Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Turtle Club: Helping Web3 Users Monetize Their On-Chain Activity - Esfandiar Lagevardi

Episode Date: February 17, 2025

As more and more protocols compete for marketshare, user acquisition represents one of the most important elements of the GTM strategy. Web3 projects, through their governance tokens, can incentivise users directly to participate in meaningful activities for each protocol, subsidising their revenue generation through vested upside in the project. Turtle Club built the first distribution protocol of Web3, helping its users maximise their rewards they get for meaningful on-chain activities that help bootstrap projects.Topics covered in this episode:Esfandiar’s backgroundThe evolution of DeFiYield sustainability in DeFiDeFi vs. TradFiQuantifying riskMain blockers for DeFi adoptionOn-chain transparency or privacy?What is missing in DeFi?Genesis story of Turtle ClubHow Turtle Club users accrue rewardsEpisode links:Esfandiar Lagevardi on LinkedInTurtle Club on XSponsors: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 Brian Fabian Crain.

I think the problem that a lot of these different applications or depths of face is that they weren't able to reduce their cost of capital faster than the rate at which their emissions trailed off. So a lot of these applications are subsidizing their yields by issuing their own incentives in the form of their governance token or Dow token that gives their users a vested upside in the protocol or the protocol treasury. Really, the idea of Turdle was how can I leverage the collective liquidity and bargaining power of, numerous LPs and liquid funds at the same time to negotiate better deal and sort of incentives or upsides on behalf of the entire community. And if they interacted with any of the partner protocols that had a kind of a liquidity offering in place, the Turtle Dow would start issuing rewards directly to these addresses of ELPs of ours that essentially conducted those activities that our partners been valuable enough to start paying the Dow for. It's a much safer way

for us to essentially track the activity of all of our users and pay them additional boosts from the partner protocols that we work with on the upside. Welcome to Epicenter, the show which talks about the technologies, projects and people driving decentralization and the blockchain revolution. I'm Brian and today I'm speaking with Essie Lagavardi. He's the founder and CEO of Turtle Club, and Turtle Club is a Defi liquidity protocol. So I'm really excited to talk with him about Defi. about Turtle and all the exciting things happening in that area.

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Cool. Well, thanks so much for coming on, SIE. I've spoken quite a few times with you recently. I should also note here that we've course run, with practice and personally we all invested in Turtle. So I've been learning much more about Defi, even though I've been in crypto for such a long time in recent time. So I'm really excited to dive in the whole DeFi world with you today. But maybe to start off with, share a little bit like, how did you get into crypto first? Yeah, absolutely. I'm from London originally. I was born and grew up in the UK. And back in 2011, when I kept coming across Bitcoin, unfortunately, didn't understand it, didn't really take the time to look into it, which obviously with the benefit of hindsight, I regret deeply. But given that I studied business and management, and I was very interested in economics.

When I was younger and growing up, as well as technology, and I always had a thesis that technology would eat the financial sort of world, like Amazon 8 retail or a lot of these tech companies were starting to eat the lunch of existing industries. BTC kept coming up in my feeds online. And then in early 2013, I came across an Andreas Ontonopoulos video online. and he was one of the early great communicators and he just kind of broke it down in a really you know

really easy way to understand and from that moment on I was kind of hooked and obsessed unfortunately this was a streamrun last year of university so I didn't have very much money but yeah I worked pretty hard to try and you know acquire some crypto back then you know obviously much lower prices than today so I have been just kind of a hoddler

ever since really and and dear just and I've learned a lot throughout the years. After university I worked in Tradfine, the city in London, mainly working as a matchmaker between the buy and sell side for small financial media companies. So we've organised a lot of banking conferences in Switzerland, Singapore, London. And it was my job to try and get a lot of these big LPs on the buy side and a lot of these sell-side institutions, whether it be investment banks, asset managers, family offices, hedge funds that have created financial instruments

to sell to the buy side. So after that, I worked for around two, three years as a financial accountant for Edelman as well, before, you know, just going full deep into the space full-time back in 2017. So it's time flies when you're having fun, for sure. So let's talk about Defi sort of a little bit on a high level and looking a bit at the history. How do you think about the Defy history? Like when did it start and what are sort of the most important milestones in the history of Defy?

What's a great question? You will get a very different answer. based on who you ask, I think there was definitely a lot of big milestones and important phases within defy. I think early on in Ethereum, you weren't able to do much with it. So obviously you had the ICO phase back in 2017. Romania is about, I guess, kind of minting tokens. But I think the first kind of, you know, beginning of the defile, the very, very beginning was actually the Tao that led to the Ethereum Classic fork. In a way, that's kind of a very defy thing to kind of bootstrap a Dow.

And Stefan Tual, one of the co-founders, he wasn't, I didn't know him at the time, but he lived across the river Thames from me in London. So that actually was the first thing that really caught my attention to Ethereum. in terms of when it really started i think for me the first kind of blue-chip defy protocol was maker the idea of using eith to mint a synthetic stable coin against in the form of the cdp was i guess kind of ushered in the defy era in my opinion and it's great to see that you know maker you know we're the first and they're still around today and they built a really really good business so But then there's a lot of other big milestones.

