I think the problem that a lot of these different applications or depths have faced is that they weren't able to reduce their cost of capital faster than the rate at which their emissions trailed off. So a lot of these applications are subsidizing their yields by issuing their own incentives in the form of their governance token or Dow token that gives their users a a vested upside in the protocol or the protocol
treasury. Really the idea of Turtle was how can I leverage the collective liquidity and bargaining power of numerous LP's and liquid funds at the same time to negotiate better deal and sort of incentives or upsides on behalf of the entire community.
And if they interacted with any of the partner protocols that had a kind of a liquidity offering in place, the Turtle Dow would start issuing rewards directly to these addresses of ELP's of ours that essentially conducted those activities that our partners deem valuable enough to start paying the Dow for. It's a much safer way for us to essentially back the activity of all of our users and and pay them additional boosts from the partner protocols that we work
with on the upside. Welcome to Epicenter, the show, which talks about technologies, projects and people driving decentralization and the blockchain revolution. I'm Brian Crane, and today I'm speaking with Essie Lagabardi. He's the founder and CEO of Turtle Club and Turtle Club is a Defy liquidity protocol. So I'm really excited to talk with him about Defy and about Turtle and all the exciting
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applications. Gnosis Dow drives Gnosis governance, where every voice matters. Join the Gnosis community in the Gnosis Dow forum today. Deploy on the EVM compatible Gnosis Chain or secure the network with just one GNO and affordable hardware. Start your decentralization journey today at gnosis dot IO. Cool. Well thanks so much for coming on. See I've, you know, spoken quite
a few times with you recently. I should also note here that of course Ron with practice and personally we all invested in Turtle. So I've been yeah, like learning much more about the fight even though I've been in crypto for such a long time in recent time. So I'm really excited to to dive in the whole D5 world with you today, but maybe just start off with Sharon will be like, how did you get into crypto first? Yeah, absolutely. I'm from London originally.
I was born and grew up in the UK and back in 2011 when I kept coming across Bitcoin, unfortunately, he didn't understand it, didn't really, you know, take the time to look into it, which obviously with the benefit of hindsight, I, I, I regret EP, but given that I studied business and management and I was very interested in economics when I was younger and growing up, as well as technology.
And I always had a thesis that tech technology would eat the financial sort of world, like Amazon 8 retail or a lot of these tech companies were starting to eat the lunch of existing industries. BTC kept coming up in my feeds online. And then in early 2013, I came across Andreas Antonopoulos video online and he was one of the early great communicators and he just kind of broke it down in a really, you know, really easy way to understand.
And from that moment on, I was kind of hooked and obsessed. Unfortunately this was a stream I last year of university, so I didn't have very much money, but yeah, I worked pretty hard to try and, you know, acquire some crypto back then, you know, obviously much lower prices than today. So I have been just kind of a Hoddle ever since really. And and yeah, just and I've learnt a lot throughout the
years. After university I I worked in Stradfind the City in London, mainly working as a matchmaker between the buy and sell side for small financial media companies. So we used to organise all the banking conferences in Switzerland, Singapore, London.
And it was my job to try and get a lot of these big LP's on the buy side and a lot of these sell side institutions where there would be investment banks, asset managers, family offices, hedge funds that have created financial instruments to sell to the buy side. So after that, I worked for around 2-3 years as a financial accountant for Edelman as well before, you know, just going full full deep into the space full time back in 2017. So yeah, it's time flies when
you're having fun, for sure. So let's, let's talk about Defy sort of a little bit on a high level. And you know, looking a bit at the history, how do you how do you think about the Defy history? Like when did it start? And what are sort of the most important milestones in the history of Defy? That's a great question. You'll get a very different answer based on who you ask. I think there was definitely a lot of big milestones and important phases within Defy.
