# The Fixed Rate Flywheel | Devcon SEA

- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2025-10-09
- Duration: 54:32
- Topics: Science & Technology
- Watch: https://streameth.org/watch/yt-RLzBsBudpFA
- YouTube: https://www.youtube.com/watch?v=RLzBsBudpFA

## Description

In the rapidly evolving landscape of modern DeFi, fixed-rate protocols have emerged as a critical component, bridging the gap between traditional finance stability and DeFi innovation. This panel introduces "The Fixed Rate Flywheel," a powerful concept illustrating how fixed rate markets fuel variable lending, create hedging opportunities, and generate high-yield products. Join us to hear experts from DELV Tech, Morpho Labs, Phoenix Labs, and Gauntlet talk about the next evolution of DeFi.

Speaker(s): Alex Towle, Merlin Egalite, Lucas Manuel, Violet Vienhage
Skill level: Intermediate
Track: Cryptoeconomics
Keywords: fixed, rate

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Devcon SEA was held in Bangkok, Thailand on Nov 12 - Nov 15, 2024.
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## Transcript

don't forget everybody to make sure you scan the QR code and uh and uh get your questions ready for the panel [Music] afterwards hey everyone um Welcome to our panel So today we're going to be talking about the fixed rate flywheel um which is a concept that we've developed about how fixed rate markets can fuel variable rate markets and this creates kind of a virtuous cycle um so I'm joined today by my fellow panelists uh Lucas manwell uh the co-founder of Phoenix Labs Violet venage um Twitter personality and just allaround defi expert uh and Merlin eagley uh the co-found morphol labs um so yeah let's get started um so first up okay great um I just uh I want to give people a quick primer on the fixed weight on the fix straight flywheel and just to get started I want to give a primer on fixed rate markets so for those who are not familiar um fixed rate markets on ethereum have already been deployed they're already scaling there's a good amount of liquidity on some of the markets um but just to understand the basic mechanism um we'll talk about how we actually get fixed rates from variable rates on ethereum so the basic idea is that that uh right now you can deposit you know let's say one usdc into a lending market and you'll earn variable rate interest over time so you know this is great we have variable rates but how do we turn this into fixed rates so the way that we do that is we create a separate smart contract um which will basically lock up this one usdc for a period of time so let's say that you know we deploy the one usdc into a lending market like a and this is going to ACR variable interest over the course of the term so the first thing that we do is we create two tokens a PT and a YT so the principal token will own uh basically it can be redeemed at maturity for the principle that was deposited into the position so that's just one usdc in this case um the YT the yield token will receive all the interest that occured over the term so how does this create a fixed rate well because the PT only can be redeemed for one usdc at maturity you're not going to buy it for one usdc because you can't do anything with the funds that are locked up so you can't Supply them to a lending Market you can't use them in a yield Farm it's just sitting there so because of this you're going to buy it at a discount and so this could look like buying one usdc six months from now for say 95 cents of usdc so if you do that you'll pay 95 cents of usdc today 6 months from now you'll redeem it for one usdc and you'll get what amounts to a 10% fixed rate of return so it's a zero coupon Bond and then on the YT side you're just going to be earning the interest that acrs over the term so the idea is pretty simple um but this drives some interesting market dynamics and has some interesting applications so um the first thing that's worth noting is that all of these fixed rate markets are built on top of variable rate markets so you know we have a couple panelists that work at companies that are such variable rate markets like you know Phoenix spark and you know Moro um these markets power the variable rate that ultimately leads to having a healthy fixed rate Market um so every dollar that's put into the fixed rate Market either invested through the PT or the YT is immediately going into the lending market so as we get usage on the fixed rate Market Market it's actually supplying liquidity to The Lending Market as well so even though the fixed rate Market might have very different users from The Lending Market it's actually still Pro you know it's actually still helping to grow that that variable rate lending market and then the interesting thing is that activity on the variable variable rate markets can actually drive growth on the fixed rate market so recently um at Deltech we built a product called Fix rate borrow which basically allows you to convert uh a position on Moro into a fixed rate position the way that this works is that you'll open a borrow position on Moro and then you'll buy another yts so that you'll earn interest over the over the course of your of your loan that will actually offset the variable rate debt cost that you're recuring on Moro so you know as more people are using Moro some of them might choose to open a fixed rate loan this will in turn Drive activity to the fixed rate protocol and every that's put into the fix rate protocol goes back into Moro so this is like this fix rate flywheel that we're talking about so now that we've kind of established what the fix rate F wheel is and talked a little bit about fixed rate markets um we're going to get into our panel discussion so just just to start off we're going to talk about the current um fixed