Unlocking Next DeFi Growth through Leverage - TOKEN2049 Dubai 2024

hello good afternoon folks I'm Aur uh CEO of Stella and today I'm going to be talking about unlocking next defi growth through leverage so before I start just a quick primer on who we are what we do and what is our background so we've been building in defi since 2020 we were initially called Alpha homora we were the first leverage eeld farming protocol on ethereum we launched in 2020 before D5 summer uh went to an all-time high tvl of around 2 billion and went on to raise from binance Labs multi coins Spartan and a bunch of Crypt native VCS in the bare Market the eeld farming landscape sort of changed a lot so we pivoted to something called a Stella which is again leverage with 0% cost to borrow and finally uh we are working on a new form of a leverage which I'll talk about towards the end but all in all we are uh we are degenerates we love leverage uh we love aping in and that's what we are building in cool so today I'm going to be talking about the evolution of Leverage in D so 15 minutes of your attention and I'll walk you through of how Dy has essentially evolved how leverage in D5 specifically has evolved and how we are trying to play along the narrative for it right cool uh so let's start with leverage 1.0 like the very basic primitive of how uh leverage in D5 started and it started with money markets essentially lending borrowing protocols right so the very first form of Leverage was like looping on money markets right you can deposit an asset borrow more of another asset swap it back into the original asset again deposit it and sort of loop it to create that leverage position right a compound were the sort of protocols where you started doing it then came uh the more Innovative uh newer sort of protocols called Oiler and beta Finance which essentially allowed you to borrow longer tail assets so you can borrow long tail assets short them long them so like it sort of increased the spectrum of assets you could take leverage on and then there were D apps built on top of it right there was instad daab there was defy saver a lot of cool Innovative D apps that allowed easy leverage on the foundation of these borrowing protocols so uh while this uh D5 primitive was super crucial in ki kickstarting leverage there were a lot of limitations with it right like essentially leverage was capped by LTV which is loan to value ratio there was borrow caps and all of that you could only take up to a certain amount of Leverage which is when uh sort of alpha homora came into the picture and we sort of brought in what what is called as leverage 2.0 or composable leverage right the idea was very similar there was a eel source that you wanted to leverage on top of there were lending pools where where you essentially draw liquidity from to create a leverage position and then there was the core Alpha homora Protocol itself right so I'll walk you through on how the mechanism essentially worked so a user came in he deposited some amount of collateral into the leverage protocol he would borrow from The Lending pool create a leverage position and then deposited into the yield Source right and uh the the lp tokens from from the eel Source would be brought back into the uh into the smart contracts of our leverage protocol so essentially while the user was withdrawing an under collateralized loan the we held the lp tokens in our smart contract and the the system as a whole was always over collateralized right and this was sort of like a landmark moment because this enabled in some way under collateralized lending uh and like really kickstarted the D5 summer with like four-digit apys and that's where like all the tvl came from initially right so uh this sort of helped us to get like 2 billion in tvl it was amazing there was the golden defi summer days of 4digit apwi but obviously like the landscape has changed a lot right and there are problems with this model the M the main problem is that when you're sort of say you're earning y% apy from the yield source and you're paying an x% apy in The Lending pool for borrowing so a lot of times the borrow cost the borrow apy became more than the lending apy right so the user got wrecked essentially the the math just didn't make sense and second problem was that nobody really wants to lend right everybody just wants to borrow and farm right so there was always a Mis mismatch in this equation where there were more number of borrowers and less number of lenders cool uh so to sort of contract this and to improve on this model we uh introduced Stella which was leverage 2.5 right and we thought that hey we will allow the leverger or the B borrower to borrow at 0% cost right there is no upfront borrow apy they just borrow they Farm their position once they close their position they share a portion of the profits with the uh lender right and we thought that okay this makes sense because now the the sort of lending apy uh the farming apy is always more than the uh the borrowing apy and the incentives are sort of aligned right the the lender also wants the borrower to make money so that they get a bigger profit cut from it so this sort of a model by Stella helped us solve the problem the first problem where uh like the farming apy was always more than the uh borrow the uh borrowing apy so one problem was solved but the second problem still persisted right still nobody wanted to lend everybody just wanted to borrow right and that is the problem that most sort of Leverage protocols in defi are facing right now that is why margin trading hasn't really like taken off so much as much as say PS have taken off because essentially onchain liquidity is really hard to scale and uh because of that leverage using onchain liquidity is really hard to scale so what does leverage look like you know there are so many problems we have tweaked uh with the models of Leverage but still we are not able to scale after a certain point so this is our thesis of like how leverage will look like in this cycle right and uh the first point is in my opinion for leverage to really scale it has to be synthetic right for us to reach like uh TR five levels of Leverage we need to bring in synthetic uh that is P2P leverage and the liquidity needs to be just in time what that basically means is you cannot like have an amm sort of a pool where there's like a lot of liquidity sitting and people like just sitting idle to sort of keep that liquidity intact you'll have to give out a lot of emissions which is not Capital efficient right so the most efficient way to uh like have leverages with just in time liquidity uh not like the amm models or even like the order book model where like there's liquidity fragmentation across chains so that's that's uh our thesis Point number one the second point is we just have to go where the liquidity is Right despite like hundreds and thousands of per dexes out there today still 95% of per trading volume still on uh sits on centralized exchanges so essentially to tap into that liquidity uh we need to tap into uh liquidity of centralized exchanges and liquidity on dexes across chains right and while we want to do that we want to still uh enable that in a trustless permissionless manner so that's what we're working on we call it leverage 3.0 uh and we'll be launching that in the next couple of months the idea is very simple we allow the user to leverage on absolutely anything which has a reliable data feed right uh like even if the asset is synthetic it's points it's meme coins you name it right meme coins is the more important thing these days than trading BTC e but uh essentially you get leverage on anything with a data feed even the weather uh the the political election anything right the second is we'll be moving towards the new buzzword called intents so we'll be using intent based architecture and that is what will essentially enable us uh allow us to use like liquidity from centralized exchanges liquidity from across PB dexes and essentially all resources and third and the final point is we want to access to access Universal liquidity right we're not trying to build uh like an app chain with with bootstrap liquidity from the ground up we trying to vampire attack centralized exchanges or per dexes which already have that liquidity sitting on them and trying to use that liquidity to fulfill orders on chain yeah so I think that's the sort of vision uh we in some sense we trying to be like the Citadel for D5 like in a permissionless decentralized way and what that basically means is if you look at trafy right there are like these popular uh uh apps called Robin Hood where users can trade but they are essentially like a front end for a lot of uh Market making and trading services like Citadel you know uh so essentially these are the ones which which provide the order fulfillment and they settle on the on underlying exchanges like New York Stock Exchange we are trying to do something very similar in the D sense where we are not trying to build a new D app we are trying to build like the infrastructure for intent based derivatives right so essentially anybody can come and build a d app on top of us uh with their own front end with their own token their own branding the own their own ux their own chain we chain agnostic but essentially our uh infrastructure will allow them to uh uh like take leverage position on any asset right and the cool thing is like Citadel sort of settles on New York Stock Exchange our infrastructure will allow them to settle on any centralized exchange any deck out there right so in some sense it allows you like a unified trading uh account that that can allow the user to trade on any sex any decks without even knowing without with with that entire process being abstracted on where the order fulfillment is actually happening so that's about it uh thank you so much for listening I know it's been like a rough week for all of us but uh here's my telegram if there's is anybody interested in D user investor Market maker anything feel feel free to reach out I'll be more than happy to chat thank you for your time