Filippo Moraschi - The current state of DeFi: Multichain vs Cross-chain

I'm Philip Morasi, community manager and strategist at Fox Finance. Uh Fox Finance is a decentralized protocol that offers a wide range of decentralized tool. Uh everything started in uh in 2021 thanks to the support of Italian blockchain software. We raised three million and in the seed round bringing uh a huge cap table with names like Borders Capital, Jump, Coinbase Ventures, OKX and in November we concluded also another round of another 3.2 two million uh was a strategic sura in in April 2021 uh 2022 just two weeks before the the Luna crash the protocol went on mainet and the first deployment was on the algor blockchain and on EVM chain and uh but uh over the time over over the years a new idea has matured a new vision as we always wanted to to expand in going uh in in other chain but in a way that wouldn't make sense and not with the usual uh forking the protocol also because uh forking the protocol would have meant to to redeploy the protocol from scratch uh given that the the different uh coding uh environment between yeah the AVM and the algorithm into a machine.

Uh so uh two two years ago we had the opportunity to build uh a new crosschain lending protocol together in partnership with chain link and warmer. And uh before going deeper into the protocol architecture I would like to give a brief overview of uh the today's situation. On my left side we have the centralized the central the space. On the right side the defy space with multi-chain application. And here I list uh listed a few pro and cons of uh when you interact with this uh platform.

So whenever a users deposit funds through a centralized platform you are basically giving up your the ownership of your funds. Uh transparency was also very important uh aspect because in the recent years the trans transparency uh aspect improve a lot uh especially in uh in the main centralized platform but this problem still persists uh centralized authority uh the all the decision are taken by a centralized entity. So the users don't have power on this uh regulator uh regulatory compliance. The centralized platform must be uh regulator regulatory compliance. This means that can prevent a user from accessing a specific platform or specific features but they are only one platform.

So you can perform several operation. You can trade uh you can do staking, liquid staking, leverage trading. uh you can send asset, you can even participate in pre-sale and they have crosschain support. So you you just need to send you just need to to select the asset you want and the address you want to send us the asset to. Uh on the right side we have the the the defy space uh where basically nowadays is the the the multi-chain apps are predominant.

we be before I want to explain uh what I mean with multi-chain with multi-chain we are referring to to a same protocol that deployed the the protocol in in multiple blockchain and this blockchain don't talk between each other uh while with crosschain we are referring to deploying a protocol that can be access through multiple blockchain so the the the pro of interactive defy uh defy apps is that they are permissionless trustless but nowadays they are facing two main big issue one is the liquidity fragmentation as I mentioned it before the liquidity of the chain don't don't talk between each other and the tool fragmentation because for example uh as a users if I have an asset uh uh deposit as collateral in one protocol and I want to borrow another asset in another chain another protocol I need to withdraw my asset I need to bridge the asset over the chain. Uh I want to take out the loan. I need to open a new protocol. I need to search for a new asset. So and then of course I can redeposit my asset as collateral and take out a loan.

And uh you can imagine how this is painful for a beginners or just a defy users which is not digent. That's why uh we built a fully crosschain lending protocol uh using an spark architecture. So in the middle there's an app chain which is uh which handle all the business logic of the protocol and around it there are spok chains that where people can interact with um you for example you can deposit an asset on Ethereum and borrow on on avalanche without dealing with bridge operation so that the all the bridge operation are abstracted to the users and this also works with at the moment is just EVM but very soon we'll uh we will be working also with nonVM chain. So you you will be able to deposit on Solana and borrow on avalanche natively. Uh one other than improving the the user experience uh one of the important aspect is also it will be it will improve the the liquidity aspect.

In this case, we made a simulation uh using as example a a but this can be applied to to any multi-chain protocol and we took as example uh the USDC market because uh every time there's stable coin liquidity in particularly uh USDC this liquidity is borrowed. So as I said before in the multi-chain landscape the the chains don't talk between each other. So for example um assuming the total amount of USDC liquidity on a is 1 billion okay but 700 million USDC is deposited in all the chains and 300 million are on arbitum since the the chain liquidity don't talk between each others the maximum borrowable amount for the users is just the amount on arbitum so 300 million instead using the the Fox finance concentrated model the the maximum borrowable amount is 1 billion because everything is aggregated in one place. So the users will be able to deposit from the chain they want. For example, you can deposit uh USDC from from Avalanche and with it will go in a in a unique pool and users will be able to borrow from arbitrum and they will borrow that arbitum liquidity from the the UCC pool uh that that UC that deposit from Avalanche and also this improved the uh improve the the loan management because uh you can repay the the USC loan from any chain you want.

