[Music]
hi everybody I'm Mariah clausman I am a
co-founder of gyroscope which is a
decentralized stable cone protocol and
liquidity protocol uh and today I'm
going to talk a bit about uh how to make
decentralized stable coins more Super
liquid and this talk is going to be a
mix of uh our work building out
gyroscope as well as a background of
academic work uh coming from our phds uh
that went into actually building
gyroscope and it's going to be a largely
high level talk uh focusing on the
concepts but also trying to ground it in
some uh some real
examples so let's uh let's take stock of
the stable coin space and kind of start
at the top so there's something like a
stable coin Renaissance right now uh but
at the same time uh usdc and usdt are
largely dominating uh the the the space
and uh what we see is there's a surge
particularly in centralized stable coins
coming to Market so this is like new
contenders like payal's PUSD uh as well
as Athena which is a delta neutral
stable coin and other real world assets
mainly backed by by T bills um and at
the same time there's also an increasing
maturity uh in decentralized stable
coins so one example is there's no more
Tera there's there's no more Fay uh and
there there's new Innovative mechanisms
that are coming to Market things like
curve USD uh gyroscopes guid which which
we built obviously uh and several more
examples but as a category decentralized
stable coins haven't really grown in the
last two years and in fact they've kind
of shrunk in that time um so the main
question we want to ask is is why and at
least one reason uh which is the focus
of this talk is that scaling liquidity
at Peg is is very hard and actually this
applies to to any stable coin uh but
particularly to decentralized stable
coins as they're set up
now so one primary challenge is
attracting any liquidity in the first
place and uh basically new stable coins
they have to attract new liquidity uh
and it Compares with like usdc and usdt
in many ways it's like an inherent
disadvantage uh because usdc and usdt
have entrenched use cases and a lot of
natural trading uh demand and pairings
which basically means that uh usdc and
usdt LPS are independently profitable
from from trading volume but when you
start a new stable coin you have to
start from zero you don't you don't have
that it's basically like a chicken or
the egg problem and it's very costly um
because the the cost to attract stable
coin capital is basically between 15 and
30% these days uh and also borrowing
stable coins uh is also similarly
expensive the second part of the
challenge is competing with entrenched
liquidity that's that's at Peg and uh
the scope of the problem becomes pretty
clear when you start looking at
historical price deviations uh and this
is something that also affects all new
stable coins so the chart here is
showing new centralized stable coins
that have come to Market and showing a
histogram of uh price deviations from
Peg for for those new stable coins and
these are pretty major players including
like Pi USD and and Athena uh and and
one thing to note is just uh how regular
the deviations of like 20 Basin points
of or more uh actually occurs for these
pretty major stable coins which adds
quite a lot of friction in terms of the
usability of these systems so from the
usability angle uh it one thing that's
very important is how easy it is to move
in and out of a new stable coin
especially with with low slippage being
very important and so 20 basis point
deviations or more can be uh make it a
lot more difficult to actually use the
stable
coin uh this is how decentralized stable
coins compare so actually you see a lot
of similar problems with a lot of uh uh
kind of like spread out pricing uh but
something that's uh that's that Sparks
some
optimism is that uh there are actually
two decentralized exceptions here um so
there's both D and gyroscopes gyd um I
guess the die is a little hidden in the
in the graphic but it it shows up very
similarly um uh and this basically just
presents some some ideas that maybe you
can actually do better by using some
advantages of of of decentralized stable
coins and then the third part of the
challenge is that it's just very
difficult technically especially for
decentralized stable coins and walk
through a few of these reasons um when
when a stable coin's price is expected
to move around uh it becomes harder to
get deep liquidity for it and this is
just a practical consequence uh you need
to spread liquidity over more prices um
and and you need to convince people to
to do that and take the risks of Market
making over that range of prices um and
why does this does this happen it
usually comes down to frictions about
the stable coin design itself so for
instance in minting or redeeming or
otherwise issuing the the stable coin uh
which can come down to things like fees
and speed of settlement uh one thing to
note is that like offchain settlement
which is what you basically have to do
for centralized stable coins can often
be very slow as can kind of cross chain
uh kind of mechanisms where maybe if you
mint on one chain but you have to bridge
to another chain that can lead to kind
of delays uh in the worst case up to
like possibly a
week uh another another thing that comes
into play quite a lot is that uh you
often have to balance the interest rate
uh between uh for a leverage market for
for when you issue stable coins in in a
borrow Market uh and the the reason here
is that the main use case is leverage
for for these sort of markets uh people
usually borrow the stable coin and then
sell the stable coin uh and the interest
rate basically has to keep the stable
coin on Peg by balancing the supply and
the demand in in that market or else the
stable coin D pegs uh and then you can
also have kind of like shocks to
underlying assets and uh various risks
uh that we actually did quite a lot of