The synthetic guys don't really get sort of much credit for this, but in my opinion, I think they started Defy Summer. You know, I think with the S-USD pool and the incentives, they, from my understanding, created the first pool that was incentivized with the seal farming incentives. And then off the back of that, you had, you know, Curve, Yearn, obviously, Andre Coney, Michael Egoroth from Curve, you know,

and a bunch of these really talented founders that started, you know, combining multiple different concepts and ideas and really kicked off DFI Summer. You know, you obviously had sushi swap and their vampire attack on uniswap, compound issuing a bunch of incentives as well. So I think a lot of people in DFI,

you know, have very fond memories of DFI summer back in 2000s, what do you think are the most important primitives when you look at defy today sort of the core fundamental protocols that are actually um yeah the most important ones so i have a very simple view on it i kind of segment the market by revenue and and protocol fees i think the biggest use case by far in defy is just kind of payments and stable coins The amounts of money that tether, USDC and a bunch of these other stable coin protocols like Adina starting to print is truly insane and also very good for the space, given that they issue a ton of on-chain yield, which then drives further adoption. The second biggest use case from my understanding is spot and perplexes. We're seen recently with Hyperliquid that they were able to.

able to create a really unique yield source from all of the yield and fees that are generated by all of the traders on hyperliquid that make it very, very difficult for other chains or ecosystems to replicate. After that, I think lending and borrowing is, I think, by market size, probably the fourth largest. But then there's also some really other, you know, really good use cases like of the yield markets with pendles, spectra, hyperdrive, and then, you know, hosts of, I guess, smaller ones.

And now, you know, Turtle is also trying to create a market for liquidity as well, or, you know, a distribution protocol that helps kind of monetize the on-chain activities of a web free users.

And in terms of the size of these, I mean, of course, everyone is aware of TED which is, yeah, producing insane amounts, I think, $15 billion last year or something like that, I think. Something crazy, and they keep buying Bitcoin with a percentage of their revenue, and obviously, you know, that's doing pretty well. So, yeah, I think in terms of revenue per employee,

they must be sort of up there with the most profitable companies in the world. It wouldn't surprise me, frankly, if ever, become one of the biggest companies of the world at this point. In terms of the size of these different categories, how do you have a view in terms of the relative size? I haven't done a kind of an analysis of the TAM of all of these markets. However, kind of a good friend of mine, he uses this example that currently the way the space is shaped is a bit of a pyramid. you have kind of a bunch of users on top of the pyramid. And then at the bottom of the pyramid,

you have a lot of these protocols that are kind of fighting for a limited amount of web-free users, which is kind of fracturing the liquidity in the user base between a lot of the different chains, asset protocols, staffs, etc. And then he uses this example of this inverted pyramid for connecting existing web-free chains or communities with existing distribution channels that are kind of higher up the stack or generally sort of more Web 2 base.

So a great example of this was when Metamar switch on the swaps. At one point, Metamar swaps accounted for 80% of the trading volume on one inch, which obviously made one inch a lot of money and then all of the downstream protocols from one inch. So all of the different decks is that they would source that liquidity from. made a ton of fees, right, which then they passed on to their token holders and their LPs. So I think there's a lot of really big Web Free Align communities in the space currently, like Telegram that you haven't kind of really switched on or connected their user base fully to Web Free yet, but are in the process of doing so. And when they start switching on and

connecting their users to a lot of these key defy primitives that we're in talking about in terms stable coins, lending and borrowing, support and perp, dexes, yield markets, etc. That's going to drive a lot of a revenue generation downstream to a lot of these different protocols, whether be aggregators or different, you know, dexes, etc., lending and borrowing markets that sit sort of below the stack. And I'm very excited about it. I think myself as a bit of a defy-dgen, right, I'm spending a lot of time right on a lot of the front ends of a lot of these apps. But the reality is that majority of what I call normal or just normal people aren't going to do that. And that over the coming years, I think there's going to be sort of the UI, UX problems that we've been

experiencing in Web Free so far. A lot of that is going to disappear by extracting that onto the application layer. Think about mini apps within Telegram that allow their users to swap or lend them borrow through the front end of the mini app by connecting the mini app into different apps that are built on top of top, for instance. And if you look at great communities

like, let's say, base, that have built a really good distribution sort of channel, they're able to connect millions and millions and millions of users really efficiently with different gaps and sort of killer products and services that are built on top of base. So that's how I think the space is going to develop, but you know, I may be wrong. Now, in terms of, you know, where the yield comes from, right? So, I mean, you mentioned, okay, stable coins, right? So in the case of stable coins. It's basically,

well, one thing is, okay, you give dollar to Tether or to someone, and then they do something in the back end that produces yield, and then maybe they pass on some of that to users. Spot and Purb's Dex is, I guess it's the trading

fees, right? Lending and borrowing. It's the fees people pay, right, to lend, or to borrow. yield markets, I guess it's again kind of trading fees in there. Do you feel like the yields in Defi, are they sustainable? How do you think they will change with time? That's a great question. I think currently there just isn't that much or that many users or kind of applications that are

generating a ton of fees. So a lot of these applications are subsidizing their yields by issuing their own incentives in the form of their governance token or Dow token that gives their users a vested upside in the protocol or the protocol treasury. And it's really one of the best use cases of web free that we can issue a token to our community and give out a community invested, interest, and upside. in the network that we're building in a way that we wouldn't be able to do so in, let's say, a Web 2 scenario.