You can swap the collateral. You can reduce the collateral from the chain you want. So if I deposited my USDC uh as collateral from arbitum, I can even withdraw uh to avalanche. If I use this as depth uh on arbitum, I can even repay it from from Solana. So this process is uh gives the di the flexibility to the users and also uh helps to the standardization of the interest rates since the the pool is just one and not multiple.

Um at folks finance we are not only building uh uh crosschain lending protocol but uh we are expanding also to other feature because we want to offer uh only one uh only one platform and one-stop shop for users. So the crosschain uh sorry we offering crosschain lending we are also offering crosschain swaps uh that can be used also in the landing market. So you can swap uh the asset you want from a chain A to a chain B. We will also also for crosschain liquid staking long and short leverage liquid staking and very soon we are also working on on a mobile application with uh uh credit card. Um one of the main advantage of uh working with crosschain technology is that this will benefit also at the token level.

uh many of these uh crosschain technology we had folks who we are working especially with warl and chain link we are using the technology also CCTP from circle but the way the protocol is built is that is very flexible in adding a new messaging layer technology like for example we'll be adding soon also layer zero uh and all these messaging layer technology built their uh interoperable framework for example wormless entity uh chlink as uh CCT and uh layer Z uh OFT and um this will will be uh will benefited the token because they will make it as crosschain native token which means that users will be able to move uh the token between chains in a native way without dealing with wrapped version. We it will work by just using a burn and min function. So every time a users initiate a transaction, the asset is burned on the search chain and minted on the destination chain. These allow also crosschain composibility because uh in any chain the asset is deployed this maintain the the property. Uh this allow also crosschain uh uh governance which means that users can participate in governance operation from the chain.

Uh they are holding the token. So it's not mandatory and it's not necessary to perform the operation uh in only one chain but this can be uh adopted uh from any chains and the AI it can offers also concentrated liquidity model which means that the the me the example I mentioned before with can be applied to any token to any token that uh adopt this uh interoperable framework. For example, the defen which is not issued yet. It will be one of the first native uh crosschain token both EVM and on EVM. Uh one of the most uh uh used use case in the crosschain space are crosschain swaps and crosschain aggregator which means that uh you can swap a token A in a chain A to a token B from uh to a to a chain B without dealing with bridge operation.

It's just a few click operation and uh this uh will obviously improve the user experience because you just need to to inter interact with a unique interface and uh yeah you don't need to to do like multiple operation for just doing a asap operation. Um at folks we are also working as I mentioned before in a mobile app. We noticed that uh not many protocols defy protocol have a proper uh defy uh mobile experience and uh we also noticed that many people interact with mobile uh devices more than uh web app users. Uh so we decided to build this uh easy to use uh mobile app because we want to attract uh web web people and also beginners uh uh defy beginners. Uh yeah, giving a um a fully customized experience that it will be uh more easy to use and yeah and uh attached to the to the mobile app, we will also be able uh we will also issue a credit card that will use the Fox Finance lending market.

So you will be able to use your asset as collateral and you will take out a loan for and this loan will be used for your uh everyday for the user's everyday purchases. Uh one of uh quick mention on this but it's very important. I will never stress enough on this. Uh the security of the protocols are very important especially when you deal with uh new technology. uh at folks we did several audits, we did several economic review of the protocol.

We were also among the first partners of uh immunifi which is the leading u bug bounty platform. We organized their first bug bounty hackathon. We also have an open bug bounty. So if you are a white hacker, you can go through unifi and try to our code. Um and uh yes but this should be the standard for for any uh defy protocols.

Uh yeah quick mention on the team we are 20 20 members uh 80% are Italian we have uh yeah we are decentralized because we also have our CTO is in London we a lot of people from America from the CS region so yeah we are kind of decentralized but yeah we are based in Italy. Uh thank you very much for your attention. Uh feel free to ask any question.

Thank you so much for the thanks for the presentation. We don't have any questions on the board. Does anyone in the public have a question? Okay. Question the gentleman at the back.

