foreign
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Valeri I am a smart contract Dev at the
Ave companies I've been there for about
a year and a half have worked on
um some things like our cross-chain
governance Bridge our V3 deployment and
most recently I have been spending time
working on our stablecoin project go
um and I'm really excited to tell you
guys all about that
um but before I get into go I kind of
want to take a step back and walk
through the current stablecoin landscape
and in doing that I think that will give
some helpful context as to you know what
is go and how it fits into that broader
ecosystem
um and I don't know if who else was here
for the previous talk but it was a great
talk about Rye which is a stable coin
and I think it perfectly kind of
highlights why understanding the
landscape is important because what the
heck is a stable coin there's so many
things that fall under this definition
that it creates confusion it creates
risk
um and you know just saying that you're
working with a stable coin isn't
sufficient to understand what the heck
type of asset you're working with
so let's try to answer some basic
questions around stable coins and I
think we'll pretty quickly identify uh
why it's so challenging to understand
what people are talking about so what is
a stable coin
um I think at the broadest level you
could say a stable coin is an asset that
attempts to maintain a stable price I
think very commonly we're seeing Peg
stable coins so they're pegged to
some other assets value most commonly I
think and most dominant in the market is
US dollar Peg stable coins
but we're also starting to see stable
coins that are pegged to other FX uh
tokens
um and there's also tokens that just
aren't pegged so again Rye is an example
it's a stable coin but it's not pegged
to a specific price so it's a token that
aims to have less volatility but I think
generally at this point if someone were
to say yeah I traded into a bunch of
stables you would probably assume that
they're talking about a US dollar pegged
Staples uh how does a stable coin work
we answered one question of what is a
stable coin and I think here at a second
question it's pretty obvious that
there's not really a straightforward
answer it depends it's totally different
depending on the type of asset that
you're working with
um and you know this creates some
challenges and presents risks right if
you just assume that the token that
you're using is in fact stable
um and without understanding how the
underlying stability mechanism works or
other risks that are present in that
asset you know you may be taking on far
more risk in your portfolio or whatever
you're trying to do than you're
intending
um so yeah again just these things are
so different you can't compare apples
and oranges
um you know to the you know users here
who know it die and usdcr if you were to
ask them you know are these the same
people would be like no very different
um and I thought this analogy played
very well and I've just realized that
I'm going to in fact be comparing stable
coins throughout this presentation so
maybe not the best analogy
um
so let's take a look at the current
landscape
um as you can see here the one-to-one
backed centralized stable coins are
totally dominant uh you can see tether
usdc busd
um are in the tens of billions in terms
of market cap
um just kind of totally Far and Away
dominant
um next in line is die so dye is a
decentralized over collateralized
cryptocurrency backed stablecoin
um and that's really the the next leader
in the pack and definitely the leader in
the pack in terms of this type of asset
um you know there are other types there
are other Assets in this category
um like MIM magic internet money uh and
then go uh aves uh Native stablecoin
which were
um developing will fit into this
category as well
um also here there's other stable coins
that have uh much smaller market caps
but are using new stability mechanisms
things like fracks things like Rye which
we'll talk about as well
um and these things are just so
different
um that you know even having them in the
same category presents challenges and
talking about them and comparing them
um you know and trying to use them for
the same purpose
um so one other thing I'd like to call
out here and I think that's probably the
biggest example of why this stuff is
important is an asset that's not
included here which is uh UST so the
stable coin associated with the terror
project
it was approximately 18 billion dollars
worth of value at its top market cap
that has essentially disappeared right
and that is comprised of users and
people it not really double clicking
into what is this stable coin how does
it work what are the risks how does it
compare to other stable coins
um so I you know I think that's kind of
the ultimate example of why we're even
having this conversation around you know
well what really is a stable coin we
talked about those top three
um they're one type of stable coin which
is a centralized one-to-one backed
stable coin
uh examples are usdc usdt
busdt-d true USD in this case they are
generally Assets in which you trust a
centralized institution to custody in
the case of a US dollar Peg stablecoin
one US dollar per each stablecoin that
they Mint or issue there's caveats
around this though right you're trusting
them to uh maybe hold about one uh