tra Market okay yeah so I'll start with Lucas um so spark was built in the bare market and has achieved massive growth like going into the bull market how is spark you know uh how has spark achieve this adoption and what are some of the main takeaways that you have from the user side from going to the bar Market to the bull market yeah so just to give everyone some context on what spark is um maker has recently rebranded to Sky um and Sky will allocate liquidity to us spark as a dow to um to manage that liquidity and allocate it to to different uh things one of those things uh has been sparland uh which is a fork of av3 that allows users to borrow um die or usds at I I'm not going to call it a fixed rate because it's not it's more of a a stable rate um it's a rate that's set by Sky governance um so the value proposition of this is as a user you can get the benefits of A's you know rehypothecation of collateral and cross collateral ization across borrow positions without the uh the algorithmic variable interest rate model um so you can you can borrow with that so basically what I'm saying here is that there there definitely is a demand for more stable borrow rates uh which is part of this broader discussion this was one approach to it which was having a more sort of predictable uh rate where you could see that the rate would be changing uh ahead of time so you can adjust your rates or adjust your position um and so that that was proven out during this uh last year and a bit um where we've got a lot of adoption um and another big um thing that we've noticed is there's been a lot of demand for leveraging on um Pendle principal tokens of Sude through Athena uh through Moro um so spark has been allocating D into Moro markets to allow people to borrow against their um their principal token uh yield positions inthena um these users are able to lock in these you know quite high yields that we're getting from Athena that we're seeing uh without the sort of variability in these apys that could affect the safety of their position it's just it's overall a lot more uh predictable um of a way to to borrow against the position so both of those have been quite successful and they're both based off of this principle of having like predictable interest rates for users awesome um yeah I mean going to you Merlin so moro's also grown like a tremendous amount going into this bull market um like what have been some big takeaways from you like you know on the user demand side right um so as you say like Moro is um like a a prim Landing primitive uh on which like some solutions for fixed rate Market are being built so on Moro you have like only interest rate model that are providing like V variable rates for now um and uh but we have more and more Demand on like uh funds or arbitragers or like strategist uh they want predictability on their rates because they want like to to form use their funds like they borrow usdc they want to use them on over protocols if you don't have like produc ability on like the borrow rate like you you'll need at some point maybe to unwind your position and like uh face like some Sage Etc so to protect you against that like you need to um to find like some fixed rate Solutions and like Solutions like Del like are um like ideal Solutions and more and more we have that um that demand mostly from like a more um Mator and um uh I would say like um um like more educated players in the space uh for those kind of things that are entering the space now that uh that like D5 is being integrated at the um like institutional level yeah I guess just a brief followup on that I mean can you compare and contrast like who's using variable rates and who's using fixed rates like which users want each one right um I think like we've been used uh uh we've been used with um valuable rate since the beginning of D5 because it has been like so we had like e uh the beginning of a where you had like a fixed rate but it was like hard to manage on chain it was difficult um so everyone like turned to like more algorithmic uh interest rate model because it's much more scalable um so like everyone in defi is like uh okay with uh variable rate and it's like uh it's like in their zone of comfort but like from people uh coming from trfi where like a fixed rate is a norm like you have Z zero coupon Bond everywhere uh it does not really make sense to have like variable rates I think it will change like uh in the coming year coming years like uh I really think that the the the fixed rate will be like the base uh of like lending and everything on chain but it's just like uh we it requires like a more much more like complexity of managing those rates like order books uh managing order books uh it's like we are closer to Market making um uh Quant Quant trading if you really want to have like an efficient market of like uh of fixed rates and we are not there yet uh but uh but having both like both Solutions right now is like a good way to Ard like those that are asking for uh fixed rat that are more coming to uh from the tra EOS system yeah that makes sense I guess just to talk a little bit more more about the uh more the D sort of things like the kind of crypto native defi users so one of the biggest um use cases for fixed rate Protocols of late is points trading so we've seen Pendle achieve massive success trading points um and the reason for this is that it's really the only venue where you can do that I guess a question for you Violet is do you see this as a form of product Market fit or do you think it's more of a a passing fat in the industry uh yes this is very obviously product Market fit because buying cryptocurrency and then gambling on the price of the cryptocurrency has incredible product Market fit and has like sustained a huge amount of usage for