work in in our in our research on on
this uh but but that's kind of not the
focus of this talk so uh we'll kind of
leave that to there's another good talk
at at previous deves actually if you're
if you're interested in that but let's
walk through one example here so this is
a case study of go which illustrates
both of these kind of frictions coming
to uh uh coming to fruition at different
points so the price of go has been
pretty volatile since it since it
launched this is the the pricing from
this year um and there are two main
reasons to this the first reason is that
in the the first part of this chart uh
basically there were frictions to the
interest rate borrowing the the the
balancing the borrow Market uh basically
the go to market strategy uh relied on
providing below uh below equilibrium
interest rates to kind of like
incentivize Supply uh but that basically
means that there are too many people
trying to leverage and sell and you end
up just with a with without a balanced
market and then the later part of this
chart uh is is another problem so they
they they fixed uh the the the interest
rate sort of issue and go or or changed
the the rates uh but uh there was a kind
of an excess of incentives at one point
uh they did have a like onetoone
mechanism to to Mint new go against like
usdc and usdt but unfortunately this was
exhausted and so you basically see kind
of like above uh above Peg happening uh
in that realm but then they they fix
that problem but this kind of
illustrates like where some of these
pricing issues can come
up okay let's take one step back before
we go any further which is why should we
care about decentralized stable coins
anyways um so I mean first you should
think about like from fundamentals I
think a lot of us here care about
actually like building decentralized
things we care about uh bringing too
much counterparty risk in or censorship
risk or Geographic risk or kind of like
tying to particular custodians or kind
of blocking into particular
vendors and uh this is a risk if you use
too many decent or centralized stable
coins that you're basically embedding
this into the what we're building in in
Defi and what wasn't the point of defi
basically to make things as
decentralized as
possible but if you're still not
convinced then you can just also take
the uh the Practical Viewpoint which uh
there there's a very good example when
usdc deeg in the svb crisis it basically
took down defi for for a few days
because this is how defi was uh was
constructed at the time um and in
principle we can build things that uh
that don't have this susceptibility and
and that's another reason to kind of
like build decentralized protocols that
can manage the risks in a decentralized
way without relying on a a centralized
institution to do
it okay so the rest of this talk is
going to go through a bit of uh how do
we make decentralized stable coins uh
super liquid and we're going to run
through quickly what the
state-of-the-art is including some
examples of what doesn't work and then
go through uh what we think is a better
way actually to to to solve
this so the the current state-of-the-art
focuses on two parts the first is around
designing primary markets for the for
for a new stable
coin uh and so primary Market basically
means minting and redeeming uh for a
decentralized stable coin in particular
onchain mint and redeem um and one
benefit to these decentralized stable
coins here is they can do this onchain
which means that there's potentially a
lot lower frictions than for a
centralized stable coin so in particular
you can do mint and or de atomically so
you can actually like uh kind of balance
markets using flesh loans instead of
requiring market makers to take
inventory uh and this is actually why
gyd and D in in one of the earlier
pictures uh was actually achieving a
much tighter pricing than than even Pi
USD because it has these advantages in
its effectively mint and redeem market
and another idea is you can actually
segment the uh uh uh where you need
liquidity using mint and redeem you can
basically let the primary Market handle
the extremities of the pricing region
and then you can concentrate uh the
secondary markets on the the areas that
are most important within kind of the
minting Redemption
bounds uh a slight caution here is that
there's a lot of risk to to primary
markets and and building them in the
right way and this came about as as an
example also in like the svb crisis um
there's a whole other Devcon talk from
last year actually about how do we build
these uh in the best way uh so I
encourage you to check that out um but
but yeah we'll just kind of give a quick
nod to to that here uh you should of
course be conscious of the risks that
you're building into these
systems and one other topic about
primary markets that I want to touch on
is uh what's
another version another flavor of them
that's called Os or poos meaning
algorithmic market operations and P
meaning protocol owned liquidity so
these are effectively uh where you have
something that's like a pre mined or not
yet issued uh stable coin that's been uh
deposited into a liquidity pool and
basically somebody can issue the uh the
stable coin by buying it from the
liquidity pool um and this is basically
equivalent to a mint and redeem sort of
flow but where the amm price uh the
price curve is actually providing the
the the pricing for for mint and
redeem and uh it also has the benefit of
being able to kind of bootstrap
secondary markets because uh you're
basically depositing into something that
gets blended with secondary Market
liquidity and how does this affect
liquidity at Peg well actually it comes
down quite a lot about specifically how
it's implemented and the mechanism
design around it uh for for gyd it
actually works very well and there's an
example here in this uh uh an
illustration here uh it's able to help
bootstrap liquidity at Peg very well um
