A comprehensive overview of developing trends in the defi space - Defi Nikola | Blockanalitica

And now for our last speaker for today, we have we have Defi Nikolola. If you don't know him, he's doing the same topic for three years now. And I bet he refreshed it to to catch on the the latest developments in DeFi. So, Nicola, tell us what's what's new. [Applause] All right.

Um, first of all, um, thank you for staying up till the till the final talk of the day and, uh, yeah, welcome welcome to to Belgrade. Hope you're having a great time so far and hope that you're going to enjoy this talk as well. Um, my name is Nicola. Uh I'm coming from a block analytica team team behind uh risk team behind maker and um and dice stablecoin now also USDS. Um and today we're basically going to talk about latest developments in DeFi as uh told in the during the introduction.

This is actually the topic I've been covering for the last three years. So yeah, it's going to be it's going to be interesting. uh to actually compare the agenda from 24 and 23 uh which kind of can bring an insight of how at at what pace this whole indust industry uh is moving. So yeah today is basically going to be like a comprehensive overview of like the latest developing trends in the D5 space. Um on this year's agenda we're going to cover new protocol iterations.

This was also the topic last year as you can see. But here we're going to focus on the protocols uh that are relatively new coming in the last uh uh in during the last year. Uh yeah, we're also going to mention some that were mentioned also last year but may may not be launched. Then we're going to head to um the defa lending innovations to to put a bit focus on um lending protocols and defa lending space. Uh then we're going to move to how basically yield products have evolved in DeFi recently.

Um and then we're going to head to uh dashboard that we actually at block analytic are uh developing. It's a stable coin dashboard covering ma all major default learning protocols on mainet. Um and as as the the last topic uh we are going to cover privacy in Ethereum which I think has unfortunately been um let's say sidelined or under discussed topic recently and this is um my attempt to to bring it up to the discussions on events like this like um this kind of conferences and community meetups. We're going to briefly uh go through a a recent um privacy project on Ethereum called called Privacy Pools. It's a relatively small as well, but yeah, it brings some uh new features on top of the well-known tornado cache.

Uh and then I I would like just to wrap up um by mentioning DI tools uh you may consider using nowadays while wandering through DeFi. Okay. So new protocol iterations. Let's start with the one coming from the InstaDub team. It's called Fluid and it's basically a new lending protocol that uh combines lending and the decentralized exchange.

uh they do it by something called smart collateral and smart depth. Now let's start f first with the smart smart collateral uh side. So basically uh let's say you as a user want to deposit some collateral to a lending protocol and you um basically say okay I don't care if this collateral is for example in rep BTC or Coinbase BTC. Uh and what fluid does is basically leverages that fact by using a pair of tokens as collateral um and then using it as a trading pair. Uh so that basically enables you as a deposit of of depositor of collateral to earn uh trading fees on top of the like the vanilla lending APR you can now uh earn on let's say a or compound or protocols like that.

Uh so let's go through through an a simple example. Let's say I put one rep BTC in fluid. Um and then a trader comes that wants sorry let's say I put 10 rep BTC in fluid and then a trader comes who wants to swap one Coinbase BTC for one rep BTC. This is done in a you know familiar fashion. Let's say unis swap like uh fashion.

Uh so now my collateral composition is changed from being 100% in rep BTC to um having nine rep BTC and one Coinbase BTC and that is fine uh that is fine by me right uh and in return I kind of get the the the swap fee from from each trader of course um so the similar mechanism can be applied to the depth side as well it's called smart depth and it's kind of a bit more interesting because you can again utilize your depth as a trading liquidity which is kind of cool and but the uh like the underlying principle is the same in a sense that a user um uh can say okay I don't really care if my depth is in let's say USDC or or USDT and the protocol basically leverages that by using that um depth in a form of uh token pair as a trading liquidity. Uh but the the let's say the protocol flow of actions is a bit different than on from the collateral side. So let's say uh I generate USDC depth, right? Um I get it on my wallet and get to use it however I however I want uh in DeFi. And then a trader comes who wants to swap USDT for USDC.

What the protocol does under the hood is basically um it uses USD uh it uses uh sorry the trader comes and wants to swap one USD uh one USDC for uh USDT. Um, and then the protocol basically uses the USDC to pay back uh my depth and then generates new depth in USDT and get it back to uh to to the trader minus of course the the swap fee. Um so yeah from from the UX perspective as a borrower you may end up um needing to pay your debt in like some um proportion of USDC and USDT. Uh so not only not 100% in USDC but yeah in the meantime you get um you are earning trading fees um which can effectively lower your borrowing uh borrowing rate. Um but yeah it's a again from the UX perspective this can be solved uh like one step before you actually pay uh back depth by swapping everything to USDC and then paying it back in USDC fully.