the past 20 for the past years and even if you look further back through history gambling has always had like a fairly huge amount of product Market fit the real question to me isn't if this Behavior where you are seeing people effectively trading the underlying uh future token rights is product Market fit the real question I think is is this fixed rates like if you ask somebody from sort of like any other Financial spere oh purchasing the sort of like future stock issuance of a company is that fixed rate trading I I would say they would probably say that that is not fixed rate trading so I think this has incredible product Market fit because it lets you do something that many of the most defi native people want to do which is speculate on these sort of upcoming token launches however this like class of users is entirely separate from the sort of like people who are interested in maintaining like uh predictable loan positions or financing uh various projects or even going even getting sort of predictable rates for their leverage so I think that while it has been highly successful and it is like undoubtedly a form of product Market fit to be able to trade these cryptocurrency tokens before they exist um I don't really consider this Behavior as fixed rates instead I think this is sort of like the most convenient lead way to trade future issuance of cryptocurrencies with the sort of wink wink nod nod of like a B Team telling you oh the tokens will be there in the future I guess just to push back slightly on that um the there are still fixed rates going on in these markets because people that are buying the future issuance are buying the yts typically so and this is pushing the rates up which is like creating opportunities for really high yield pts so I guess maybe uh maybe if you want to elaborate a little bit more on that dichotomy that would be good yeah obviously this also creates a good deal for the sort of capital providers and it makes it sort of explicit the deal that has been sort of implicit through the history of many of the launches of defi protocols which is that we will pay you a high percentage interest rate like a very high percentage interest rate in tokens in sort of future expected value of the cryptocurrency tokens and normally no protocol can ever say that to you because uh the lawyer would like tackle the CEO and just force them to SP stop speaking because this is sort of like a comically legal thing to say to people uh unless the regulatory regime changes in a dramatic way for some reason the but it does produce it like the product here adds legibility to the sort of market and I don't think that people are buying High interest rate bonds because the rate is fixed but rather but because the interest rate is high and this has sort of always been the reason that they put money into sort of Novel def products which they expected to have sort of future issuance of tokens to give them high interest so yes it does create a really interesting fix rate product and it does drisk the sort of like allocation of capital into sort of Novel defi products and this is useful for the protocols um but I don't think it displays a product Market fit for bonds uh that are sort of fixed rate instead it just displays the appetite for uh Capital to get high interest rates from deploying to sort of high-risk uh new def5 protocols yeah I think that's fair and uh yeah I guess going to the next section um we're going to talk a little bit more about integration and market dynamics for like more of the traditional side of things which to Violet Point has lower rates and is used in pretty different ways um so starting with you Violet you know you've been involved in fixed rate markets since the beginning like what are some things that people should be mindful of when they're managing risks in these markets um I think that there are two things that are kind of under explored the first is that as you have more real world assets um many of these real world assets even if they pay variable or fixed rates may not have like the expected um risk profiles in fact uh there have been a recent string of defaults occurring in the maker system in their sort of real world asset vaults because provisioning credit is like a very challenging behavior um and I think sort of like the default Assumption of the defi industry is that they will be able to sort of copy this behavior from the sort of trafi the traditional financial institutions but that is like the the sort of like pricing of this risk is like not actually a tremendously easy process and many people who have tried in the def5 space um have like run into major problems and we're seeing some defaults now in addition to this I think you add in like another layer of risk um which is the Smart contract risk whenever you're shipping like two Integrations a week for months at a time the the chances of a large issue go up um and I think that this is like a type of risk that is important to quantify because like when you're bringing these products to more institutional investors I think this is the thing that they're the least familiar with actually is how to quantify the sort of smart contract risk of having many Integrations and having many like of these problems and so I think those are the the risks yeah that makes sense um so Lucas you know SAR has started to integrate with more of these fixed rate protocols so you've been kind of trying to wrap your head around a lot of these issues um what have been some surprises for you as you're doing those Integrations um yeah so the main integration that we've done so far is uh the Morpho integration with the Pendle Athena uh PTS um and so an interesting problem for us to solve and to iterate on has been uh pricing these tokens on chain uh so we started