but there are also cases where this
doesn't work very well and it comes down
to a bit about either bad design or
possibly kind of like miscalibration
about exactly how the how the flow
Works um so a quick case study about
that is basically digging into what
happens in
fraxos so in a frax Amo uh there's some
injection of like this printed frax into
curve
pools um but frax tends to trade below
Peg like kind of despite this mechanism
trying to to support it and what you end
up is with is basically pools that
aren't optimized for kind of the pricing
of of fracks which you can see here you
can see something about like the density
of uh liquidity in in these liquidity
pools versus uh the actual histogram of
where prices are are
trading the other side here is secondary
markets
and I'm kind of going to Breeze through
this a bit um but the main idea is that
you can kind of optimize liquidity
density um by instead of picking default
calibrations for a liquidity pool making
something that's much more customized
for the actual prices that you want to
incentivize as a stable coin and the
graphic here kind of illustrates the
concept that if if you can that you can
basically squeeze more liquidity out of
your liquidity pools if you can uh kind
of identify the right bounds and also
like focus in the right ways um and
we've done this quite a bit as part of
of gyroscope there there are a few
examples um but I'll Mo mostly leave
these here for for later reference this
these came about from uh uh our work
calibrating gyro pools um but there's
many examples where you can just get a
lot better kind of liquidity profile uh
by making a much more customized pool
than by using kind of like
a a default stable swap
pool and this chart also kind of walks
through
that it actually works by kind of like
comparing Capital efficiencies but we'll
also leave this uh you can check out
check uh check on it later if if you're
interested what I want to spend the rest
of the presentation on then is what we
think is a new way to solve
decentralized stablecoin
liquidity and kind of the motivation
here is that there's a there's a unique
ability to decentralize stable coins and
it's that you can issue in new ways that
wouldn't really have been possible in
central stable coins and so the classic
example here is something we just saw
actually uh for like protocol owned
liquidity and andos uh a centralized
stable coin just can't do this it can't
issue new stable coins in this printed
sort of way uh so so that shows that uh
that it exists but the idea we want to
pursue is like can you build on this
flexibility in a new way that might be
more efficient and might also be
safer and so this is where we want to
announce what we're actually building
next in gyroscope uh our V2 um this is
actually the first time we're talking
about this mechanism so you kind of
follow us if you want to hear kind of
more about where this is going uh but
I'll try to give you a little flavor
quickly so uh it builds on a concept
that we call duplex yield and I'll
illustrate this what this means in in
the next couple of slides but this slide
gives a general overview about like what
sort of Market is is being set up so on
one side of the market we have idle
asset holders so this could be something
like Bitcoin holders lrts uh or other
kind of like top yield bearing positions
already these are earning what we're
calling this duplex yield and it can be
also be earned on top of other yields
the other side of the market here is uh
asset asset issuance protocols so stable
coin issuers being one example you could
also consider like LST
issuers uh and what they're trying to
get out of this mechanism is cheap
scalable liquidity for their assets uh
and possibly also unlocking a new
Revenue line um but an important thing
at the same time is that you also have
this third group actual people who are
using your stable coin and we want to
make sure they're shielded from risks we
uh and and this is through an idea that
we call duplex
collateralization so let's dig into a
little bit about what this means I'll
give you a little intuition so uh the
most efficient way to Market make is
often to borrow assets as opposed to
holding assets on the book and duplex
yield essentially is coming from a more
efficient way of Market making stable
coins through kind of like an optimized
borrow like mechanism instead of
requiring LPS to hold it on the book and
it works through something we call a
secured swap line um so this creates
basically an ability to exchange one
stable for another and it's insured with
with a collateral position and the idea
of where lower cost is coming from here
and efficiency is that uh you can
actually through this mechanism use
something like Bitcoin which has a much
lower hurdle rate lower cost of capital
something like three to 5% uh in to to
Market make stable coins instead of
requiring the uh the hurdle rates of 15
to 30% if you're actually holding the
stable coins on the book and you can
stack these yields on top of each other
so we actually think the future yield
stack will look something like this you
have all of these different uh staking
yields already and the most effective
yield we think will add this duplex
yield this Market making sort of yield
on
top and so the idea is uh I mean being
more specific than the intuition is to
streamline a sort of borrowing mechanism
uh that is restricted to codified Market
making um main idea here is that you can
basically uh price discriminate between
the leverage Market which uh ends up
having very high borrow costs because it
has to as we saw in the previous slide
it has to balance the supply and demand
of the of the leverage Market there's a
lot of demand for leverage um but you
can price discriminate uh between this
leverage market and other markets like
this uh sort of Market making market and
that a decentralized stable coin can do