I think the problem lies in the fact that many communities or projects, they become addicted to these incentives and this free subsidy, where they aren't really meant to be issued, in my opinion, over the long run, because you really want to build a DAP or product or service or protocol that provides value to your users or community without having to pay a free subsidy over the long run. So these subsidies or tokens should only be issued in my opinion over the short to medium term to bootstrap a community and give you a bit of time so that you can transition to a much more sustainable business model. I think the problem that a lot of these different applications or depths of face is that they weren't able to reduce their cost of capital

faster than the rate at which their emissions trailed off. And it's a very hard thing to do. I think great examples of protocols that were able to do this really, really well was of a uniswap, Athena, are currently going through this process and doing very well. base they don't even issue a token they just have thought so much a good cost of capital distribution and you know seen as being a very security first type chain that they're able to attract and retain liquidity at a much lower cost of capital which means they don't need to subsidize that capital with their own emissions right i think the the fees that are generated on base or the you know the token

an issuance on all of these different daps that are built on top of base, provide ample or sufficient kind of yield to continue sort of attracting new users and liquidity to the shape. So I'm not sure if that answered your question, Ryan. Yeah, I mean, I do think that that seems to be kind of like one of the fundamental things is like, oh, someone creates a new protocol and then they use their own token and then, you know, liquidity comes, they pay with their own token. And then you're sort of selling the future claim, right, on the success of that protocol. But then, yeah, right, if there's not actual yield generated in the long run, right, that then outweighs, yeah, what they're spending, then it kind of, it's bound to kind of implode at some point, right?

Because at some point, then I guess you have just a download pressure on the token, you know, because people sell the token because they won't yield on whatever. liquidity they put in and and then uh you know if if the token keeps going down then the incentives kind of decrease for the liquidity and then people are like oh let's go to the next protocol before you know it you get caught in a death spiral yeah yeah yeah for sure i mean we've seen it happen over and over again and that really is one of the core problems um kind of within defy and crypto about trying to reduce your cost of capital faster than the emissions trail off. It's a very hard thing to do. Given that Turtle is a distribution protocol and I've now spent a lot of time throughout the last

12, 18 months in particular learning more about distribution and kind of liquidity and how it flows through the space, I've come to the conclusion that, each protocol actually has a different cost of capital, and that depending on numerous variables, but the main two being kind of your access to users or your distribution channels, and the second thing is, you know, how safe is your protocol perceived to be relative to others? But these two variables have a really big impact

in regards to the amount of emissions that you need to kind of emit to LPs or DAPs to essentially adopt, whether it be deploy liquidity within your ecosystem or protocol or build on top of it. And I think that's really been apparent now that as the time goes on and on and it's just become much more competitive

to compete on an ecosystem level, on a protocol level and adapt level, that a lot of these new ecosystems that have a kind of a differentiated, or a different idea and they want to bootrap the community or ecosystem around that are finding it very, very difficult to bootstrap this ecosystem from zero to one, given that they need to bribe and pay a lot of these blue chip daps that are kind of trusted and well loved in the space to deploy into their ecosystem,

but for the daps to do it, they will want a very large degree of incentives assigned to them. and they also want to know that the chains that they deploy onto have a lot of users, especially new users that they can acquire, right? And then on the LP side, you have the same issue because you need to now bribe the LPs with ever, there are higher rates of emissions to port over liquidity to your ecosystem to, you know, obviously deploy that liquidity in the different depths. And the reality is when your cost of capital is too high, you end up just having to print emissions that are fast and faster clit, which,

then again, create that cell pressure and that death spiral that you were, and I just referred to. So I think for, you know, myself and my LPs, we really appreciate the fact that, you know, earning tokens or yield in a token that's actually backed by a real user base or kind of a real business. And one thing that you said, which resonated with me, is when you deploy liquidity in a protocol, and the vast majority of your emissions on the form of the Dow's token or the governance token, relative to the underlying APR that's actually being generated by utilizing the liquidity in the way it's sort of supposed to be in Defi, right? That is a big red flag and that in my mind means that the token is going to be dumped pretty quickly.

And the fundamental value or the fundamentals of the business of the protocol itself is, you know, know, not really, doesn't have a high probability ofwithstanding the test of time. I'm curious, if you look at the size of the DFI economy compared with the traditional financial system, you have a, you have an estimate in terms of like what is the relative size of, I mean, it's obviously very small, but where are we if you put those in relationship? It's a drop in the bucket. I had a, you know, I worked with a lot of the biggest institutions, whether it would be, you know, investment banks, asset managers, wealth managers,

private banks, hedge funds, even the odd sovereign wealth fund here and there. When I was working for that small financial media company in London, being a matchmaker between the buying the sales side and, you know, if you look at institutions, not even the big ones like, let's say, a BlackRock, for instance, or a Vanguard, but even, you know, smaller-sized large institutions have just more capital assets on the management than the entire crypto market. And obviously the crypto market, the defy market accounts for a very small percentage right now of the entire Web Free market. So I think, directionally speaking, maybe unbiased, but directionally speaking, I think, I'm biased, I think, I'm actually speaking, I think, think the potential of defy as just a huge huge time to grow into given that you can just utilize

tokenize liquidity to a much higher degree and much more optimally and efficiently in this new internet of money that we're building and i think it's just a matter of time once we reach a point of i guess no return when the technology is and the sort of defy primitives and use cases have been stress-sessed enough and built out enough that the cost of capital is kind of at a level where it will just kind of start sucking in a lot of the liquidity from the trad-fai market, just because you can utilize your liquidity far more effectively and efficiently than you could ever do in the traditional banking system, for instance. So you think the big advantage of defy is really that you can use different protocols on top of

each other, then tokenize it, and then basically use your capital more efficiently than what will be possible in the traditional financial system? I mean, it's not even close, right? So, you know, I've met quite a few LPs during my time in crypto, in particular, DFI, and yeah, some of the degenerates, like flywheels that people invent or come up with is truly astounding, where they can, in some cases, re-hypothecate the liquidity in up to 10, 15 different protocols at once and generate a yield on the same underlying liquidity across all of these protocols simultaneously. Obviously, there's a risk every time you re-hypothecate the liquidity in terms of