I think early on in Ethereum you weren't able to do much with it. So obviously you had the ICO phase back in 2017. Romania was about, I guess, kind of minting tokens. But I think the first kind of, you know, beginning of the file, the very, very beginning was actually the Dow that led to the Ethereal Classic fork in a way that's kind of a very Defy thing to kind of bootstrap a Dow and Stefan Tuol, one of the Co
founders. He wasn't I didn't know him at the time, but he he lived across the River Thames from me in London. So that actually was the first thing that really caught my attention to Ethereum in terms of when it really started. I think for me, the first kind of blue chip D5 protocol was Maker. The idea of using ETH to minter synthetic stable coin against in the form of ACDP was I guess kind of ushered in the D5 era in
my opinion. And it's great to see that, you know, Maker, you know, we're the first, they're still around today and they built a really, really good business. So but but then there's a lot of other big milestones. The synthetic guys don't really get sort of much credit for this. But in my opinion, I think they started D5 Summer. You know, I think with the USD pool and the incentives, they, from my understanding, created the 1st pool that was incentivized with these seal
farming incentives. And then off the back of that, you had, you know, Curve, Yern, obviously Andre Cornier, Michael Egoroth from Curve, you know, and a bunch of these really talented founders that started, you know, combining multiple different concepts and ideas. And it really kicked off D5 Summer. You know, you obviously had Sushi Swap and their vampire attack on Uni Swap Compound issuing a bunch of incentives as well.
So I think a lot of people in Defy, you know, have very fond memories of Defy Summer back in 2020. What do you think are the most important primitives when you look at Defy today? Sort of the core fundamental protocols that are actually, yeah, the most important ones. So I have a very simple view on it. I can segment the market by revenue and and protocol fees. I think the biggest use case by far in D5 is just kind of
payments and stablecoins. The amounts of money that Tether, USDC and a bunch of these other stablecoin protocols like Athena starting to print is, you know, truly insane and also very good for the space given that they issue a tonne of on chain yield, which then drives further adoption.
The the second biggest use case from my understanding is spot and pop Dexes. We've seen recently with Hyper Liquid that they were able to create a really unique yield source from all of the yield and fees that are generated by all of the traders on Hyper Liquid that make it very, very difficult for other chains or ecosystems to replicate. After that, I think lending and borrowing is I think by market
size, probably the 4th largest. But then there's also some really other, you know, really good use cases like obviously yield markets with Pendul, Spectra, Hyperdrive, and then in a host of I guess smaller ones. And now you know, Turtle is also trying to create a market for liquidity as well, you know, you know, a distribution protocol that helps kind of monetize the on chain activities of our free users.
And in terms of the the size of these, I mean, of course everyone is aware of Tether which is yeah, producing insane amounts, I think 15 billion last year or some something like that I think. Something crazy and they keep buying Bitcoin with a percentage of their revenue and and obviously, you know, that's doing pretty well. So yeah, I think in terms of revenue per employee, they must be sort of up there with the most profitable companies in the
world. It wouldn't surprise me, frankly, if ever become one of the biggest companies in the world at this point. In terms of the size of these different categories, how do you have a view in in terms of the the relative size? I haven't done a kind of a analysis of the Tam of all of these markets. However, kind of a good friend of mine, he uses this example that currently the the way the space is shaped is a bit of a
pyramid. You have kind of a bunch of users on top of the pyramid and then at the bottom of the pyramid you have a lot of these protocols that are kind of fighting for a limited amount of web free users. Which is kind. Of fracturing the liquidity in the user base between a lot of Aussie different chains, asset
protocol stats, etcetera. And then he uses this example of this inverted pyramid for connecting existing web free chains or communities with existing distribution channels that are kind of higher up the stack or generally sort of more web to base. So a great example of this was when Metamask switched on the swaps, at one point, Meadowmar swaps accounted for 80% of the trading volume on one inch, which obviously made one inch a lot of money.
And then all of the downstream protocols from 1 inch. So all of the different Dexes that they would source that liquidity from are made a ton of fees, right, which then they passed on to their token holders and their LP's.
