's a point where face selling could affect the market, right? Yeah, I mean, we are at that point. It's just like not, it's not like if ether would like get destroyed if we unloaded everything.

But the east price went up 10% during Thay Genesis and the gas price went up like 200%. I'm pretty sure that like us sucking up, you know, almost a full percent of the supply was like definitely moved the price and we still have like you know a quarter of a percent of the eat supply so we're a we're a huge actor we're probably one of the largest eth holders as an entity in the entire ecosystem this is like i'm just having this crazy idea now like right now while we're talking so this might make zero sense but what i mean so what one thing i was mentioned just this state earlier was like hey what if like the the favy one of the one of the one idea what like but you had like the redeemability let's say you had something more like

terra where like you mint and burn tribe for USDA for for for say you used your PCB to instead of market making on ETH FAY like B1 was doing you instead use that to market make on ETH tribe instead and you basically have like hey here's this like exit liquidity for for tribe out. And it's like, I don't know, that feels very interesting. But then what I just thought about this now was like, I wonder if there's like this a way of like using this with like an Olympus style mechanism to keep like increasing the PCB. And then like, I wonder if Olympus could issue a stable coin with like their actual. So, you know, you know, actually earlier on the thing,

you were you, you were offering up your views on Olympus. Maybe maybe we can do that and then we can talk about that a little bit. I remember back when like Faye was, when it was first like launching and stuff. I remember at the time, like, everyone was talked, like the two things, everyone's like, oh, two big staple coins coming out right now, Faye and Ome. And clearly Ome does not seem like a stable coin right now. So what do you think is like about what are your thoughts on Olympus? Yeah.

So the spiritual core of both protocols are identical. It's a PCB-backed asset, period. like, Fay is a PCV-backed USD stablecoin. OM is a PCB-backed futuristic reserve currency that has a floor price. And so in that regard, I think Olympus is one of the coolest things ever because I think Fay is one of the coolest things ever, and they're very similar. The way that Olympus is different is that they use staking and bonding to kind of growth hack this like PCV or protocol on liquidity.

It's super sick. Like, I don't, I have no. idea what's going to happen. I, um, like, I don't, I don't have any own bags, but I really like the team. I like, um, you know, I like the community a lot. I, I'm always, I always hedge when I talk about it. Like, it's a dangerous mechanism. I think even the leadership kind of knows that. It's like not to be trifled with. So all the memes and shit are fun. But, um, you know, it's trading, you know, eight or 10x over its reserve value at any given time. And that could zero, not zero, but that could, you know, that could do a five X.

dip at any point. And everyone's kind of aware of that. But, like, they have such a strong community and the market's been in their favor. Like, they're acquiring so many assets. Like, Olympus is not going anywhere. And I think that's the long-term play is, like, even when shit hits the fan, they just pivot to being more like a stable coin and less like a growth machine, you know? I, uh, yeah, I, I like a very nuanced, like, I'm following Olympus very closely.

I'm, you know, like, I think that they're really executing pretty well. And that's my, that's my, like, broad take on, on Olympus. It's funny because, like, one of the, because I have, like, a lot of, like, Omi's friends, right? And, like, one of the ways I, like, kind of, like, explain them, Faye or, like, pill them on Faye, was, like, imagine if Olympus was to, like, issue, like, an asset, like a, like, a stable coin that's, like, fully backed by their PCV, right? because they have like hundreds of millions.

Like they could do that like tomorrow. They could issue like a, well, maybe not tomorrow, but, you know, like, issue a stable coin. It's essentially like Faye and just sell when it's over $1 and buyback when it's under $1. Right. So like that's kind of how like sometimes I explained the Faye because like tribe would and own would become essentially like tribe, right? Because it would be just like the governance token and like they get like the upside on the PCV growing and everything. that's kind of like one way. Dude, that would be a crazy timeline.

If Olympus just like launches a stable coin and turns Ome into a governance token, that would be an absolute, that's a crazy timeline. Yeah, so that's exactly what I was just thinking. It seems that the mechanisms are very similar, but what Ome did was it packaged tribe and what in Faye is two separate tokens, one which is stable and one which is this like accruing value asset because it's like, proportion to the PCB, it patches them into one asset. But I feel like, Oh, maybe could separate these out where, like, you know, they have this, like, lower value that's backing the Ome, when it's clearly under collateralized there. They could issue a stable coin based off the floor value and then have this other thing become this, like, PCB tracking asset. It seems like that's a little bit what's going on here. Oh, my God.

