foreign
[Music]
Finance I'm technically the CEO but I do
a lot over there and today we're
generally going to be talking about eth2
and the way that we can really use D5
products to kind of amplify both the
Securities of the ecosystem generally as
well as just the attractiveness of what
we can offer in defy itself so to start
really what is block space right
block space is generally just a
reservation of some computation space on
the ethereum network for specifically
the mutation of state right so generally
speaking when you try to submit a
transaction it's going to require a
certain amount of computation and you
then must reserve a certain amount of
block space of course to transfer those
funds or whatever you're doing
also generally speaking right this is
supplied by validators in eth2 it's
applied by miners traditionally and the
demand really then just comes from
purely user transactions or Arbitrage or
whatever it might be right so yeah going
towards demand you see that generally
speaking it actually is insanely
volatile right it's very difficult to
predict demand there are a number of
just confounding factors that continue
to screw up any sort of models people
have made and really at the end of the
day this volatility is fueled by
mutually extractable opportunities right
Whenever there is volatility in the
market itself there's liquidation
opportunities Arbitrage opportunities
Etc Whenever there are nft drops like
that massive one up to 450 gas for an
entire day
um it just and it screws things up for
really how people must price and create
instruments around the eth2 market on
the other side right we see that Supply
is kind of weird right you you have an
increasing number of validators and this
will continue to increase it really
hasn't started to plateau in my opinion
yet but on the other side of that right
the actual block space within a given
block is actually static so you really
look at this and kind of have to think
of it in two ways right and and when it
comes to uh the factors of block space
right you have to look at a number of
things that will impact the yields of
the validators and how that really uh
makes the product attractive to them
right you kind of have to make things
financially incentivized
um so then the question comes right when
you're looking at block space in these
supply and demand factors how can you
actually properly price these right to
start obviously everyone knows what base
rewards most people actually don't know
that this kind of it does shift
depending on how much demand there is
within a short period right so if a
block is full there's more rewards in
the next block and essentially they just
try to to move around on this direction
um but on the other side of this right
what most people are most familiar with
is just purely uh the fees that you pay
right if you want to get a transaction
through in a reasonable amount of time
you have to pay a fee and I mean the
important factor is really that this has
been very clearly an increasingly
impactful mechanism over the past few
years right you cannot really look at
purely any of these base Rewards or
other factors alone you have to really
get abstract with your thinking so on
the other side of that right you can
also disincentivize negative activity
um and this really just introduces more
risks for validators than uh really
people recognize at this point in time
right
there's an entire row of of blocks that
were entirely uh completely destroyed in
the past
um and realistically you end up having
to to sorry I actually did the wrong
slide next one
um you end up getting slashed and and
and a validator ended up getting slashed
I think on about 20 slots in a row
um so it's pretty horrible this happens
and there are real risks there that
users must kind of accept really at the
end of the day as well okay on the
demand side or rather the the apy that
you can earn in the yield
um we're seeing increasing amounts of
this not coming from the traditional
mempool tips and Etc but large blocks
that are proposed by off-chain relays
primarily flashbots right in a row here
right you have about 20 or no I think
that's about 10 within about 100
transactions I know actually that's only
about 20 blocks and really these
transactions allow people to do a lot
and particularly right as a validator
it's themselves you can begin to
actually extract these opportunities
from others
interestingly we haven't seen a lot of
malicious validators do this yet but
that also does present a risk right and
the final Factor right when you talk
about pricing block space has to be
dilution
generally speaking again I said that
this isn't plateauing it's very
consistent because there's a certain
amount of validators that can actually
be introduced per day and at the end of
the day we've seen that over the past
year year regardless of increases of
yield based on you know Mev and the eth2
merge validator yields have actually
just been diluted by 50 if this
continues right we will see yields
crunch but you need to introduce more
incentives for this to continue right
you need to ensure that the the network
is secure and you do that by continuing
to introduce incentives for these
parties so at the end of the day really
what is the massive risk whether there's
going to be demand and that and for
pretty much every Factor other than
slashing demand is just a function for
it right so then when you actually try
to apply this you get this massive
formula where effectively you have the
base fees the fees themselves nav and
tips and as well dilution all really
kind of dependent on on demand as well
as these time factors right if you know
that six months from now there's going
to be a five percent yield well you can
actually predict things pretty
accurately however if this is going to
be massively volatile over that time
period you need to actually do some
pretty complicated stuff in there right
so the question becomes why right