the underlying code base of the protocol that you're re-hypothecating across or the counterparties involved. So it's not a decision or thing that I'd necessarily recommend the average show to do. But the point is as the infrastructure and these smart contracts become more and more stress tested and battle tested, you're going to see more and more protocols building on top of one another and really building out these defy Lego blocks that really become a core fundamental part of the infrastructure of this new internet of money. And I quite like the idea of essentially having your liquidity in multiple different protocols at once generating your revenue,

where you can essentially just ping your money around the internet and the money will continuously being deployed in real time to the different protocols or use cases that can utilize that liquidity to generate the most protocol fees or utilize that liquidity most efficiently at that point in time. Right. Because if you take like, let's say if you take the example of Sable coins, then, I mean, today, right, if you use that in DFI, I mean, it seems to be very common, right,

that people can generate 20% or 50% or like, you know, very high yields, you know, doing some of these, using different protocols, putting it in, which obviously is extremely attractive, right? If you're sort of in the Trat-Fi space and, okay, you can put it in treasuries and you're on, obviously the risk here is lower, right, if you just buy treasuries and you earn 5%. But then if you compare the, I don't know, 5% versus maybe to 50% that you can earn in Defi, that's a massive delta, right? And I imagine the risk isn't, well, it seems to come very, very well for the additional risk. that people are taking?

100%. Every time you re-hypothque liquidity in D-Fi, you really need to ask yourself, are the rewards that I'm getting large enough or do they justify the risk that I'm taking? And whenever you find an opportunity, in theory, that it's paying you out, you know, a differential between the reward that you're making

and the risk that you're taking in that situation, you should re-hypothecate, assuming that, you know, you avoid your liquidity across a diversified set of strategies. Because in the long run, you'll be making or increasing what we call in like poker expected value, right? That that kind of move or play will generate all value, you know, over an infinite amount of, or you're just kind of removing the variance from the situation. And now the hard part is actually quantifying the risk. So the easy part is to find out roughly what your APR is going to be or what are the types of tokens and incentives and yield that you're generating.

The hard part is, okay, if let's say you find a strategy and you're generating 100%, that could be a good strategy or that could be a bad strategy, right? It has nothing to do with the amount of yield that you're generating. It's all relative to the amount of risk you're taking to generate that yield. And the reality is that the vast majority of even liquid funds or professional LPs don't really have a sophisticated framework for risk in Webfruit. And a lot of people kind of rely on the due diligence or risk assessments of, you know, very few counterparties in the space, right?

And we all know what can happen will happen, right? Murphy's Law. So you'll kind of always reach a point whereby if too many people rely on too few people doing the due diligence then that could create potentially some systemic risks, right? I think Luna was a great example

of that. Even though there were, you know, granted some people that did point out and mention some of the underlying flaws of the design of UST. So I think where the edge really is is in quantifying the risk, because if you can quantify

the risk, you can then find out which opportunities relative to reward and risk ratio are the best for you to consider re-hypothicating your capital. How does one do that, like this risk quantification? Like, what are there frameworks or what do you have to look for? Like, how do you approach a problem like that? Yeah, there isn't that much openly available on the market today. I'm currently working with Gonzalo, the co-founder of Consentist Diligence, to create a new framework. Also with Cheyant from Creed.

So, you know, we are, frankly, having to do a lot of the legwork ourselves. I know there's a couple of, you know, top liquid funds or, you know, very sophisticated LPs or Treasury Management professionals that have developed their own due diligence process or kind of risk models. but I wouldn't say there's a, I think that part of the market is still very nascent and isn't very developed. So there isn't really a holistic or kind of bulletproof kind of framework that is being adopted on the market today, which is why we'd love to invite anybody to come and criticize the risk framework that we've developed that we're going to publish and share publicly with everyone, kind of like open source it in a way

and would love to hear some candid feedback or criticisms of like, yes, see, why are you doing this? Like, you know, this could be better done by adopting this, right?

Because ultimately we just want to kind of make sure that we can reduce the risk as much as possible, right? By adopting a better and better risk framework. In terms of, there's a bunch of different things. Sort of on the financial side, you have the,

you know, different risk of, you know, the strategies that you create, whether that be, you know, the liquidation risk, IL risk, for instance, then you have the counterparty risk of all of the different protocols or people or counterparties involved in the strategy as well. And then on the technical level, or on the smart contract level, you have obviously the risk associated with smart contracts being hacked or drained or, you know, even, you know, down to, you know, how do the team kind of manage the multi-sigs of a safe, for instance, right? Or, you know, the treasury that backs

the underlying token, right, that you're holding, right? So then you have real-time monitoring, you have sort of protect, prevent. I mean, again, it's probably best to ask like a thoroughbred auditor when it comes to some of these things. But there's really a kind of a whole round trip or of different security risk, financial risk, counterparty risks, etc. that you need to take into account when, you know, developing this risk framework and doing your due diligence. So I'm curious, what do you think are the main blockers? Because in the end, right, it does look like it's actually very attractive for capital. to move into defy because you know you can earn higher yields in defy than I think in you know

probably most things in trot-fi but what's what sort of what needs to happen for you know defy to absorb you know a lot more capital coming more from the traditional financial space and you know really starting into really starting to eat into that market share that's a great question so on the top level you have all of the different like use cases or defy primitives right in other words you can utilize your liquidity to a much higher degree or much more profitably and efficiently by putting it over to the defy space right and deploying that liquidity on the dapp layer itself so that's i guess one point the second point i would say is you have what's called the risk-free return on, let's say, dollars,

which is the US Treasury yields, right? And you also have a risk-free return in Defi, which some people consider the native staking yield that you generate on Ethereum, right? Or on stable coins, let's say, the yield that you would generate on Arveh. Now you have what's very popular, you know, with the rise of Athena, is that a lot of people are

essentially doing this carry trade, right, where they're arbitraging the funding rates on these perpetual exchanges. So, you know, it's all relative, right? So if the risk-free rate in B-Fi is much higher than it is, let's say, in the Tradfai world with the interest that these money market accounts are paying out from the Treasury bills, right? The larger that delta is, the big of the pool, of capital from the Tradfai world into the DeFi world. Now we had a situation in the bear market back in late 2022, 2023, don't sort of quote me exactly on the time, but there was an inversion that took place

where actually the treasury yield was higher in Tradfai than it was in Defi. So you had a lot of stable coins and a lot of liquidity actually being pulled out of the space given that you could generate a higher risk free return in Tradfai. And this is why a lot of protocols have started passing on the underlying treasury-backed yield to the stable coin holders to kind of stem that flow.