So I think there's a lot of really big web free aligned communities in the space currently like Telegram that you know haven't kind of really switched on or connected their user base fully to web free yet, but are in the process of doing so. And when they start switching on and connecting their users to a lot of the these key D5 primitives that we're in a talking about in terms of stable coins, lending, borrowing, sport and Pub X's yield markets,
etcetera. That's going to drive a lot of a revenue generation downstream to a lot of these different, you know, protocols, whether it be aggregators or different, you know, Dexes, etcetera, learning and borrowing markets that sit sort of below the stack. And I'm very excited about it. I think myself as a a bit of a DID Gen., right? I'm spend a lot of time right on a lot of the front ends of a lot
of these apps. But the reality is that majority of what I call, you know, normal or just normal people aren't going to do that. And that over the coming years, I think there's going to be sort of the UIUX problems that we've been experiencing in web free so far. A lot of that is going to disappear by extracting that
onto the application layer. You know, think about mini apps within Telegram that allow their users to swap or lend them borrow through the front end of the mini app by connecting the mini app into different Daps that are built on top of top,
for instance. And if you look at, you know, great communities like let's say Base that have built a really good distribution sort of channel, they're able to connect, you know, millions and millions and millions of users really efficiently with different Daps and sort of killer products and services that are built on top of Base. So that's how I think the the space is going to develop.
But you know, I may be wrong. Now in terms of, you know, kind of like where the yield comes from, right? So I mean, you mentioned OK, stable coins, right? So in the case of stable coins, it's basically, well, one thing is OK, you give dollar to tether or to someone and then they do something in the back end that produces yield and then, you know, maybe they pass on some of that to users, spot them perps taxes. I guess it's the the trading fees, right, Lending and borrowing.
It's it's the fees people pay right, to to lend or to borrow yield markets. I guess it's it's again kind of trading fees in there. Do you feel like the yields in Difi, are they sustainable? How do you think they will change with time? That's a great question. I think currently there just isn't that much or that many users or kind of applications that are generating a ton of
fees. So a lot of these applications are subsidizing their yields by issuing their own incentives in the form of their governance token or Dow token that gives their users a a vested upside in the protocol or the protocol
treasury. And it's really one of the best, these cases of kind of web free that we can issue a token to our community and give out a community of vested interest and upside in the network that we're building in a way that we wouldn't be able to do so in let's say a Web 2 scenario.
I think the problem lies in the fact that many communities or, or projects, they become addicted to these incentives and there's free subsidy where they aren't really meant to be issued in my opinion, over the long run. Because you really want to build a, a ADAP or product or service or protocol that provides value to your users or community without having to, you know, pay a free subsidy over the long
run. So these subsidies or tokens should only be issued in my opinion, over the short to medium term to bootstrap a community and give you a bit of time so that you can transition to a much more sustainable business model. I think the problem that a lot of these different applications or depths have faced is that they weren't able to reduce their cost of capital faster than the rate at which their emissions trailed off. And it's, you know, very hard thing to do.
I think great examples of protocols that were able to do this really, really well was are they uni swap? You know, Athena are currently going through this process and doing very well. You know, base they don't even
issue a token. They just have that good cost of capital distribution and are, you know, seen as being a very security first type chain that they're able to attract and retain liquidity at a much lower cost of capital, which means they don't need to subsidise that capital with their own
emissions, right. I think the the fees that are generated on base or the the, you know, the token issuance on all of these different apps that are built on top of base provide ample sufficient kind of yield to, you know, continue sort of attracting new users and liquidity to the shape. So I'm not sure if that answers your question right, but.
Yeah, I mean, I, I do think that that seems to be kind of like one of the fundamental things is now is like, oh, I'm, I'm someone creates a new protocol and then they use their own token and then, you know, liquidity comes they pay with their own token and and then you you sort of selling the future claim, right, on the success of that protocol.
But then, yeah, right. If, if the, if there's not actual yield generated in the long run, right, that then outweighs, yeah, the what they're spending, then it kind of, it's bound to kind of implode at some point, right?
Because at some point then I guess you have just a download pressure on the token, you know, because people sell the token because they won't yield on whatever liquidity they're put in. And, and then, you know, if, if the token keeps going down, then the incentives kind of decrease for the liquidity. And then people are like, oh, let's go to the next protocol. Yeah. Before you know it, you get caught in a death spiral.