What are your competitors right now? I think that who is doing something like that is I don't remember a is not integrating swaps. So

no no no no yeah yeah exactly right now uh if I had to be honest there are no competitors there are only few uh but they don't have the the composibility the knowledge of the fox finance team I mean the Fox finance team built uh we we built this protocol uh in a way that at the moment is not replicable uh by other project probably there will be project that will adopt something similar I know that there There are for example project in testnet that are trying to replicate something like this. Uh but in the meantime this crosschain protocol went on live on mainet last year. So in the meantime we collected feedback since it was very innovative and uh we know where we can improve it. We are also working on the v of the protocol which will be more composible. So I will say like as competitors in the crosschain space no but obviously yeah there are multi-chain competitors like have a morpho compound uh so yes this uh uh multi-chain protocol that uh are where the liquidity um uh rely

and what is your revenue model how much did you get on swaps and deposit and loans and

uh so basically the revenue model is uh like any any lending protocol. So you have a retention rate of on the the interest repayment from uh from the user. So uh a share of the interest payment go to depositor and a share to to the protocol. We also have uh revenue comes from our uh liquid staking. We are the the the main liquid staking provider on Algrand.

Uh we also have re revenue from from the swaps. We built our own uh uh router and um we also yeah we also have a revenue from the leverage liquid staking uh from the leverage trading which is using the the lending market and um and yes uh soon also we will be able to to have revenue uh with our token uh hopefully we are working to issue in at the end of July or if it's not July in September uh it's That's a matter of technical things because since I mentioned it before it will be both nonvm and EVM not only.

Do you do you use lei as a router for this one?

Yes. Yes. Exactly.

So you built the fee on top of lei.

Yeah. Yeah. There's just a small fee only while on on we built our own fox router.

Okay. Thanks.

Thank you so much.

Is that question sir?

Yes. So how is it how easy it is to actually um add a new chain for example?

Uh very easy. I mean it depends on on which chain. For example, uh the VM chains are very easy to to implement but there are a few requirements. Uh we need the chains to be supported by by messaging layer technology. Uh so we need the chains that is supported by war mall and uh uh CCP by chain link uh CCTP for USDC is not mandatory because it works only with USDC.

So yes, the D chain must be supported by CCP and and Warmal and then yes, then there's evaluation based on BD uh business development decisions. But yes, in terms of integration is is pretty easy to implement like it just take uh a couple of days. Do we have any more questions? Okay, I have a question. I I think one of the biggest challenges that we have in the industry is fragmented liquidity and I think you're aiming to solve it.

So I'm just wondering on what's your prediction like how how do you see the space evolving and do you think that we will reach that point when fragmented liquidity is not topic that we discuss anymore or it's not something as important and we focus on the applications that we can build on top of blockchains.

Uh no the so the liquidity fragmentation problem is very important but not many users notice it. uh we at folks we are trying not to push this me uh the message. We also I also showing um in the in the previous slide that the concentrated liquidity model uh of folks compared to to the current uh multi-chain application is way more efficient. Uh so let's say for example uh when you come when an institution comes they see that there's like a huge uh uh improvement uh and greater uh liquid efficiency uh in crosschain uh uh protocols compared to multi-chain apps uh and also like for example uh that the crosschain native tokens will be adopted by any protocols in future. So it will be a standard.

So every time a protocol will issue a token this will be issued in in several chains and not in just one. Um so yes at Fox we are we are fixing the the the concentrated liquidity uh problem because the protocol is already live and it's already work. So it's just a matter of pushing the the good message on this and the spread that this is more beneficial to users. Uh yes.

Thank you. We do have any more questions? I have one um tricky I would say challenging questions about your tokconomics, but I don't know enough about it if I have to be honest. But why do you need a token? I feel like a lot of protocols nowadays would launch a token.

What what's the justification behind you launching your own token? So basically okay every protocol uh needs a token you to to build an economics be behind the protocol and to uh let's say attract more users. Uh usually the protocol issue token for you know for governance uh to give the users voting power. the fox token will be uh will be uh like the the full uh center of the protocol. So it's not just a normal governance token but it will have several features that will impact also in their crosschain uh operation and uh I cannot spoil too much at the moment uh but yes it will be something big uh we're working hard to to give uh lot of value to the token uh but yes I mean in general uh a lot of people use the token or maybe even like as ex liquidity or or just yeah as a governance token that uh people use it for just voting and uh and that's it.

But uh it's not the case folks. So if you give like a proper economy of the token this will benefit the the protocol otherwise it will just uh uh give damage to the protocol. Yeah.

Thank you that was fantastic. I assume no more question. No one thought of a meaningful and very well formulated question while I was asking my questions. I see smiles. No questions.

Okay. Okay. That's acceptable. Acceptable. Thank you.

Okay. Thank you, Philippa. Thanks so much for sharing.