That's so sick. I don't think they want to do that. I've talked to, like, I've suggested, like, oh, could you do this, like to some friends, like, OG, omies? And they were like, yeah, that's not, that's not like the vision, right? Because they want the asset itself to become the reserve currency. But I think it's a cool, it would be cool, right? And they could make it so that it's not, it's not like, fail, like exactly one dollar. It could be more of a, like, a floating one, right?

Like, let's say it's like, they don't let it go past 1.05, but they might, you know, that type of thing. Yeah, I mean, I think, like, they should keep it as just own, right? Like, they should stick to what they're good at. That's been the narrative. That's been the vision. And, like, if they can execute it, it's fucking huge. And, like, you know, I definitely think, you know, it's worth giving that its full shot, right? So, but if they want to launch a stable, go and call me, I could give you some tips.

What is the PCB right now, the dollar value, approximately? Yeah, East Bend tanking. So my guess is it's around a billion. It was like 1.2 a week or two ago. Yeah, it's almost exactly a billion as of right now. Okay, so there's about $1.2 billion of PCB and about $750 million of outstanding Faye, right? Yeah, but half of that Faye, it's $7.2.

And half of it belongs to the protocol. So in terms of debt, there's like $350 million. Okay. So then maybe let's talk a little bit about this Rari merger. So, you know, maybe before we go into the merger, like, you know, what was this like relationship and like, what was the interaction between the Faye protocol and the Rari protocol before any talks of merger even popped up? Yeah, I mean, it's really a perfect fit.

Like, Fay is a, you know, Faye is a stable coin looking for a product and Rari is a product looking for a stable coin. Like, they have a leverage market, but you need liquidity, particularly in stable points to, you know, satisfy the demands of people who want capital efficiency against their tokens. And so we basically put Faye into every fuse pool we could. We have Faye in like, you know, like nine of the top 10 fuse pools or something like that, maybe eight or nine of the top ten. And, you know, a ton of pools, like all the top pools have Faye in it because we put liquidity in them. And then that attracts capital. So very strong relationship on the mechanism level. Also, the teams just like really gel.

Very, very similar vision, execution style, very aggressive, innovative, like wanting to be on the fringe. and like, you know, be the ones kind of leading the charge. Like, that's always been, like, Jay's vision. Their team is phenomenal and great to work with. So when Jay first, like, floated the idea by me, it's funny because I had actually been thinking about it for a while. I thought, like, man, what if we, like, merge with Rari? That'd be so cool.

And then Jay was like, dude, what if we merge protocols to me? And it just felt right when he said it. But we spent a lot of time kind of syncing up with the teams, getting everyone on board. you know, it's a big, big decision. It's like getting married. And so that's kind of how we like got here. And then once the teams were all totally on board, we took it to the community. No one else knew about it.

We didn't tell any of our investors or anything. It was literally just like from the core teams. And then we took it to the community, got a ton of attention, had some really great conversations. It's honestly been the coolest example of decentralized governance I've ever been a part of. Because you have two different communities trying to negotiate. all these different narratives, all these different stakeholders, really, really, like, people showing up to, like, contribute value and, like, you know, fight for their, you know, their protocol.

Very awesome kind of process and cool to, you know, cool to be a part of. Was there a vocal minority that was, like, very against the merger? Yeah, I mean, I think calling it a vocal minority might even be, like, you know, belittling, like, the sentiment. Like, there were people who were very upset on both sides. I have no idea what, like, on the tribe side, it wasn't even a minority. It was like, all of the biggest tribeholders were like, dude, what are you doing? And, you know, there was a lot of, like, negotiation and we changed the proposal a ton

to really make it work for, like, all the key stakeholders and as much of the community as we could. And Jay and I have been, like, really emphasizing the vision of what we can do together. and oh my god is it going to be sick like get ready um and so yeah like there's a ton of detractors when we first proposed most of that was because people just it was out of nowhere like no one was expecting this because it only makes sense after you spend like some time like thinking about it and looking at where defy's going and um so we think that this is like a very forward move that you know already we're seeing like the spell ecosystem like they're consolidating a ton And I think you're trying to merge with sushi right now.