Yeah, yeah, yeah, for sure. I mean, we've seen it happen over and over again and that really is one of the core problems kind of within define crypto about trying to kind of reduce your cost of capital faster than the emissions trail off. It's a very hard thing to do given that title is a distribution protocol. And I've now spent a lot of time throughout the last 1218 months in particular learning more about distribution and kind of liquidity and how it flows through the space.
I've come to the conclusion that each protocol actually has a different cost of capital and that depending on kind of numerous variables, but the main 2 being kind of your access to users or your distribution channels. And the second thing is, you know, how safe is your protocol perceived to be relative to others?
That these two variables have a really big impact in regards to the amount of emissions that you need to kind of omit to LP's or or Daps to essentially adopt whether it be deploy liquidity within your ecosystem or protocol or or build on top of it. And I think that's really been apparent now that as the time goes on and on, and it's just become much more competitive to compete on a ecosystem level, on a protocol level and a DAP level.
That that a lot of these new ecosystems that, you know, have a kind of a differentiator or a different idea. And they want to kind of boot trap the community or, or ecosystem around that are finding it very, very difficult to kind of bootstrap this ecosystem from zero to 1. Given that they need to bribe and pay a lot of these blue chip Daps that are kind of, you know, trusted and and well loved in the space to deploy into their ecosystem.
But for the Daps to do it, they will want a very large degree of incentives assigned to them. And they also want to know that the chains that they deploy onto have a lot of users, especially new users that they can acquire. Right. And then on the LP side, you have the same issue because you need to now bribe the LP's with ever there are higher rates of emissions to poured over liquidity to ecosystem to, you know, obviously deploy that liquidity in the different apps.
And the reality is when your cost of capital is too high, you end up just having to print emissions at a faster and faster clip, which then again, create that cell pressure and that desk spiral that you were and have just referred to. So I think for, you know, myself and my LP's, we really appreciate the fact that, you know, earning tokens or, or yield in a token that's actually backed by a real user base or,
or a kind of a real business. And one thing that you said which resonated with me is when you deploy liquidity in a protocol and the vast majority of your emissions on the form of the the Dow token or the governance token relative to the underlying APR that's actually being generated by utilizing the liquidity in in the way it's sort of supposed to be in Defy, right? That is a big red flag.
And that in my mind means that the token is going to be dumped pretty quickly and that the fundamental value or or the fundamentals of the business of the protocol itself is, you know, not really doesn't have a high probability of withstanding
the test of time. I'm curious if you look at the, the size of the T fi economy compared with the the the traditional financial system, you have a, you have an estimate in terms of like what is the relative size of and it's obviously very small, but how where are we if you put those in relationship? It's a drop in the bucket.
I had a, you know, I work with a lot of the biggest institutions, whether it be, you know, investment banks, asset managers, wealth managers, private banks, hedge funds, even the odd sovereign wealth fund here and there. When I was working for that small financial media company in London, you know, being a matchmaker between the buy and
the sell side. And you know, if you look at institutions, not even the big ones like let's say a Black Rock for instance, or a Vanguard, but even, you know, smaller sized large institutions have just small capital assets on the management than the entire crypto market. And obviously the crypto market, the defy market accounts for a very small percentage right now of the entire web free market.
So I think directionally speaking, maybe I'm biased, but directionally speaking, I think the potential of Defy has just a huge shoes Tam to grow into, given that you can just utilize tokenized liquidity to a much higher degree and much more optimally and efficiently, you know, in this new Internet of
money that we're building. And I think it's just a matter of time once we reach a point of, I guess, no return when the technology is. And the sort of D5 primitives and use cases have been stress tested enough and built out enough that the cost of capital is kind of at a level where it will just kind of start sucking in a lot of the liquidity from
the trad 5 market. Just because you can utilize your liquidity far more effectively and efficiently than you could ever do in the traditional banking system, for instance. So you think the the big advantage of D5 is really that you can, you know, you can use different protocols on top of each other, then tokenise it and then basically use your kind of use your capital more efficiently than what will be possible in the traditional financial system? I mean, it's not even close,
right? So, you know, I've met quite a few LP's during my time in, in, in crypto and in particular Define yeah, some of the degenerates like flywheels that people invent or come up with is is truly astounding where they can in some cases rehypothecate the liquidity in up to 1015 different protocols at once and generate a yield on the same underlying liquidity across all of these protocols
simultaneously. Obviously there's a a risk every time you rehypothecate the liquidity in terms of the underlying code base of the protocol that you're rehypothecating across all the counterparties involved.