Uh then we of course have liquidity v2. It was uh already discussed last year here um but has not uh been uh launched. Now it's launched and actually relaunched. Um I forgot to mention at the beginning of the presentation uh feel free to scan those QR codes. Those are meant to provide some additional information if you're interesting in reading more about the protocols and the you know recent developments we are going to cover today.

Uh because you know it's impossible to to cover everything in 20 minutes. Um then we got Oiler V2 a new very modular uh version of lending protocol alongside with Oiler Swap which has been announced recently. Oiler swap is very similar uh to to fluid decks which we just explained. Um they they're basically keeping all of the liquidity in Oiler vaults and then using it as a just in time liquidity uh for trading on on oiler oiler swap. It's actually built on top of unis swap v4.

Um and of course a v4 uh it was introduced also last year. It's not still launched but yeah something uh some very interesting features are coming up. So yeah uh feel free to read more about it as well. Um when it comes to define lending specifically there are some of the things that I would I would say like in my opinion are expected to be um implemented in in newer versions of define lending. The first one being separating LP LPS into the trenches the junior and the senior trench.

Now this is actually a very popular thing uh in Treify right and has not this has not been implemented so far in defaing protocols. Uh it actually has been tried but yeah in my opinion I think u the the industry um did not was immature too immature at the time. So yeah, we'll see uh if this uh will work uh this time. Um my assumption would be that it would uh we'll speak more about this at the next slide. Next up, risk premiums.

This is actually also something already available in Trefify. Uh but not yet yet to be implemented let's say in uh uh on a smart contract level. the the the mechanism is basically you you pay higher borrow rate for uh borrowing against the riskier collateral right so it kind of makes sense uh and I think this is actually uh going to be uh introduced in uh in a v4 uh then fixed borrower rates so currently we have fixed yield thanks to pendle and some other protocols and those are based on uh maturity right you have expiry date and then you need to roll over if you want to if you want to keep like this um expected like predictable predict uh yield. Uh so I think this is the next thing we're probably going to see very soon that those are fixed borrowing rates. Um my assumption would it be that those are also going to be maturity based with kind of um uh automatic rollovers.

Um, next up, composite oracles. This is actually um risk management improvement that has been somewhat adopted so far among defi lending protocols, but I think it should be um like it should experience mass adoption because it's effectively like making lending and borrowing defy um significantly more secure. So, let's give it a few examples. um what protocols can implement of what protocols can we implement is basically upper bounds for stable coins. So let's say I mean most of the defend lending protocols are currently pricing uh the stable coins which are the most borrowed assets uh within the protocol by market price and this actually let's say if um for some reason uh some of the stable coins uh go price goes above $1 you can you can have uh those highly leveraged positions being liquidated you know due to their depth uh increase and this is something that can prevent that.

So the upper bounds for stable coins or LSTs then redemption or exchange rate with market fallbacks. Um for example you can use exchange rate for a stake teeth and then um use a a fall back to a market price um based on some threshold for example a deviation between the exchange rate and the market price because you don't want to you don't want to use exchange rate um permanently if the crash is real if it's not temporary right you want to avoid bad debt and like this excessive borrowing then of course uh different provider fallbacks let's say you want to use chain link as your primary oracle and then um for example redstone as a as a fallback oracle or time weighted average price. Um then medians between various providers of of oracles. This is actually something if I'm not mistaken that sparkland is currently using and even some custom feeds for specific purposes. Now of course this uh would be a new code and you need to audit it but yeah if it fits the purpose um is you know highly advised to use it.

Uh we for example uh at block analytica did a custom oracle on base on on a morpho market uh for the lumbard BDC. So it's LBDC. Uh we used proof reserve feed from Redstone and combined it with um a market rate and of course had a threshold um being c certain deviation between those two and then u made it a batable. So we can so we can adjust the threshold based on market conditions. Of course, um the the custom feeds uh do not have to be of course developed by you or your team.

those for a good example of that is Pendle developing uh linear discontrac tokens that are now massively used throughout D5 as collateral which is a pretty pretty cool example of how you can um cleverly price assets in uh within your protocol and thus create this u create more capital efficient environment. Right? So basically those PT tokens are going up to to the level of one uh and then basically you can price them uh similarly so so so capital efficiency grows. Yeah. Then I want to talk about more about uh the yield products which I think uh is a very interesting thing because the segregation of riskreward as a product has has been tried previously in DeFi had has not to be honest seen much adoption but now we are seeing again this uh wave of um sort of dividing the higher risk and lower risk yield like the trenching trenching process.