dollars worth of Assets in their reserve
for each thing that they meant uh and
you're you're also in some cases
trusting them to hold about one dollars
worth of US dollar equivalents
um so again you know per each of these
institutions
um and their processes and how they work
you know kind of double clicking into
what this asset's actually backed by is
it one to one what are they doing are
they using treasuries
um is important
um so here we can highlight some of the
risks of working with an asset like this
um you know obviously it being
centralized is to some extent counter to
the general decentralized ethos of
blockchain environments
um and in having this trusted entity we
take on risk right we're trusting this
entity to be managing their reserves
appropriately right like they aren't
just investing all of that reserves into
risky assets
um so that's very important to mitigate
this some companies are using audit
firms so center with circle they hire
Grant Thornton top five accounting firm
in the world to publish uh reports to
give users confidence that they have
reserves of US dollars US dollar
equivalents that are equal to or more
than the amount of value they've issued
on chains
um another risk you're taking with this
trusted entity is just generally
um you know how do they function as a
business you could think of things like
I.T security right who has access within
their systems to make transfers for
their reserves this is something you
know kind of basic but very important
um and then I.T security specific to web
3 who has access and how do they manage
their wallets that can make really
important transactions uh or freeze
users
oh one other point on the
um Reserve ecosystem and getting
confidence that these reserves are
backed true USD instead of having an
auditor has introduced an or a solution
with chain link called proof of reserves
in which they have oracles that report
the status of all of their accounts so
by doing that the system can never mint
uh more
than you know the reserves that they
have so that's another interesting
solution and you know attempt to give
users confidence that these assets are
in fact backed and redeemable
um another risk here in trusting this
institution and entity is that uh these
these stable coins often have the
ability to freeze uh and address or it
could also be a pool and in doing that
you know you could potentially lose
access to your funds at the discretion
of these institutions of course there
are times when this makes sense right in
the most recent BNB hack tether was
quite early to freezing the hackers
funds but you know you're dependent on
this institution making the appropriate
decisions in the future which you might
be hesitant to do so the next type uh
decentralized over collateralized
crypto-backed stable coins
um the most obvious example of this is
dye there's also magic internet money
um each of these
tokens gets minted that's minted is
backed by crypto collateral this can be
you know ethereum with Bitcoin
um other one-to-one stable coins
um and when they in order to Mint them
you need to deposit your collateral to a
Smart contract so this is a clear
difference from the previous example
this smart contract is on chain you can
clearly see and have confidence that the
smart contract holds enough assets to
collateralize the stable coin which has
been minted
um you also have confidence around the
rules in which the system works the it's
controlled by a smart contract
um
which uh
uh is open source software right you can
see the code you know how the reserves
will be handled so you know you have
confidence around
um how that will work
um
in addition to the smart contract in
some cases you have certain parameters
within the system that can be
configurable
or it could in fact be an immutable
smart contract so once the system's
deployed there's no configurations to
change I think more commonly most of
these systems have a few configuration
variables at least
um and these are often set by Dows which
is a decentralized set of token holders
hopefully incentivized to maintain the
stable coins Peg
and this encourages and and helps uh
de-risk the fact that and and not be
dependent on one single entity uh for
the stability of the system that being
said these also have a lot of risks
um just because you move away from some
of those centralized concerns
um there's still risks with this
different type of asset
um so first of all there's the stability
mechanism how does this token maintain
its Peg
so some common ways in which this is
done uh is an oracle within the system
that's responsible for telling the
system how much this stable coin is
worth gets pegged to one dollar and
that's regardless of whether the market
price is you know above one dollar less
than one dollar and by doing that it
creates Arbitrage opportunities in which
uh which helps stabilize the
um token and if we have time later we'll
talk through some examples of that
um additionally interest rates can be
used so you can help manage the supply
of the asset based on interest rates
with high interest rates people will be
paying back their positions which will
decrease the supply impacting the price
same with low interest rates if you have
low interest rates more people will be
interested in taking out positions
increasing the supply again impacting
price
another risk here is the collateral