So the TLDR is that, you know, in my opinion, it's the risk-free return and how you can also utilize your liquidity. And the bigger that delta is the greater the pool and generally the more the floodgates open for capital to kind of flow to where there's what I call like least friction. And I think that's generally how it's sort of how I interpret the financial markets to work, right? Liquidity or capital just flows to where there's least friction and that capital can be utilized best. One thing I'm curious about in on-chain, right, you basically have a tremendous amount of transparency, right?

Like you can check the different wallets, you can check what they're doing, you can see what's going on in each protocol. Obviously, there's a lot of value to that, right? Because you can understand better what's going on. You can understand risk better. And it's easier to build on top of other protocols. I feel like in the past,

people would often talk about, oh, we need more privacy on chain. and this is a big barrier to maybe some investors or some more traditional players participating in it. How do you view that? Do you think Defi will remain as transparent as it is and that's just sort of inherent and it's a good thing? Or do you think that privacy in Defi is going to become a bigger thing? that's a great question I think right now because there's been many

initiatives in the past or protocols that have tried to tap into the narrative of privacy it's a it's been frankly a bit of a hard sell in the fact that right now most of the market doesn't really care enough about privacy

for these types of solutions to really kind of take off in a big big way obviously you have hackers or I guess sort of bad actors that are kind of leveraging technologies like tornado cash for instance to obfuscate the transaction history or the sort of fun flows but then you also have like newer technologies like FHE for instance a good friend of mine she works for Phoenix that allow you to conduct confidential transactions or friends of mine at Hinkle as well,

that actually provide a really good use case and utility that allow institutions to deploy liquidity in a legitimate way whilst having their activity across Web Free sort of being private and confidential. Again, there just isn't at this point, I think, enough interest from the what I call core web free crowd in these types of solutions, but especially as, you know, more and more funds and financial institutions come into the space, the incentives to adopt that technology is just going to grow and grow and grow,

because for instance, let's say, I'm running my on-change strategy, and I found a really good yield source, given that, you know, everyone can see my activity and the strategy that I deploy on chain, that will be, you know, kind of identified and copied very, very quitty by other LPs in the market, which will then pile into my strategy and then dilute my rewards. And then before you know it, the alpha that I'm generating will just evaporate. So there's a, so I think the biggest factor really is the profit motive, right? if there's a big enough motive for institutions to, you know, adopt that technology in terms of

actually like making money or saving money, I think we'll see more and more people adopt that. Because right now you can, again, go on chain and see what all of the top liquid funds are doing. Like if you kind of know their addresses or, well, you can just kind of track addresses that deploy their liquidity really sophisticated, in a very sophisticated manner, right? And then you can just kind of copy them, which is quite nice or learn from them, right? What I like to do is I'd say, oh, you know, this dress is doing this. I like this, but actually in this case, I'll probably do this and this, not because, you know, I'm better than them or whatnot,

just because I have a different sort of risk profile or preference or I might have different digital assets in relation to them. What's missing in Defi now? Do you feel like there's some sort of, you know, primitives or protocols or, you know, that you think would be really important and, you know, would be super helpful that don't exist yet. I mean, I'm biased, right? Because I think like a liquidity, a distribution protocol is missing,

which is why I'm kind of working to this. We'll get to that. Let's get to that after this question. But in terms of other stuff, I think that, you know, the more liquidity, the better. So there are some really interesting kind of use cases that haven't really been fully developed yet. you know or even existing use cases that just it would be nicer to have more of a liquid market

or more efficient market given that a lot of these sort of use cases are kind of starting to emerge like for instance some of my friends that derive it's just a options on-chain options marketplace so you know 12 months ago 18 months ago you really couldn't do much in terms of on-chain options sure there was a couple of different sort of early protocols that were providing it but really the markets were very liquid. Now derives started to gain a bit more traction and the more liquidity they get

essentially now for the first time you can use options to within let's say a delta neutral strategy or you can use on-chain options in a permissionless way which adds a lot of utility to the defy ecosystem as a whole. then yeah in terms of I guess other use cases I think the use case isn't really the issue