So it's not a decision or thing that I'd necessarily recommend the average show to do. But but the point is, as the infrastructure and these smart contracts become more and more stress tested and battle tested, you're going to see more and more protocols building on top of one another and really building out these Defy Lego blocks that really become a core fundamental part of, you know, this new, the infrastructure of
this new Internet of money. And I quite like the, you know, idea of essentially having your liquidity in multiple different protocols at once, generating your revenue where you can essentially just ping your money around the Internet and the money will continuously being deployed in real time to the different protocols or use cases that can utilise that liquidity to generate, you know, the most protocol fees or utilize that liquidity most efficiently at that point in time.
Right. Because if you take like let's say if you take the example of Sable coins, then I mean today, right? If you use that in D5I mean it seems to be very common, right, that people can generate 20% or 50% or like, you know, very high yields, you know, doing some of these using different protocols, putting it in, which obviously
is extremely attractive, right? If if you're sort of in the tratfi space and and OK, you can put it in treasuries and you're obviously the risk here is, is lower, right, If you just buy treasuries and you earn 5%. But then if you compare the, I don't know, 5% versus maybe the 50% that you can earn in D5, that's a massive delta, right? And, and I imagine the risk isn't well, it, it seems to concentrate very, very well for
the additional risk that people are taking. 100% every time you re hypothecate liquidity in D5, you really need to ask yourself, are there rewards that I'm getting large enough or do they justify the risk that I'm taking?
And whenever you find an, an opportunity, in theory that it's paying you out, you know, a, a differential between the reward that you're making and the risk that you're taking in that situation, you should re hypothecate, assuming that you know, you, you've avoid your liquidity across a diversified set of strategies, because in the long run, you'll be making or increasing what we call in like poker expected value,
right? That, that kind of move or play will generate more value, you know, over an infinite amount of or, or, or you just kind of removing the variance from the situation. And now the hard part is actually quantifying the risks. So it's so the easy part is to find out roughly, you know, what your APR is going to be or, you know, what are the types of tokens and incentives and yield
that you're generating. The hard part is, OK, if let's say you find a strategy and you're generating 100%, that could be a good strategy or that could be a bad strategy, right? It has nothing to do with the amount of yield that you're generating. It's all relative to the amount of risk you're taking to generate that yield. And the reality is that the vast majority of even, you know, liquid funds or professional LP's don't really have a sophisticated framework for risk in Web 3.
And a lot of people kind of rely on the due diligence or risk assessments of, you know, very few counterparties in the space, right? And we all know what can happen will happen, right? Murphy's Law. So you you'll kind of always reach a point whereby if too many people rely on too few people doing the due diligence, then, you know, that could create potentially some systemic
risks, right? I think Luna was a great example, you know, of that, even though they were, you know, granted some people that did point out and mention some of the underlying flaws of the design of UST. So I think where the edge really is, is in quantifying the risk, because if you can quantify the risk, you can then find out which opportunities relative to reward and risk ratio are the best for you to consider re hypothecating your capital.
How how does one do that like the this risk quantification like what? What are are there frameworks or what do you have to look for? Like how do you approach a problem like that? Yeah, there isn't that much openly available on the market today. I'm currently working with Gonzalo, the Co founder of Consensus Diligence to create a new framework, also with Cheyenne from Creed. So, you know, we are frankly having to do a lot of the legwork ourselves.
I know there's a couple of, you know, top liquid funds or you know, very sophisticated LP's or treasury management professionals that have developed their own due diligence process or kind of risk models. But I wouldn't say there's AI think the that part of the market is still very nascent and isn't very developed.