Like, we're going to see consolidation all across the DFI stack. And so it's like, choose your friends. And I know who my friends are and I want to merge with these guys. And like, you know, I'm trying to sell this vision to people who aren't into it. But ultimately, we're letting people who aren't into it kind of exit. Like tribe holders get the rage quit. RTT holders are going to swap into an asset that's 10 times more liquid. So everyone's going to have the ability to leave if they don't see this new vision.

And it still needs to go to on-chain vote. So it's ultimately still a decision by token holders. And I'm pretty confident that it'll go through and we'll be able to execute something really awesome. The, it looks like the snapshot vote is currently at 99.99%. Yes. So it looks like it's probably going to go through at the moment. Yeah. It was the most voted on snapshot ever in Faye Protocol by a long shot.

10% of the supply showed up, fully diluted supply. So it was like, of all of the tribe that, could even possibly vote, over half of it showed up. And Fay Labs participated very minimally. Like, I didn't vote. Seb didn't vote. Most of our investors didn't vote. It was very just like totally community.

Like, I'm so, I'm actually floored at how positive it was received by the community after we, after we added the rage quit and changed the proposal. Like, everyone was on board. Even the people who, like, aren't down for this new vision or down because of the rage quit. They're like, yeah, like, you guys do your thing. I just want to take my thing. and get out of here. And I think that's going to be a really positive kind of healthy moment for defy as a whole, but particularly, you know, the Fay community and the Rari community.

It's going to be really, you know, a powerful event. Yeah, I mean, that's very interesting about this whole ecosystem thing, because that's something I find, I see happening as well, where it's like, you know, you take a stable coin, you take a lending protocol, you take a decks, and you've got to pack them all up. And so, you know, like you mentioned, you know, I think, you know, this is happening in Terra. I think this is happening in like, as you mentioned, in like the spell commute ecosystem that Daniel Estha is like putting together. So is that really where you see like sort of tribe going as well where it's like, okay, you know, you have this like stable coin.

You have the lending protocol. Eventually you guys are obviously going to acquire balancer, alpha leak right here, blah, blah. Is that where you see where this is all going? Absolutely. I think like tribe is tribe like new narrative basically like I don't tribe to be synonymous with defy in like two years, you know? And that's the that's the real vision is it's like full stack a bunch of very values aligned teams all independently contributing value like I'll continue to lead the stable coin side for as long as I can and I'll try and help with this like broader vision. But everyone I want to bring in leaders. I want to bring in people who can like build. a product and help us integrate and create a really full-stack experience for DeFi, and we're going to use PCB to make that really, really kick-ass. And, like, that's the trick is that everyone who integrates with us gets hundreds of millions of TVL immediately. And if you're a builder and you're, thinking about, like, what's going to happen to Defi when everyone consolidates, like, and you're,

and you're, like, excited about what we're doing with, like, Thay and Rari. And, you know, we're already in talks with other teams. And, like, it's going to. happen and we want to talk to you if you want to build on us like DM me it's a really powerful value proposition when you have this tightly knit community that's sharing resources um and like fostering leadership you know like i want teams that are i want to see like people fighting for like what they believe in like in governance and like really sharpening the sword and not just like one team kind of saying what's happening and that's what's happening a lot with fay right now and i think we're doing a good job as kind of stewards with the community and we're elevating the community

more and more. But when you add in more development teams and more products, so you really get something magical where it's like true decentralization. And that's what we're going for. So you remember there was this one line in, I think, the governance proposal or somewhere, but it said like different separate communities in one token. What exactly does that mean? So I do think that in particular, the communities, I really want to. want to like mesh together because like Rari is maintaining its own brand and Faye is maintaining its own brand but tribe is like the umbrella and um i think that there's like you know it's kind of like everyone who's on the Terra ecosystem you have like anchor protocol and like I don't even

know what what other stuff is over there but like that's all over on Terra and everyone still like identifies very strongly with like Luna and the whole it's like Ethereum almost like communities within communities. I want its tribe to become like an asset that represents a lot of different communities that all come together. And like I care a ton about tribe and I care a ton about ether. Like I'm buying as much ether as I can get my hands on right now. And like I want people to like also feel that way about like tribe and have multiple teams all like building on tribe. That's really the vision. So the development teams will stay independent, but there'll be much more resource sharing. I'm actually on calls with the Rari team almost more.

and the Faye team these days because, like, we're planning so many integrations and so much about the merge. So, yeah, it's going to be very fluid and kind of, like, you know, authentic decentralization at kind of the Dow level scale. One thing that I guess makes this merger different is like, so like, this is probably the large, is this the largest, like, token merge in, like, crypto or do you know if there's any larger ones? I don't know of any larger ones, and it's definitely the coolest if it's not the largest. Because it's two, it's, so here's the thing. It's two teams with product market fit. That's what's so cool about this is that like other mergers is like you take one dying thing and one thing that's not dying and you like put them together. This is like two teams that would have continued to kick ass if we stayed separate forever.