that's being used for this decentralized
cryptocurrency backed stable coin the
stability of the token and you know its
collateral is dependent on the value of
its collateral so if a in some cases
those all the risks of the collateral
come through and are present within the
stable coin so for example we said we've
de-risked these types of coins by
removing the centralized entity and how
the system is controlled but that being
said while there's collateral
um that backs a decentralized stable
coin
um which is a one-to-one centralized
stable coin
um you know you're still exposed to
those risks of how that centralized
entity is managing
um
their stable coin Additionally you
generally don't want volatile assets you
would like assets that are relatively
stable in order to minimize the amount
of liquidations that are required and
reduce the possibility of having under
collateralized positions within the
system
I think that gets to flash crashes
um
again around
the price of your stable coin when you
have an over collateralized stable coin
you need the collateral to be worth more
than
um your the amount that you have minted
uh over time generally if assets if the
price of assets decreases uh that are
your collateral that's okay there's
liquidation processes in place in which
someone can come they'll pay off your
debt and they get your collateral and
the collateral is worth more than your
debt so they make out a little bit of
extra money
really where a risk comes into play is
if the price of your asset crashes the
collateral asset crashes so quickly that
Liquidators do not have time to perform
those Liquidations in that case you
result in under collateralized positions
which likely result in a deepeg of your
coin
um again we talked about you know
there's different aspects of these
protocols that are configurable so
making sure that a it's configured
appropriately and the per the person or
the entity or Dao who is configuring
them is knowledgeable in the space and
is making informed decisions is
important and then finally there's smart
contract risk right there's always a
risk that there's going to be a bug in
the code you can do as much as you can
to try to eliminate and mitigate this
risk from responsible development
practices internally internal reviews
external audits which I think we see
throughout the space yeah so you know
you can do as much as you can to try to
reduce the risk of smart contract bugs
but at the end of the day they'll exist
in the space
so briefly other types of stable coins I
think we already can see there's a huge
difference between one to one backed
centralized stable coins decentralized
over collateralized stable coins and now
a couple of others that I hesitate to
even try to name what type they are
because they're so different and
function you know very interestingly so
one is fracks frax is a stable coin that
is partially backed by collateral and
then also partially maintains its
stability through algorithmically
obviously that's quite different than a
Dye or usdc or you could look at Rye
which is a stable coin that is not
pegged to any specific asset uh and its
stability mechanism Works through
understanding the reduction rate so how
often are people taking out positions
how often are people repaying their
positions and based on the rate under
which that is occurring the price of the
asset will slowly vary one way or the
other
um and you know this isn't to give you
you know a full understanding of what
these systems are and how they work but
it's to say these are totally different
types of assets that we're talking about
in the same category of stable coins and
you know now if you go to think about
stable coins or work with a stable coin
you should say what is the stability
mechanism how does this actually work is
it Peg does it not pegged it's more to
you know kind of promote that thinking
of what
what are the risks of this coin and is
it actually going to maintain its
stability cool
um so now I get to talk a little bit
about go which falls into that category
of decentralized over collateralized
crypto-backed stable coins and it will
fit natively into the Ave Market
so one thing we recognize that Ave
looking at our existing liquidity pool
uh protocol was that there's a lot of
functionality in our General market that
would be required for this type of
stable coin you know things like
depositing collateral things like
liquidation processes these things exist
within the Ave protocol and also are
exactly what you need to facilitate a
decentralized stable coin so I think
that's something that's really nice even
on the development side is that go fits
into the existing Ave market so a lot of
the processes and you know ways that you
will interact with it should be very
familiar to interacting with go it's
really a new custom asset that's getting
added to the market
um so you know while there are
differences in the implementation and
we'll go through those you know in some
detail
um at a high level when you go to
interact with Ave and borrow go
uh it's pretty much the same as
borrowing another asset you deposit your
collateral you borrow go uh you hold it
for some amount of time it accrues
interest and eventually you pay it back
so that's pretty much the same process
as any other asset
um
that being said when it gets added the
way that this asset is configured has
differences and the differences are what