there's all this math there's all this
honestly this crap involved in trying to
do this
um why actually create products that can
can do it and at the end of the day it's
really because you can create validator
experiences that honestly exceed
anything that is available today
so getting into really how you do this
right what are block space Capital
markets
at their core block space Capital
markets allow users to take the future
yield that they might generate on some
amount of block space that they can
commit and sell that to other people to
reserve today whether that's in direct
reservations like Eden Network whether
that's through peer-to-peer transactions
directly like alchemia or whether that's
through larger validator pools and
everything like Lido and Etc through the
stack of swivel and on our end I think
that some something that's very
important to note right we split up the
components into yield tokens and
principal tokens so
if you took a a deposit on Lido and you
instead immediately gave it to us we
would take that deposit we would split
it into those two components the yield
tokens representing the yield that would
actually be generated and the principal
tokens representing your actual deposit
itself
and allow you to actually trade those
right so the most common use case there
is then well I want to trade away my
yield tokens that future yield to
somebody else and the result really is
that as a Staker you then are completely
insulated from any slashing risks any
dilution risks any volatility and on the
other side the party is effectively
leveraging massively on the rate right
you can either hedge your costs if you
are a validator yourself you can hedge
variability or I mean at this point in
time rate the gas price is literally on
on a regular basis down to two you could
speculate that it will increase over the
next year right these are very very
important dynamics that are standard
honestly in almost any commodity but for
some reason right now they aren't really
in eth
but then okay there are multiple designs
to do something like this
and the question really becomes what can
we do with these designs right you have
a base layer of staking to then and
continue to increase the capabilities of
your validators and in doing so increase
the safety of your network
and the question then comes in okay what
are the things you are looking for and
really at the end of the day it's
composability
you have the ability with these sorts of
uh maturable instruments that are
designed about around block space to
create composable instruments that are
continuously re-hypothecated the first
examples being just composable principle
tokens right I mentioned that this
mechanism creates principal tokens at a
redeemable one for one this is extremely
important because this is a mechanism
that is shared by about 10 protocols
this then introduced the ability for
hyper composability across a number of
different yield generation sources
ensuring that there is liquidity for
these markets and they can continue to
be built upon
so let's say they can be really been
looking back at the two different models
okay well how can you continue to build
on top of them
alchemia is a very popular project that
is working this direction they take
individual validators and they ensure
that those validators can find
counterparties to purchase effectively
those yield tokens
these these Agreements are again
individual validators and they all have
unique maturities
which effectively means that they are
completely non-fungible they cannot be
rehypothecated generally and you cannot
really trade them on secondary markets
the upside being of alchemia I don't
want to just crap on them you know you
can address this Market of individual
validators and there are a lot of
bespoke validators out there
however right if you want to build a
more composable product you can combine
these sorts of things with Lido with
rocket pool and instead of having an
agreement that goes directly from
validator to a contract buyer you route
that liquidity through a third-party
validator that is composable like Lido
light rocket pool and then through them
you actually create this contract
and by doing that right you then start
to have the ability to create more and
more interesting instruments
a first example this is a friend of our
protocols they they let people take
those principal tokens and borrow
against them at extremely high ltvs
around 90 to 95 percent
in context that represents the ability
to leverage on the stake deal way for
way more than anyone really ever would
it allows you to continue to hedge in
many directions and at the end of the
day it continues to provide utility to
these stakehill products that allow you
to make more composable interesting
things
this is probably my most exciting slide
or the one I like most
there are really a ton of advantages
native to D5 for fixed maturity
instruments that are not replicatable in
traditional Finance primarily the
ability to like I've said re-hypothecate
atomically
and in the context of these maturing
instruments a principal token let's say
you have in this case a hundred or a
thousand principal tokens maturing on
December 31st can then potentially be
used as collateral to underwrite options
right in this case again you'd take that
principal token you know it's maturing
on December 31st and you would find a
counterparty that would accept that
knowing that they would also have that
face value at December 31st as well
again this is a completely unique market
for D5 right try going to a bank with
your bonds or with your T bills that you
bought this year at four percent right
that everyone's bragging about and
asking them if you can underwrite some
puts or anything with it right you will
find that they will laugh you out the
door and it's like it's just kind of a
joke to them
um again I think this is probably one of
the more exciting things going on right
now the ability to take these assets