I think you know Paird Dexes, bot dexes, laying and boring I mean there are quite a few killer applications in DFAR already I think where the friction lies is on the UIUX layer and this is why I believe that for a lot of the kind of just normal people out there they're not going to be willing to go onto the front end of a lot of these defy DAPs and actually approve a transaction and then submit a transaction like we would do when we interact directly with

smart contracts or the URIUX on the DAP layer. I think that's going to be abstracted away to the application layer where existing popular applications, whether it be on telegram or on your iPhone or whatever the case may be will connect directly into the different damps and then through the front end on the application, they allow their users to swap, then borrow and essentially

provide all of these key defy primitives and use cases directly into these different depths. Our front in application, sorry. Yeah, I mean, I think one of the big challenges here is also, right, if you think of a lot of these defest strategies where like, oh, you do this and then you get a token and you put it somewhere else and you get another

thing, it's pretty complicated and it's hard for people to do that. So I think, well, obviously, would be very attractive. I think for a lot of users is if it's just, I can just buy, I don't know, deposit my tokens into some vault or I just buy a token that's kind of like, you know, then on the back end does all of that stuff. But then of course, I think the big challenge there is, well there is like some obviously there's like risk going on underneath and uh like how do then these people deal with that risk right if they don't understand really i mean it's it's hard enough to understand the risk if you actually do those swings but then if it's fully abstracted then i think that's you know it's a tricky one i think oh for sure i mean this happens in tradfire as well uh in

during the financial crisis of 2008, a lot of these banks were creating these toxic essentially securities, right, or mortgage-backed securities when they were just packaging a bunch of these, you know, ninja loans together, like from essentially lending people with no jobs, no income and no asset, right? And they were like bundling them up in the form of a lateral debt position or CDO. And then, you know, they didn't really care how they constructed their asset because it was their business just to sell it so that the liability would be on the book of someone else's balance sheet. The problem was obviously as the music stopped, they got caught with their pants down holding all these toxic assets. But yeah, we don't need to

sort of go off on a tangent there. But yeah, that kind of happens in the traditional worlds. And actually there's been kind of much bigger blowups, right, given obviously the history of the traditional financial market over Web3, but to sort of go back to your point, I think, you know, a lot of these things are quite complicated in terms of how a lot of these strategies are, you know, the different moving parts that they're sort of made up of, and the way they interconnect with one another under the hood. But all you need to do is you just need to put a shiny token wrapper around it, you know, and a nice sort of meme. And, you know, didn't people like, you know, kind of buy it, right? So, so, yeah, I mean,

there's a obviously, you know, like I was mentioning sort of prior in that conversation, there's obviously a lot of risk in the space and people, even professionals find it very, very hard to quantify. So what feels sometimes like a good move can, you know, be obviously terrible. But I think a great example, actually, of a really interesting kind of strategy is what you're doing with the stakewise wall, right? when you're allowing people to essentially deposit OSEath as collateral, that generates the native staking yield and then borrow against that collateral on AVE at a lower interest rate, right?

And then kind of leverage loop it, obviously geared towards the individual risk reference and exposure of BLP. And to, you know, have a, you know, to tokenize that, I think makes a little sense. because now for people that are willing to take sort of a higher risk, right, they can now leverage that leverage looping strategy as collateral, again, sort of to leverage, you know, and deposit or kind of utilize within the sort of wider Web Free or Defi ecosystem, right? And as long as the risks are sort of well understood or communicated, like, I see no problem with that, right?

People should be able to, you know, kind of deploy their liquidity or take on risks, right? Yeah, so just briefly for listeners. So at course one, we use a lot is a protocol called Steakwise and we have an EVE staking vault and that now allows, yeah, there's what as he mentioned, right, basically staking the EF and then emitting liquid staking acid OAS Eve and then putting that into Avey, borrowing EF,

and then looping this and then you can generate with that on Ethereum. I think right now it's around 7%. It's obviously much higher than the base staking rate. So yeah, people are interested in that. Just go to the Stakewise website, and then you'll see the course one wall there. Let's talk about Turtle.

So what's the genesis story of Turtle? Yes, it's a pretty long one. So I was working for one of the large GPU miners in the space. as a director of defy in 2021. I was really enjoyed my time there. And, you know, back in 2021, I was, I guess, inadvertently, I started building a bit of a network of, you know, LPs just being in the trenches and all these discords coming across some really clever LPs and, you know, sharing ideas and getting second opinions on my strategies or vice versa,

sharing my opinions on other friends of mine strategies. And I was always looking to how can I, you know, generate a better upside or increase the rewards that I was generating whilst reducing my risks. And in 2021, I came across a lot of, you know, I started noticing that a lot of protocols were starting to engage in what I call these sort of backroom deals that were happening behind closed doors

where they were offering LPs a certain amount of additional private incentives that they weren't extending sort of publicly to the market for different liquid funds or LPs that would commit a certain amount of liquidity over a certain period of time to help bootstrap adapt. And there's nothing wrong with that, right? So for instance, imagine using an exchange or lending a boring market. But when you buy and sell, there's a huge spread, right? And it's very liquid and you can't really buy and sell much, right?

because there's just not much liquidity in the order but. Well, same with sort of lending and borrowing, right? You can't borrow much. And if you do borrow much, the API start shooting up because, again, there's not much liquidity. So you actually need a certain amount of liquidity within a DA.

So that it operates at a really effective utilization rate. And when I noticed these deals were carrying, I said, you know, I wanted to kind of look into it to see if I can essentially get gather deal flow that, you know, other friends of mine could be potentially interested and obviously myself as well. And then on the downside, so on the auditing side, a friend of mine set up omnisia

in early 2021. It's a smart contract auditing firm. I believe they've done over a thousand plus audits and they asked me to join as a part-time CFO. So I did some, you know, high level BD for them. I onboarded some of their biggest clients. But they'd also outs. source on a case-by-case basis, you know, really fun jobs, frankly. Sometimes we had a crypto hedge fund that wanted to do a risk assessment or whether the second opinion on a strategy or maybe some LP engagements or just tokenomic modeling, critical design. And yeah, so I learned a lot also working with some really, really talented hackers inside of Omniscia as well as just more generally within the auditing industry. And one of the best.