with a fixed price Oracle at $1 and then we would um adjust the uh the maximum loan to value parameters to basically uh account for that risk um we've updated those oracles recently to basically dynamically price the PTS uh based on how long they've existed and basically the point on the line of that of that discount um what is an interesting thing to think about is if the fixed rate Market changes and uh the fixed rate increases um and for some reason a user's position goes underwater um liquidating those uh pts on the open market will actually yield like a lower price because people don't want to buy that um that token at that price if they can get a better opportunity uh with another principal token um so what's been interesting to think about is in that situation uh maker would have to purchase um those pts and essentially hold them to their duration and so what happens there is um instead of liquidating them on the open market and having that immediate liquidity instead what's happening is uh maker is holding them to maturity still getting that yield this value is still there um but the the underlying liquidity has to be um redeemed at a later date so there is duration risk that needs to be considered when onboarding these different uh collateral types these novel collateral types um so we're conservatively adjusting the risk parameters to account for these situations uh making sure that we're not getting into uh any sort of real trouble um by onboarding these um but it's it's definitely an interesting new uh primitive and it's it's exciting and I think there's a lot of uh additional work to be done yeah that makes sense so I mean Merlin I think you're in kind of a similar position you guys have started integrating with fixed rates like you know these Pendle positions but you're also looking at things like fixed rate borrow which is kind of attacking this from the opposite direction um I mean what have been some big learnings for you and you know how do you deal with things liquidations right um so coming back to uh what Lucas was was saying is like uh liquidating a pte token uh is much more complex first on like just like selling the token but if you can't sell it like you need to keep it so that requires capital and like no not all Liquidators can do that so uh the the pull of potential Liquidators is obviously like um uh has a constraint and uh that can be like end up with bad debt if it's like if you have too uh too high like LL TVs that do do that do not account for those kind of issues so it's definitely something that um um that needs to be uh taken into account by risk creators uh or like any people building and creating markets on top of Moro that are using like PT tokens as collateral um on the Bor side it's quite recent uh with the the hyperdrive I mean Del uh integration um we we have like uh some requests uh to to you that it's quite interesting to to see how will he will uh will it go into uh during the next uh few months um for now I I don't think we have enough data to like say anything on that use case uh but uh we're definitely Keen to to see what will happen what what has been um what has surprised me is like so Del is like fully onchain uh systems and there are over system that are like kind of like doing fixed rate but offchain and onchain settlement like I'm I'm thinking about pwn for instance and they're looking into integrating uh integrating Moro and uh the the interesting uh interesting thing is like they could use the same exact same Market with variable rate but end up like sharing like liquidity and um uh to together like with Moro with pwn with uh Del and that will nourish like the the moros network effect but also like uh the the markets liquidity so I'm curious to to see how it uh what will happen in the the next few month yeah me too I guess um Lucas just to double down on that point on oracles um you know looking looking a little bit ahead into the future maybe over the course of the next like six months to one year you know what would you like to see on the Oracle side from fixed rate protocols yeah it's an interesting question because there's yeah there's like the the theoretical price of the token based off of the discount and the time that's passed but then there's also the reality of the secondary markets and for something you know as deep as like us treasuries uh you can really base the value of these bonds uh based on secondary Market but the reality of the situation is in defi we have like nowhere close to that uh level of liquidity yet um down the road if we do um maybe we can consider starting to base these oracles more on secondary markets um and maybe there's some kind of hybrid solution that we could investigate uh this is definitely a new new area to focus on so we're definitely open to a lot of different approaches um right now but it seems like the way that we're thinking about this now we're we're pretty comfortable with this you know theoretical pricing Oracle with we are querying the um the underlying assets price um and then yeah like using this theoretical value um and then you know adjusting the lltv to make sure that we're still conservative so that if we're ever liquidating a user we can hold this token to maturity and it won't uh hurt the protocol and any significant way yeah that makes sense um do you see that in a similar way Merlin um or do you have any other kind of takes on that issue I definitely agree that like uh taking the market price like is not is clearly not ideal because it's like you could like manipulate it very easily uh and like um yeah I I deeply think that uh you you need to just like use um maybe uh like I I think the the the last latest version of the Oracle that is like um trying to uh approximate like uh the the price depending on like