help it maintain its stability
um so so let's walk through those
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um
the first is that this asset isn't
supplied to the market so if you think
about borrowing some other asset you
know if you deposit with and borrow
wrapped Bitcoin somebody else has to
have deposited that wrap Bitcoin in
order for you to later borrow it
um in terms of go
that's not required when you deposit
your wrap teeth and borrow go nobody has
to have deposited it instead the
protocol reaches out to the go uh
contract and mints that go on demand
um same goes for when you repay that go
is actually burned rather than going
back to the suppliers
the Oracle price is fixed to one dollar
so of course other assets the Oracle
reports the actual market price so that
the protocol knows you know how much
value is this asset how much can you
borrow against it you know maintaining
that over collateralization
in this case go is pegged to oneusd
despite what the market price is so this
helps maintain stability it creates
Arbitrage opportunities say the price is
above one dollar in the market when the
protocol thinks it's just one dollar you
can mint a bunch of go uh you know that
is debt at the cost of a dollar you can
sell it at the market say for a dollar
and five cents that increases Supply
which should reduce the price and then
eventually you can buy back that go at
one dollar pay back your dollar debt and
you know five cents on the dollar is
arbitrage stability mechanism and
difference in how this asset works is in
its interest rates
uh normal assets uh the interest rates
are based on the utilization of a pool
so you know if you have a hundred uh
tokens supplied and 10 of them borrowed
the interest rate will be relatively low
if you have a hundred tokens supplied
and 90 assets borrowed the interest rate
will be quite high in this case there
are no suppliers so interest rates work
differently to start interest rates will
be set by governance and again this
serves as a stability mechanism
you can increase Supply by reducing
interest rates and the inverse holds
true as well another difference to
highlight is that interest that accrues
on positions will be repaid to the Ave
governance so rather than having to pay
suppliers because there are no suppliers
that interest can be redirected some
other differentiating factors for this
token uh is that discounts are available
to users who stake Ave in the safety
module so you know if governance has set
the interest rate to three percent by
staking Ave you can get some discount on
that interest
there's also a multi-collateral
positions so you have the flexibility to
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um
use different assets as collateral
within the same position this is
different than dive where you have a
single Vault you have one collateral
type so this introduces a little bit
more flexibility for some use cases that
might make sense where you know if you
need to re-up your collateral you don't
necessarily need to swap between assets
to fund that position
and then thirdly you can earn interest
on these positions so by supplying your
collateral to the Ave protocol
um other users will be borrowing it and
you'll earn interest on that which
effectively reduces the interest that
you're paying uh on your borrowed
positions
we highlighted in a lot of the earlier
part of this talk was around risks right
so let's talk through what are the risks
here and how are they mitigated in the
Ave market so collateral Asset Risk
um
the Ave protocol has a pretty strong
history of being relatively conservative
and effective in managing the assets
that are used for collateral and you
know setting the configurations around
those so making sure you have safe uh
over collateralization ratios
Etc similar goes to the flash crash risk
this risk exists but we've seen that the
Ave protocol is
a relatively resilient Market
that has gone through pretty turbulent
uh times already
again protocol configurations pretty
similar to Collateral Asset Risk where
you know we work with the Dow the Dow
works with gauntlet
um and it was relatively conservative
um
there's the smart contract risks and
stability mechanisms I think we've
covered those enough
so when go uh soon TM there's a few
dependencies in governance right now
including deploying the V3 Market
whether we'll be upgrading the V2 Market
in place or deploying a new market for
V3 so there's some dependencies around
that
which will uh
as soon as those are done we'll move
we'll look to move forward with go
and goes future
um you know we're hopeful that uh we can
move go to l2s I think we think there's
a really large opportunity there with
lower fees
um to you know have this as a token
that's used widely both by crypto native
users and
um you know more of the general
population
another interesting functionality is
that we have facilitators so
um go Ave is the first facilitator of go
which means that they have permission to
Mint
um more go
and
in the future Ave government I'm getting
the times up folks to talk fast uh Ave
governance can add additional
facilitators which will have the ability
to uh mint go uh
if they are approved so obviously
there's a lot that goes into that a lot
of reviewing I think that will probably
be more long-term but something cool to
look forward to
that's it thank you guys