things there was trying to learn to quantify risk. Also on a more technical level, given that I'm not a developer by trade. And so, so the idea of Turtle kind of sprung out of that, given that now I had a really good insight into how I could quantify risk better or, you know, get auditors within my network to audit certain strategies before, you know, different LPs would deploy into these strategies, right? The problem with that model was that, you know, auditing is very, very expensive, especially if you're not working with the best guys, but you really do want to work with the best auditors,

because if you don't, then the best always, it is all hackers are going to hack you, right? So the problem was that if you deploy a small amount of capital, you need to absorb the security cost over a small amount of capital. So if you only deploy, let's say, $100,000, and you're paying, you know, $10,000. to do your due diligence. You're already down 10% on your principle, which makes the strategy just not economical. So really the idea of Turdle was how can I leverage the collective

liquidity and bargaining power of numerous LPs and liquid funds at the same time to negotiate a better deal and sort of incentives or upsides on behalf of the entire community, while also being able to spread the cost of security over a much larger subset of capital so that I wouldn't need to pass on the cost of security to my LPs, but I would be able to pass on the benefits of doing an extensive risk assessment or kind of a light audit, quote on quote. So again, boosting the upside of my LPs and decreasing the downside risk. So in March of this year, I decided to step down.

from an issue just to kind of give it a go. And really it was more of a experiment at first. Just launched an MVP very, very quickly. And I think the MVP had kind of proved, sort of proved that there was a lot of demand for something like this. The way I went about it is, rather than developing a set of smart contracts that would route the liquidity of all the LPs into

and then deploy it like a traditional, you know, vault or like a traditional protocol on top of it, I wanted to, I didn't want to have the, I guess, risk or like legal liabilities, compliance liabilities, and also kind of create like a bit of a honeypot to sort of adopt a structure like this. So what I did was I created a set of APIs that would track the positions of all of my LPs across different chains, Daps and protocols. And if they interacted with any of the partner protocols that had a kind of a liquidity offering in place, that the Turtle Dow would start issuing rewards directly to these addresses of ELPs of ours that essentially conducted those activities that our partners deemed valuable enough to start paying the doubt for.

And the way it works is you just connect your wallet to Turtle.com. You are prompted to sign an on-chain message. There's no risk in signing this on-chain message. It's not like an approval transaction or transfer transaction. We don't siphon off any of your existing rewards. We literally can't do that. We can't get hacked ourselves or the protocol can't get hacked in that sense. So it's a much safer way for us to essentially track the activity of all of our users

and pay them additional boosts from the partner protocols that we work with on the upside. And then on the downside, we're starting to do more and more risk assessments. and spending more and more money on doing due diligence on protocols before we integrate with. I wouldn't say that, you know, LPs should just rely on our due diligence, but the idea is that as time goes on, we just want to spend more and more time, you know, doing these risk assessments, due diligence, and, you know, hopefully eventually we'll get to the point where we're conducting full audits on all of the different protocols that we work with. And this way we can, again, pass on greater rewards to our communities.

while trying to take out or reduce the risk that they're being exposed to. So that was Turtle V1. That worked pretty good. We have around 300,000 wallets, give or take, that have signed up to Turtle. We generated, again, depending on the oil price, all coin prices, because they've gone up or down quite a lot, but between 5 to 8, 9 mil in contributions to the Dow. However, V2 is kind of, we're now evolving from a pure liquidity protocol that monetizes just on-chain activities in terms of moving liquidity to a distribution protocol.

What is a distribution protocol? It means that rather than just limiting our, you know, the partner protocols that we work with that are willing to sort of pay to tap into distribution, right, because they want to, you know, get users to use their. the Apple platform. Now we allow them to plug into the user bases of the different distribution partners that are now plugging into Turtle and building different communities or networks or porting over existing communities and networks into the Turtle Distribution Protocol. And this enables quite a few very interesting things.

Imagine you have a web free wallet, right, and you have a lot of monthly active users. by partnering with Turtles as a distribution partner you can monetize the activity of all of your users across all of the different partner protocols of ours that want to sort of plug into

and pay for that distribution and we can do it in a way without exposing any of the users to any additional risks and smart contracts and then we can then accrue that extra value that we're generating

to both the distribution partner and their users and I think this is a really nice way to monetize your existing user base whilst also accruing more value to them and providing more utility to without again exposing them to any additional risks. So yeah, we've, you know, we're making that pivot now to V2 to, yeah, hopefully become a bit of a one-stop shop or essentially allow our clients to tap into a much larger base of different distributors as well. So to walk through an example here, so that would be, let's say you go to some wallet, and then the wallet says, okay, we want to participate in this.

Then the wallet would kind of register all the wallet addresses with Turtle and then kind of like surface to the users like, hey, there's this, you know, special program. You use a protocol A and you're going to earn, you know, a little bit additional yield that you guys negotiated with the protocol and then some additional yield goes to the users, some goes to the wallet maybe, and then some goes to a turtle doll, something like that. Correct. So there's, I guess, two parts to this. and the V2 you have like the signing up to Turtle. So if you as a distributor

and a promote Turtle on your front end and get your users to sign up, when they sign up, they use essentially your referral code and as a result, that user is assigned to your community that is kind of built on top of Turtle. That means that now, from then on, from the point at which the user signs up to Turtle,

any activity that they do current or sort of current in future on any of the Turtle partner protocols, they'll start accruing additional value. And as a result, whether be Turtle, the Turtle token holder, the distributor and the user that generates that activity will accrue an additional value. So that's kind of one heart. The second part is we're in the process of developing a plugin that should be ready sort of sooner rather than later. and that will allow every distributor that we work with to essentially spin up their own what we call earn page on their front end