the time to matur it is like a good good first step and to have like a more visil arle I I'm I'm sure there's better way to do it but it's more it's better than like having like a fixed price and it's uh it's it's clearly better than like a market price yeah that makes sense so I mean now that we've kind of discussed some of the challenges in the current market um let's shift our attention to the Future Market um so starting with you Violet I mean you're you know an expert in the space of privacy and zero knowledge proofs um it sounds to me like a lot of these issues involving oracles liquidation Etc could be perhaps benefited by scaling Solutions um I guess I'd like to hear you talk about that but also are there any other areas of overlap that you see with like the future of privacy and scaling Solutions in these markets yeah I think um the impact of sort of scaling Solutions on the liquidation of these markets uh will be primarily driven by the sort of increase in the sort of depth and like breadth of the sort of financial institutions who are able to use these well because I think if you have like very longtail assets like um call it like Pendle on corn farm dated to July of 2025 and not Pendle on corn farm dated to July uh 15th of 2025 you you're always going to I think have difficulty um pricing this well until you get really good uh and like competent financial institutions trading on train and these people will have to be much more like um will have to be much more like Savvy and regular Traders than sort of your normal like Liquidators in the cryptocurrency market who are looking to dump these things into the liquid space as quickly as possible or you need to start uh having yield sources which are more like um legible uh and so I do think that scaling Solutions will help with this because they will drive sort of more institutional adoption and sort of more traditional Financial systems uh and so I do think that's a connection but I think that what is like much more important potentially is actually the Privacy component of ZK which is um like if you look at the sort of traditional Financial system fixed rate loans kind of didn't happen in this direction right like you started with the fixed rate loan because these were easy contracts to make between various parties um and I think still there lack like there's still a huge gap in the sort of like fixed rate lending ecosystem of ethereum and defi in general where you don't generally have people just sort of making lending deals to each other on chain in a legible way and I think what you might start to see as sort of the next wave is uh ZK enabled private lending contracts that are sort of automatically executed by ethereum which use fixed rates and which use ZK to prove various properties about their like Originators their lenders their interest rates the collateralization ratios if you can prove compliance of the sort of like institutional Investors Auto by automatically executing their loans on chain and by proving various details about them without leaking this information to the public you might start to see like uh better quality and larger lending desks making sort of the actual fixed rate loans that you see in trafi that sort of are backbone of the trafi lending ecosystem and you could start to see real bonds and these could be assembled into like real products using the proofs of validity that ensure that you have like like bonds that meet certain criteria and so I think the privacy and validity components of ZK in this use case are very important and I think that they will help bring the sort of like missing component of like actual fix rate agreements out of traight into Defi and this may not look like defi as it exists now because these sort of automatically executing Agreements are not really like over collateralized necessarily but I think this is the future if for fixed rates is like that the difference between trafi and defi will start to evaporate as we get good tools to bring offchain and semi onchain financial instruments to sort of like production grade on ethereum yeah I just want to Echo that I I completely agree I think uh that's the sort of Next Step that I see is is totally necessary to get big institutional traditional Financial involvement uh is having these uh things like privacy and zero knowledge uh privacy pools uh to allow for these institutions to be provably compliant without doxing themselves I think is also going to be like a massive necessary step that we have to take as an industry uh to get more of these you know hedge funds and and big you know trafi institutions on chain and doing regular Financial transactions um that'll just be a necessary step for us to take yeah totally agree too um I guess in that vein you know Merlin you guys have started to work recently with uh Swiss board so I think we're really starting to see institutions come on chain yeah um so swissborg was a first step in that direction and like we are talking to other uh fintex um one cool thing about m is like um you have like Market that are isolated and like per permission like the creation of Market is permissionless what that that mean what that means for institutions is like you can create like whatever Market you want and gate uh the market if you if you want to be compliant you can gate the the market and require a kyc for users uh what you can do is also uh maybe you don't care about K but you want to get gate The Vault uh that is managing your uh your funds and like uh but and you want to um have an exposure to a given um basket of assets uh this is and and like institutions like because it's fully IM mutable and UNC consal they own the whole stack and I think this is very important to have this and it's like one of the um one of the most important uh