But we just saw that like one plus one equals three. That's like the meme that we're going for right now. Like you take two things that are already good and you put them together. You get something like that's some cool. greater than the sum of the two parts. And that's really the, that's really the vision and why it's so cool, in my opinion. What I remember last year, there was this whole thing about like sushi and yearn are merging and that they're going to share a dip. But then I never heard, there was like a blog post about this, but I never heard about it again. What was like the deal with that?

Look, I mean, here's the thing. Like, the urine ecosystem tried to do this. They realize that consolidation is power. And to be fair, the, the urn ego system is powerful. But because they have all these separate tokens, there's not really a ton of incentive alignment. So people are kind of just doing their own shit. And it was honestly pretty lackluster in execution. And then the sushi, sushi tried to verticalize defy by building every single product possible with one development team. And that didn't go well either. So what Jay and I realized was that even though it's painful to smash two tokens together, it's the right way to do it. And like, we are going to continue on our product roadmaps.

We have specialized expertise in what we're doing, but we have dramatic incentive alignment because we have one token instead of two. And we think that that's the model that consolidation will win. And so it's really a bet on like a certain type of consolidation that's at the token level. And that's what that's the bet that we're making. Yeah, because even if you make a large token swap, like when you think about it, like, yeah, maybe you'll be happy if the other protocol does well. because you're like, yeah, we own some of the token, but it's really not the same in the sense that, like, at the end of the day, you're still rooting for your token and you want, like, your token to do well.

And, like, that's not, probably the only way to, like, actually be on the same, on the same side, the same team is like, you need to have the same token, right? Like, otherwise, you're going to want to, you're going to want the best for yourself. That's just natural. Yeah, exactly. So that was the key intuition. And this was a common criticism from a lot of community members. Like, why don't we just do a token swap? It's like, well, we've done token swaps with other teams.

And we still do them. I think they're very useful and important. But it's a totally categorically different type of incentive alignment. Like, we love index coop, but we would not, like, give them PCV for any reason, right? Like, we would buy DPI and we would use it and, like, do stuff like that. But with Rari, it's like, we are going to put assets into their protocol. we are going to pay off their hack, we are going to do development with them. Like, that is true incentive alignment.

And that's what a token merge gets you that a token swap doesn't. So what are some of the plans for the future for, I guess, Bay and Rari now and the tribe ecosystem as a whole? How do you? Yeah, so, you know, you mentioned FAAV2 is launching tomorrow. What are the thing, what are the assumptions that you're looking to validate from this launch tomorrow? Yeah, so the Faye V2 launch, it's really like, Faye is kind of the ship of Theseus. Like, it's, it's one system that has a bunch of changing components all times. Like, even today, before the Faye V2 launch, the only contracts that are the same from FAYV1 are the Faye token, the

tribe token and our one access control core module. Every single other contract has been completely replaced since FAA V1. So it's already like FAA V3, if you think about it in like a pure like software perspective. But the thing is that we're going to keep like adding new components and replacing old components. Faye is like a very fluid system and it uses a different architecture than most Ethereum projects. Like it's immutable but with like very modular. So we don't have any upgrade ability except for two contracts in the system. Everything else is just plug and play like Legos. You get rid of something old, put in something new.

So the Favit 2 launch tomorrow includes two really important features. It includes the tribe backstop, as well as a rate limiting module on tribe inflation, which is useful for tribe holders to kind of game out. Like there's no infinite minting attacks. There's no like craziness. Like there's a hard rate limit on how much tribe can be inflated. And two is the die redeemability contract. It's really a PSM.

just like MakerDow. And that is the most important mechanism because right now we have redeemability against EF, which is great. But on its own, it's a little bit leaky because the chain link oracle is not perfect. It's the best that we have, but it's not good enough to not leak value to arbitrages and predictive like, you know, predictive bots and stuff.