A good example of that is um the proposed updated version of safety module of a protocol called umbrella. They effectively they're effectively adding trenches via uh staking a token a tokens which are like proof of deposit tokens. when you deposit to AB you receive let's say U a USDC or a USDT and when you stake those tokens um you basically can um cover uh I mean you're you're being exposed to bad dep risk from a currently this is done by staking a tokens and this is kind of an improvement in a sense that no tokens need to be sold when in the event of bad deb uh but rather a protocol will just burn a tokens that were previously staked by by stakers and in return stakers are receiving of course um boosted yield which is uh coming from a treasury itself and yeah u like vanilla deposits um basically another improvement um is that vanilla deposits like if you just deposit on a get a tokens and not do not stake it uh you get the same yield basically for less risk because now you are kind of your risk of um covering for the bad depth is uh is lower because the stakers are covering for you. Um another good example is product called summerfy which is uh which has launched the new protocol a very with a very simple UX where they aggregate yield vaults for and rebalance between those for boosting the APY. Um and they basically also have like the the high risk vaults of course offering higher yield uh and the lower risk risk vaults uh and yeah so far it has um seen like a constant growth.

So yeah, that's why I mentioned you know maybe uh I mean I want to just put draw attention of uh the importance of timing especially in in DeFi when you launch a certain type of of product also uh I think it's worth um noting that pendle pt token looping which we already discussed uh probably even last year I think it's now safe to say that um this kind strategy is sustainable that it's keeping up um due to various factors including um our ability to like keep the borrower rate always lower than the than the yield of the PT tokens which kind of makes the strategy profitable all the time. Another factor being that the one of the protocols tokenizing some kind of yield strategy like Athena uh adding a mechanism to rebalance between the basis trade like the core business model and and the yield from treasury bills. So it kind of makes the whole process more um more sustainable. Then you can also have uh projects like DeFi saver uh who can build additional features on top to ease the management of those kind of uh positions like the automatic roll over to the next maturity as as I mentioned uh before and then yeah this is um this is actually a stable coin dashboard we're uh currently building in block analytica I mean it's it's uh it's live and it's actually something we decided to build because uh we needed something like this uh as a users of defa landing protocols and CDP holders and leverage users uh it's uh called sphere and yeah uh you can basically find a lot of things there including the net APYs for leverage positions let's say you want to long ether or bitcoin um benchmark rates these benchmark rates are actually used by block analytica when deciding what should uh when deciding about the adjustment of the die savings rate or sky savings rate. U you can also estimate the unwinding price impact of your CDP.

Uh you can find lowest lowest borrowing rates in DeFi. Uh you can see the the supported protocols. You can find lowest liquidation prices and basically even find some trends if you if you uh dig deep. Um yeah, I think that should be it. Now the yeah the topic I also wanted to draw attention a bit and I think this project is actually pretty cool.

So privacy pools uh it's a new and non-custodial non-restrictive privacy protocol. You can see it as a as a cache but with one important addition and additional feature and that's zk proofs for uh which you can use to prove that you are not part of a certain uh data set or or list. um basically proving that you are not laundering money that you are not um hacker that stole that has stolen funds from some protocol or criminal or similar. Um important thing to mention is that this exclusion list so-called uh is not centralized like in tornado cache. Uh in other word there are no hardcoded like compliance rules.

Uh so anyone can basically um define their own list and then prove that they're not part of it. So let's uh go through a simple example. Let's say a centralized exchange for some regulatory reason needs to needs uh its users to prove uh that they are not um like malicious actors, right? So they can be define their own exclusion lists based on law enforcement data, sanctions list and basically require your proof that you're not part of part of that uh data set. Now on one end I mean it's obvious this is like a improvement um compared to tornado cache um but still uh criminals can still still use it for laundering money as it's completely permissionless and uh and open sourced.

Uh but yeah, they're kind of uh less incentivized to do it, right? Because if you if you want to do something with that money, you would kind of need also to provide a proof uh proof of exclusion from a certain certain list. And yeah, to to to wrap up, uh I just I'm just going to leave this here. Uh this is basic those are basically some tools um you could consider using nowadays while wondering through defi. So for transaction submission consider you know using private um private RPCs like me blocker and fleshboard RPCs.

Um of course simulate first before submitting a transaction for lending and borrowing. Yeah, you can use sphere to find the best stable coin rates and net APYs to minimize liquidation and front-end downtime risk. You can consider focusing on protocols of course with a proper risk management and defy saver automation which is pretty cool. Um, of course use multisig key rotation and similar and yeah um I think we'll have uh enough time for the Q&A session. So feel free also uh to ask any questions you may have and maybe even uh suggest some more tools that you may have uh so everyone can can hear.

Yeah, that will be it. Thank you for listening. [Applause]