argument when they want to integrate a landing protocal is like do we own everything from like uh of the stack or who are we trusting are we trusting a governance uh body a third party um uh with who we are dealing with and I think like having immutable non upgradable governance minimized protocol like so the the issue of like are we owning the stack but everything that is related to how we compliant uh are we gating Etc is you using attestations and hopefully like uh in the future um Z proof as much as possible uh so that like any users could like prove that they they've done a kyc without revealing their um uh their identity um this is already the case for KC but you can still track asset uh sorry addresses Etc it's clearly not ideal and it's uh the the right now the experience is like uh it's cumbersome so like not not everyone is doing it so we are talking with a lot of um of inex and uh this problematic is like one of the top one that we need we need to solve like as like a global ecosystem but we're not there yet I think yeah totally agree um we're seeing the same thing on the fixed Market side of things where you know institutions want to own the whole stack and make sure their funds aren't mixed I guess Lucas I feel like at spark you guys have taken a slightly different approach where you know instead of a huge institution backing you um you're working very closely with maker I guess um what are what are some differences in you know working with large protocols instead of uh institutions and how's that going to change the onboarding process yeah so it's a pretty interesting situation to be partnered with uh with Sky maker um because uh with that we have a really large liquidity provider that's completely defi native um and so with that it's a pretty unique opportunity to be able to evaluate all these different defi protocols basically just purely on their Merit and their economical opportunities uh we're not as held up by um you know uh regulatory red tape at this point in terms of allocating funds into def5 protocols specifically um so it it is a cool um opportunity are experiencing you know similar things with uh allocating funds into like into institutions um like more of our real world assets side of things but that's sort of the the other side of it it's it's taking funds offchain rather than bringing them um onchain um but it is it is a different sort of Paradigm to be working with a with a defi native uh large LP yeah that makes sense um I guess I think we can transition a bit so um we're going to be taking some audience Q&A but just before we get started kind of wanted to uh summarize some of the panel discussion and see if anyone had any hot takes so um Violet I think you had one if you want to go ahead and share it uh yeah I would say my hot take is that defi is going to not be become Finance isn't going to become defi defi is going to become finance and I think in that way you will see like many more like products that kind of do not align with the most um cyber Punk definitions of like what a lending protocol should be you'll probably see more just like legal agreements that are executed automatically on chain you'll see more trusted parties like and this will probably be the way that defi will scale that it will be accessed by millions of people and uh the sort of defi protocols that we love that we're passionate about will grow much more slowly because it will be much easier for normal people to access institutional grade defi than to be sort of defi pilled on the like most cyberpunk ride like automated controllers automated Market make makers or with like completely decentralized systems then it will be for like someone to be using like maker to get a car loan like we will see like defi become Finance not because finance will become decentralized but be instead because these tools will be used in new ways that many us will not like very much yeah I actually want to follow up on that cuz like I I agree I think there will definitely be a faction of defi that will be you know for the cyppher punks and it will be available but I think I think it is exciting that we are actually moving in a direction where we're bringing Real World Finance um on chain and using ethereum I think that's like kind of the dream that a lot of us have is to is to move the economy out chain and like one of the things that really excites me personally about uh spark and sky is the idea that with these new instruments and with this increased institutional adoption um we're able to bring back these yield opportunities to um the end user really easily through savings usds through this the sky savings rate uh all the revenue that sky is generating by allocating into these different yield bearing strategies that are increasingly going to get more into traditional Finance uh we can actually bring that back to the end user uh with the sky savings rate so it's basically like if you go to a traditional financial bank and you deposit into their savings account you're going to get a pretty low yield uh that is you know not even close to anything that you would see in defi but what's really nice about maker is you can just deposit your usds into the savings rate and right now it's it's going up from 6.5 to 88.5% and you can just park your funds there and let them sit and that's available to anyone that has an internet connection and is completely permissionless all right uh come coming back to fix rate um I think one hot take is like right now lending uh lending Primitives are based on like variable rates I think long term it will be the the opposite uh like every primitive will use like um like fixed rates and you'll have variable rates because you'll be like there will be like onchain matching of like you'll have like a market for bonds uh