So we're adding a die redeemability contract. What's awesome about this is that it's categorically different from the MakerDAO PSM, MakerDAO does not control how much USDA they have. They only have a cap. It's not PCV. They can't unload that USCC anywhere. We can decide how much dye exposure we want. It's currently 10%.

It's going to go up to, I think, 12 or 15% after this next Dow vote passes. But that is a number that we control as a Dow. So like MakerDAO doesn't control how much USC backing there is. It's totally market determined. But we can say we're going to sell all this. die or we're going to buy more. And that's totally up to us. So we can we can decide the level of dependency that we have, which is really powerful. And so we just want to see that like that redeemability tightens the peg, spares us from like buying and selling Eiff all the

time. And then we can focus on kind of the fun part, which is what happens after the merge. We're going to build a ton of products that focus on, you know, like Dow's. I have one product in particular that I'm really excited about and then like some future plans that I'm super excited about. So what is the what's your you know, I think every, every protocol is, you know, kind of mandated at this point to have a plan for multi-chain or interchain. What it, what, what is yours guys just looking like? I'll admit, I've made one Ethereum transaction in the last month because a little part of me dies every time I pay a transaction fee that's over $100.

dollars. Yeah. So our multi-change strategy is like not right now, pretty much. And that's changing rapidly. But basically, Faye is a protocol for DOWs. And DOWs operate at a scale that is still comfortable on Ethereum layer one. So we're going to stay where the DOS are. We're not,

Faye is not a stable coin for consumers. We're not competing with Dye and USDC. We will eventually. But our, our, like, foot in the door is DOS. Like, I'm not concerned with how many retail users are holding Faye because it's such a hard sell. It's like, Faye is a stable coin that doesn't have as much of Lindy. It's not as useful as Dye yet, but it's quickly becoming integrated everywhere. So why would we try to compete there when Faye is literally the best stable coin to integrate with a Dow and all the DOWs are on Mainnet?

So we're staying on mainnet with the Dows basically until L2 is more certain. Right now it's kind of a shit show. It's like, do you go to arbitroam? do you go to optimism. Oh, ZK Sync is coming. Like, you know, we're going to just wait and see. You go build tribe chain. That's the answer.

Dude, low-key that's going to happen, but don't like, like, that's the mega alpha leak is like, I don't know when, but that will happen. Low key on this podcast with 10,000 listeners. Don't tell anyone. There's one cool multi-chain thing that you probably could do or probably will do, if I'm guessing. Like, so transmissions and Rari, like they've been working on this Nova thing where it was like a protocol for like,

uh, you can use for fast bridging, uh, like between rollups or chains and like the, the, the, the, the,

the, the, the, uh, protocols for, for, for, like, uh,

interchain and, like, fast bridging is like, unique capital. Like, so Faye's like a perfect fit because they can literally just print into these, these fast bridges and like use their, use their,

uh, their, their, their, their, their, a multi-chain type thing. Yeah, absolutely.

So basically, like, Fay Core is staying on L1 for a long time, probably, until it's very clear that we need to move. But launching products and certain amounts of PCV onto other chains is in the works at the moment. Like, Transmissions is working on it. David's working on it. One of our developers, Caleb is working on it.

Basically, we want to joint launch, Fuse and Faye on a bunch of chains. And I think Fuse is getting a little bit of a head start because their devs are more focused on that than ours are at the moment. But we will get there. So imagine like Fuse is on all these other chains. Fay is seating pools there. But it's not like core PCV is on these other chains yet, if that makes sense. You could get it on osmosis too. Well, Charlie, thanks for coming on and, you know, sharing all this fun stuff about Fay and tribe and everything going on.

Where can people sort of like find you and learn more and what's the best way for people get involved? Yeah, absolutely. So follow the Faye Protocol Twitter account. It's just at Faye Protocol, no spaces. Or me, I'm Joey underscore underscore Santoro. I tried to buy a better Twitter handle. If anyone knows how to do that, I will get one. And then join our Discord.

I think the Discord links in our Twitter bio. So, you know, we want to hear from you, DM me, especially if you're a builder looking to join a sick megadow ecosystem. And yeah, like, thanks again for having me. This was awesome. 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.

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