that really are only traditionally used
in one way and to combine them into
these these Structured Products that
allow you to utilize them further in
this case specifically you have the
ability to lend stake yield right you're
capturing the the base yield the Mev the
tips you're capturing it just everything
from eip559 if that was happening you're
capturing a lending yield on another
protocol and then in addition to all
that you can capture an options View and
going further down that rabbit hole
right here's another protocol that is
another friend of ours where they
effectively create expirable Futures
products it's honestly kind of
complicated how they do it right but the
bottom line is they they use fixed rate
markets that themselves can be backed by
youth consensus to create these
expirable Futures and in context it's
actually very interesting because the
most common use case of expirable
Futures in fact is hedging options
um so at the end of the day you actually
are already seeing this this symbiotic
ecosystem where users are able to hedge
regular just trading markets in both
directions while getting additional
yield and all of these list liquidity is
then routed through the base eth
consensus layer that's that's the big
conclusion I'm trying to to push right
is that at the end of the day
composability is the king thing or the
largest thing that you can do to ensure
that the eith consensus is secure and
beyond that ensure that users are
continuously attracted towards these
products right I think that we have an
extreme opportunity to at this point
capture the attraction of people that
really at the end of the day are more
oriented to Trad Phi uh the big
statement that is always said is that
you need to create a user experience
that is 10 times better to onboard them
from one platform to another and really
only these defy Unique Products will be
able to do that
um so yeah that's really the point at
the end of the day every derivative
instrument in D5 every pretty much
everything other than perps will be
being routed through eth2 and at the end
of the day as well this will all be
being routed through these fixed rate
instruments
I'm Julian I'm the founder of swivel
Finance so feel free to reach out follow
me and or join our Discord at discord.gg
mobile file for just swivel
um yeah that's it any questions right in
the right in the beginning you're
talking about
validator supplying block space yeah um
but the block space remains constant
throughout like you said so would they I
mean so how do how do you define as I'm
supplying it as opposed to like them
constraining it or selling it the end of
the day while the block space from the
demand point of view is static the
suppliers are still competing to be the
one that actually provides it if that
makes sense right so when looking at
pricing this future yield it'd be ideal
to just have exact metrics for Block
space directly in a given block but you
really have to be looking at heuristics
right
um gas price and all these things and
you know in in context it's just about
you know kind of trying to get anything
you can to just derive the the base
block space rate like something that you
should try to price and sell your yield
at uh so you mentioned uh block space
and uh those markets how does the
fungibility of blocks block space uh
make pricing harder
it's extremely difficult to honestly uh
create any markets without fungibility
honestly we were looking at creating
swivel initially with a sort of
non-fungible agreement similar to
alchemia but when you start to do this
you Silo off liquidity and users are no
longer able to compare kind of what one
other person would do for it right at
the end of the day most pricing is
actually rather subjective and you need
contextual markets in order to price
things right
um I talk about this a lot more in
reference to just the fixed rate space
in general is extremely important to
ensure that maturity is themselves
differentiable for even these symptoms
these sorts of similar activities
uh the distinction that you you've
noticed which is that for these kind of
like splitting and like
re-hypothecating
um future staking yields uh kind of
requires going through uh you know
central-ish validator of some kind
generally speaking is there any way
around that like is there a world in
which we can create uh fundable claims
to like individual homesteakers a I need
to hope that honestly Alchemy is working
further in this direction
um it's more difficult than one would
think I'm sure right because you
actually then have to actually you have
to create the infrastructure between a
validator client and some dap and
honestly I don't think anyone is doing
that whatsoever yet
um
really it's going to be a difficult
problem for them to solve I think they
can you know create more fungible
markets it's kind of the way I put it by
by forcing people to use a certain
maturity and only trading within that
right
um but at the at the end of the day I
think it's more of a technical problem
than a market Design One probably
would the return profile and the
volatility of the split out yield aspect
of it not just mirror ethereum anyway
it would yes that's the point and when
you if you split away your ethereum
you're not it's not going to do anything
what you need to do is find a
counterparty to buy the the yield token
the split away yield that you're going
to be earning over some future date
right
um and that's why again it's very
important to try to create these markets
that are fungible in liquid otherwise
it's it becomes increasingly difficult
to actually find these counterparties
and then as well right if you don't have
a secondary market for anyone to sell
anything on it's impossible right so you
really need really answering your
question you just you're selling you're
selling those yield tokens to another
counterparty and that person is going to
be the beneficiary of whatever eats
staking and Etc yeah