and and like as a user you want a passive experience and like someone will like manage your fund and like much of those orders and you'll basically have like um Market making on chain uh that will abstract the complexity of like dealing with like various bonds of with different rates I think this is where we are going and just like this requires the the um uh the the ecosystem to mat and to uh to have like more expert um uh like a financial expert to to enter the the space and this will occur um thanks to like spark for for instance uh like bringing more institutions on chain yeah that makes sense um I think kind of piggybacking on that one of the hot takes that I would have is that I think that the fixed rate markets um are making the lending markets look a lot more like what happened in decentralized exchange a few years ago so you know dex's kind of started off with there being a bunch of different Silo dexes so we had zerx we had Unis Swap and then we saw this layer of aggregators emerge so that was like you know matcha 1 in Paras swap etc etc then we had aggregators of aggregators with metamask Swap and it's just become increasingly clear that like the base level exchange is not actually what users are going to interact with and I think we're we're not quite there in fixed rates because I think it's it's a bit more complicated kind of like we've talked about I think that there there are some issues integrating fixed rate protocols with variable rate protocols um you know it's a collateral type that we haven't completely solved the issue of integrating with but I think that's where it's going and I I think I agree with you like we're going to start to see a lot more you know aggregated approaches where you're not necessarily buying a fixed rate from a single protocol you're buying a basket of fixed rate from a bunch of different protocols potentially like the ones that Violet's talking about you know where they're not even originating from a variable rate protocol and that's going to become more of what users are interacting with because that's like your money market you know your high yield savings account Etc and that's ultimately what I think institutions and even large you know D5 protocols like maker want but um yeah I mean if anyone else wants to uh share any other thoughts I think we have a couple minutes otherwise we can move to uh Q&A cool [Music] Q&A um okay there we go um okay okay so starting off um is there a role for auction priced fixed rate lending I.E term Finance or is the way forward YTP for fixed lending um does anyone want to take that yeah uh yeah definitely I think yeah almost certainly you will have institutions who are willing to price their sort of like loans in this way or you'll have aggregated Market information coming from many sort of fixed rate loans that are met made ad hoc and then getting like publicized into the sort of normal market and like you might get something like a defi liore which is setting like the mid-market price and then you could have batch auctions around it I think in general I don't believe that YT PT is going to be the sort of core Paradigm of fix rate in the future instead this is just a very convenient um abstraction for the smart contracts to be able to integrate with the variable rate markets and yeah I think the auction-based priced lending with many different actors all following the same rules is almost certainly going to be very relevant yeah I I think um I I totally agree with that I guess another thing I would say is you can do auction PR uh auction price fixed rate lending with the YT PT model um we're already starting to see this where people are trading yts and PTs off amm and doing like OTC deals you can also do that with auctions so basically instead of having a an LP in the middle you can just directly match these funds because fundamentally a YT plus a PT is just equal to one base token so as long as you have people on either side of that trade they can put the one PT or sorry the one base token into the fix rate protocol and mint the YT and the um but yeah so I think the next question is people say rwa and trafi on chain will make it more accessible but so far that's not been the case uh only approved users are allowed to do so um why are we why are we bullish on it um so only approved users uh so there are still like a um per permissionless Market on mofo with hward as at as collateral um so that's still possible to access uh even like it's not g markets um but um but uh that's true why bullish it's because like um for instance um there's um rate like in Bur Market that is like uh the the one of the financial system so you still have like a a lower Bond on the rate that you can earn so it can like drive more liquidity into more flow of liquidity uh onto like Landing protocols and one cool thing with more for instance is like if the liquidity is not used on like this real world asset um market and there's like another um good opportunity that is more definative they those Market can share liquidity and like the the liquidity can be reallocated like in time uh when it's needed so I think like why bullish is like you have that lower bound of rates that is driving more liquidity on chain and that will be useful for uh def native markets yeah I think just also in general it there is going to be a sort of spectrum of how restricted um certain Protocols are and I think the general idea of bringing more liquidity on chain is just always a good thing uh markets will get more efficient uh more products will get used wider usage and there will be these sort of uh Hybrid models like a good example of this is actually um Maple Finance uh with syrup usdc uh they are allowing for users to uh deposit into a lending pool that's lent out to institutional borrowers