where they can select all of the different current deals or integrations that we have in place. They can kind of select which ones are aligned with their community. Potentially, this one is too risky so they don't want to sort of show it on their front end or promote it or this one is of a competitor so they don't obviously want to promote that, but they can kind of in a very customise

way, essentially curate their own list of different deals on their front end. And then whenever user essentially deploys liquidity through their front end, not only can they retain the kind of control or retention of their users, but they'll also be able to, you know, monetize when their users deploy liquidity into these different protocols and more importantly actually provide their users with some really, really competitive and interesting, you know, offerings in the market in terms of being able to utilize their liquidity in interesting ways by deploying it directly and kind of yeah like a sheet or some of the most competitiveness deals on the space. I think one of the challenges still is right like okay you have to choose these different

strategies figuring out which one it maybe runs for some time. I know you were saying before like you don't, when you started, you know, you didn't want to do the kind of vault thing, but I'm sure this is still something that would, there would be quite significant amount of demand, right? If, like, you know, users can just say, okay, I'm going to put stable coins into, you know, turtle vault and then, I don't know, maybe the DAO or some sort of process where, you know, different strategies are curated and it says, okay, I'm going to deploy it into that. and then maybe it's something else in the future. Is that a direction you think you want to go in as well?

Or that's kind of like a different something that doesn't align with your vision for Turtle? Yeah, that's a great question. So on the base layer of the protocol, you know, I don't want there to be any smart contracts, meaning tell us a trustless protocol, right? We can't get hacked and we can't rug our users. saying that it's clear that the yield market changes all the time, right? And, you know, what was a nice yield source yesterday is no more, and a new yield source spruces like sprouts up, right? And as a result, you continuously, if you want to generate

the best risk adjust returns, you're kind of forced to move your liquidity continuously throughout the space to try and move that liquidity closer to the alpha source, right, as the alpha source kind of moves around. And it's clear. that because of the U.R, UX and a bunch of other stuff, the average user, or even very sophisticated users, they just don't have the time or just don't want to kind of manage that whole process manually. They actually like the idea of deploying liquidity in a vault that automates that whole process for them. And there's just a lot of great vault providers now, infrastructure providers. For instance, we just partnered up with veda.com. By TVL, they have the most,

liquidity in their vaults. And yeah, there's just like a lot of really great builders in the space that I've just created like, you know, nice vaults and and they've, you know, made the whole user experience much better for the mass market in my opinion. So I'm not against false. I think they're great. I just, again, just in the first situation of Turtle, I didn't want to take any kind of custodial risk for legal compliance reasons, but also, you know, why.

would I would want to kind of control the liquidity of my users if I don't have to, right? But I think after obviously kind of working on Turtle for like 11 months now, it's clear to me that many of my friends or LPs clients have been asking us to do this for quite some time. So we're planning to launch a like our first vault in tandem with our first ecosystem bootstrapping campaign with tack.bill later this month. so really, really excited about that. The way I'm structuring the vaults is slightly different in the sense that, yes, it's going to be on the turtle front end, right,

but we're not actually going to use any of our smart contracts, so we're going to piggyback off the smart vault infrastructure that veda.com created, so all of our vaults will be vater.comptech vaults. In terms of curation, for legal reasons, according to my lawyers, I'm not allowed to curate strategies, unfortunately, so I need to work with external curators. So we'll be working with RE7 on the theorem side, Chulipa capital on the BTC side,

and edge capital on the stable side. So there will be the ones, you know, actually kind of signing off on these strategies and deploying the underlying liquidity through default infrastructure provider. However, given the risk-free framework that I developed with Gonzalo and Cheyat, the idea is that we want to conduct,

very thorough risk assessments on every strategy and protocol that we plug into the vault with the intention obviously of trying to reduce that risk as much as possible I want to actually keep the vault

in terms of risk adjustment awards very high obviously but the underlying strategies I don't want to kind of expose our LPs to too much risk but we are going to start developing a secondary market for the receipt token of the vault so that you can start generating really good risk-adjusted deal on your underlying Ethereum deposits, Bitcoin deposits. And then for those LPs that you want to go up the risk curve

and leverage their receipt token of the vault as collateral or let's say a morpho or oiler or in curve to generate some additional trading fees can do that. And as a result, then the LPs can kind of create different strategies or flywheels that are geared towards their preference. assist in their risk profiles. Cool, cool. Anything else you want to share about what's coming up for a turtle? Yeah, we've been working on a lot of different things. It feels like I've aged about five years and over the last 11 months.

It was meant to be a kind of a bit of a hobby, to be honest, more of an experiment that has sort of taken on a life of its own and before you know it up, yeah, working a bit of more that I have liked or intended to, but it's been a really enjoyable journey. I've got to meet a ton of very, very clever people in the space that I've learned a lot from, including yourself, Brian. So, you know, at the same time, enjoyed it a lot. We will be, the Tull team will be at East Denver in full force. So if you're out and about or if you're intending to come to eat Denver. Yeah, definitely reach out. Would love to meet in person. But in terms of a couple of other things, yeah, like I kind of touched upon, we're developing a lot of different sort of products

and services. We're porting over to our V2, redesigning the website, launching the vaults, doing an ecosystem bootrapping campaign with TAT, which is really, really interested. We are also, you know, very, very close with the linear team ecosystem. And again, I can't mention too much. But yeah, a lot of people have been asking me about a token. So, yeah, they should look for a couple of announcements with the linear team about that. Cool. Well, thank you so much for coming on.

Asi really enjoyed the conversation. I'm super excited about what you guys are building. And yeah, excited for defy in general. And then I think that this sort of liquidity layer that you're building, which I think is super useful. So thank you so much for coming on. Thank you for having me, Brian. Take care, everyone. All the best.