this in a uniquely low way because it
has this flexibility about uh about
issuance and also wants to Foster
liquidity for the
asset so this slide walks through kind
of how a secured swap line actually
works
um I'll only be able to give a quick
flavor um but you can check back in on
it later and there'll be more
information coming out as well um
there's kind of like three stages to it
you start with the idle asset that uh
that you want to earn a yield on so
something like
Bitcoin you have stable coin issuers who
jointly issue against this
Vault so uh these issuers May set their
own interest rates possibly zero if they
want to incentivize or possibly not if
they want to uh kind of risk
control and uh B could also be borrowed
elsewhere by the way so you could also
pair with usdc you just don't get as
many
advantages and then effectively what's
happening is that the these A and B are
being provided in a secondary Market
people can swap through this um and at
the point where somebody is swapping one
asset for another uh these sort of like
printed stable coins get backed by the
asset that's swapped into the pool but
they're also backed by the collateral
and uh the collateral provider is being
paid for this which is where this yield
is coming from and the market making
losses basically are being insured by
the collateral uh and so not taken on by
the
protocol and then there's this is
enforced by liquidations and then there
are various properties you can get um so
uh one nice thing is that you get all of
this uh efficient liquidity but you
don't have to trust kind of each other's
assets as like stable coin issuers and
you also don't have to trust market
makers uh and you can also get
conceivably very high Capital efficiency
um so up to $20 of liquidity for $1 of
tvl basically if you want to take on
that risk and if you don't a protocol
can set it up
differently so that brings us to kind of
the end of the talk um there's kind of a
few main takeaways here um but I'll just
leave this up and uh we can open it up
for questions
okay how Okay so for our favorite and
the most important part Q&A please use
the QR code and you can also upvote the
questions okay the first one will be
will fully algorithmic stable coins
possible in the
future so I think here it depends what
you mean by algorithmic a lot of people
mean algorithmic to be unbacked uh which
is not the kind of stance we want to
take um we think a stable should be
backed and and fully backed uh but if
you mean algorithmic in the sense of
being automated then we think yes and
that's how we designed gyroscope to be
basically as automated as possible but
yeah I wouldn't be very bullish about uh
algorithmic in the sense of uh being un
asset-backed I mean I think especially
after Tera that's just obviously a bad
idea okay next question why so much
hyper around Athena could you explain
what Athena
is yeah so Athena is basically
a tokenized what's called like a carry
trade so you're kind of taking a hedged
position um and it it it takes kind of
two sides to to to a leverage market and
it's the leverage Market on centralized
exchanges which get like a lot of
demand and you're basically earning a
yield through Athena when there's excess
demand for leverage and you're kind of
helping to facilitate that leverage uh
and so Athena yields can be very good
when there's really high demand for
leverage but they can also be low or
possibly negative when the the demand
for leverage goes down a
lot okay and then when issuing a printed
way it's like latent liquidity meaning
you stock up the place smart contract
with the tokens that once bought by a
user become
real so the preting idea is uh basically
an extension of how uh how Amo work
today I suppose you can fill a pool um
with basically UNC circulating stable
coins and the idea is that they would
enter circulation when somebody actually
buys them from the pool which is why
it's kind of parallel to like a a
minting mechanism and can be thought of
as a minting mechanism um but uh you get
kind of the efficiencies of of being on
a secondary Market um I I hope that
answered the the question
okay and who are the issuers what
capital they
need so the target issuers for the
mechanism we're building for gyro V2 is
decentralized stable coin protocols so
the issuer is really like the the smart
contracts or people like are free to
almost issue themselves by using the
smart contracts um it's possible that it
could also be used by like some other
issuers it's just that like centralized
uh stable coins in particular usually
don't have this flexibility and so they
may not even be able to entertain it um
but then the stablecoin the
decentralized stable coin issuers what
they really want is to like get very
good liquidity without taking on a bunch
of risk for for their protocols uh which
is why we kind of made this like duplex
collateralization mechanism where the
aim is to get kind of like the very good
properties you might be able to get from
something like OS and protocol own
liquidity even if it's on much more
risky pairs
but where the protocol and the the
normal users of stable coins get an
extra layer of protection um and if
something happens uh it's uh insurance
that kind of like covers the
costs okay so our last question will
spin your government governance token
ear part of
fees that's the killer question I guess
isn't it um and there are routes I
suppose to doing this uh but it depends
on kind of governance selecting the
right route
okay we have 10 more seconds do you
think CX integration in cctp like
mechanisms will help adap and stability
of decentralize bit coins yes uh so sex
Integrations I think will be very good
in terms of sourcing new users because
people come through Sexes and
CCT across chain uh easily because it's
a kind of an issue if you have to wait a
month month or sorry a week all the time
to kind of like
Bridge okay thank you very much Ari