um but it's done in such a way um where they're you know not allowing certain jurisdictions like the US to to remain regulatory compliant U but it is this sort of hybrid solution where you're seeing retail users get access to uh yield that's generated by institutional bar borrowers yep I think it makes sense I mean I think the only other thing I would say here is the question says only approved users US citizens only or such conditions I'd say that um you know right now most eii products can actually be used more easily outside of the US um and I think that generally speaking you know there's you know trafi in other countries as well so I think trafi and rwa is coming on chain May right now now look pretty us-centric that doesn't necessarily mean that's the case long term so I think just like we're seeing things that can only be used by US ecps and stuff like that uh we're going to see the same thing in other countries and we're also going to see these defi native Solutions Ju Just wanted to to add something on on that lower Bond rates is like okay maybe the real world asset is permission but like on the loan side uh you can have like usdc or usds that is totally like um permissionless and you can come uh deposit liquidity to earn an interest on this and like kind of get exposure to that realwood asset rates without like have but still keeping like a um like a without requiring any kyc I just wanted to say that yeah that makes sense um so the next question is who is the customer for fixed rate loans um Merlin I think you already kind of answered this but yeah so um you say it I I think like uh there's two types like the D forming points and like band PT tokens as collateral and looping like crazy and um they also like a more um like a try in institutional uh players that are used uh to fix rate and they they want to enter the device and like do some complex strategies or things like that or retrieve just like what they are familiar with and they are asking for those kind of product all right Violet looks like you have a question um due to the terms and conditions of my advisor ship to Wild cap Finance I uh I'm obligated to shill them instead thank you no comment all right uh how to deal with privacy versus efficiency uh a good example in Trad Iceberg order that hides the Quant being traded but has less priority um what about double bid sealed auctions um uh very good question I think you will actually see ZK making um privacy more accessible in trafi as well because uh currently it's more difficult in trafi to sort of guarantee that the parties who are doing these types of behaviors where they're hiding some proportions of their like order or or doing other types of things are actually being fully honest about it or that they're following certain rules um and of course you can enforce this via regulation but um this maybe come to as a shock to people sometimes people don't follow regulations and sometimes they commit fraud um and so I think it will actually be easier in trafi you might have trafi applications of ZK which is which are completely independent of blockchain which bring more privacy to more types of transactions okay cool um we can go to the next question why traditional can't offer High fixed rate uh High fixed rate yields like defi uh because when the cryptocurrencies go up and they pay you in cryptocurrencies the interest rates are high pretty much I just want to add like I I I deeply think you can still like get like very high rate in the TR F ecosystem it's just like you as a retail you can't access it and this goes back to what Lucas was saying is like uh spark is like um and like any D5 Protocols are just about like providing the the the good rates to end users which is like something that is uh completely gated into the tri ecosystem um so it's just like I think it's just hidden uh and you can't see it and um but and and yeah after like you can also have like very very crazy defy rates that might not appear in the Trad V ecosystem but because like you don't have like smart contract risk and uh you have there perhaps less mem coins or those kind of things because it's a bit holder yeah I just want to Echo what Merlin was saying I think the biggest thing is that you don't you don't hear about these large yields um as you know retail users uh in in trafi but they are available uh to you know big institutional players accredited investors there's there's gatekeeping that happens in the traditional Financial system and uh through defi you can you can pass these yields back to the user um more easily but another thing on top of that is the vast uh efficiencies of using something like defi uh again to bring it back to Maple Finance it's like you know getting theoretically hundreds or thousands of liquidity providers in different countries to lend into one pool and that pool lending out to many institutions and then collecting the interest and R Distributing that to all the LPS if that was done in the traditional Financial system with wire transfers and manual reconciliation all of the administrative costs and the settlement time to do with that is just like an absolute inconceivable nightmare you know what I mean especially for like low amounts like if people are depositing $100 $1,000 doll um but with smart contracts as soon as one borrower makes a payment that interest is you know automatically distributed to all the LPS uh immediately so the amount of efficiency that you gain with that you really can pass on these yields back to the users uh in a in a much better way well listen sorry uh thanks for million guys that was a a really insightful panel uh I'd like to give a shout out to inventive for providing 95% of the questions there that was really thanks a lot thanks again to Our panelist Round of Applause