So there isn't really a holistic or, or kind of bulletproof kind of framework that is being adopted on the market today, which is why we'd love to invite anybody to come and criticize the risk framework that we've developed that we're going to publish and, you know, share publicly with everyone kind of like open sources in a way. And would love to hear some, you know, candid feedback or criticisms like Essie, why are
you doing this? Like, you know, this could be better done by adopting this, right? Because ultimately we just want to kind of make sure that we can reduce the risk as much as possible, right, by adopting a better and better risk framework in terms of there's a bunch of different things sort of on the financial side. You have the, you know, different risk of, you know, the strategies that you create, whether that be, you know, the liquidation risk, IL risk, for instance.
Then you have the counterparty risk of all of the different protocols or people or counterparties involved in the
strategy as well. And then on the technical level, on or on the smart contract level, you have obviously the risk associated with smart contracts being hacked or drained or you know, even, you know, down to you know, how do the team kind of manage the multi sigs of a say, for instance, right or you know, the treasury that backs the underlying token, right, that you're holding right. So then you have real time monitoring, you have sort of
protect, prevent. I mean, again, it's probably best to to ask like a thoroughbred auditor when it comes to some of these things. But there's really a kind of a whole round trip or of different security risk, financial risk, counterparty risks, etcetera that you need to take into account when you know developing this risk framework and and doing your due diligence. So I'm curious, what, what do
you think are the main blockers? Because in the end, right, it does look like it would, it's actually very attractive for capital to move into D Phi because you know, you can earn higher yields in D Phi than I think in, you know, probably
most things in traffic. But what what's, what sort of what what needs to happen for, you know, D Phi to absorb, you know, a lot more capital coming more from the traditional financial space and you know, really starting into really starting to eat into that market share. That's a great question. So on the top level you have all of the different like use cases or D5 primitives, right?
In other words, you can utilize your liquidity to a much higher degree or much more profitably and efficiently by porting it that over to the D5 space, right? And the point that liquidity on the DAP layer itself. So that's I guess one point. The second point I would say is you have, you know, what's called the risk free return on let's say dollars, which is the US Treasury yields, right?
And you also have a risk free return in Defy, which you know, some people consider the native staking yield on that you generate on Ethereum, right? Or the on stable coins, let's say the, the yield that you would generate on RV. Now you have a, what's very popular, you know, with the rise of Athena is that a lot of people are essentially doing this carry trade, right, where they're arbitraging the funding rates on these perpetual exchanges. So you know, it's, it's all relative, right?
So if the risk free rate in B Fi is much higher than it is, let's say in the tradfy world with the interest that these money market accounts are paying out, you know from the treasury bills, right, The larger that delta is, the bigger the pool of capital from the Tradfy world into the DFI world. Now we had a situation in the bear market back in sort of late
2022-2023. Don't sort of quote me exactly on the time, but there was a a inversion that took place where actually the treasury yield was higher in Tradfi than it was in DFI. So you had a lot of stable coins and a lot of liquidity actually being pulled out of the space given that you could generate a higher risk free return in Tradfi. And This is why a lot of protocols have started passing on the underlying treasury backed yield to the stablecoin holders to kind of stem that
flow. So, so, yeah, so the TLDR is that, you know, the in my opinion is the risk free return and, and how you can also utilize your liquidity. And the bigger that delta is, the greater the pool and generally the more the floodgates open for capital to kind of flow to where there's what I call like least friction. And I think that's generally how it is sort of how I interpret the financial markets to work, right?
Liquidity or capital just flows to where there's least friction, and that capital can be utilized best. One thing I'm curious about in, in on chain, right, you basically you have a tremendous amount of transparency, right? Like you can check the different wallets, you can check what they're doing, you can see what's going on in each protocol. Obviously, there's a lot of
value to that, right? Because you can understand better what's going on, you can understand risk better, and it's easier to build on top of other protocols. I feel like in the past, people would often talk about, oh, we need more privacy on chain and, you know, this is a big barrier to maybe some investors or some more traditional players participating in it. How do you view that?
Do you think DD5 will remain as transparent as it is and and that's just sort of inherent and it's a good thing, or do you think that privacy in D5 is going to become a bigger thing? That's a great question. I think right now, because there's been many initiatives in the past or protocols that I've tried to tap into the narrative of privacy.
It's a, it's been a frankly a bit of a hard sell in the fact that right now the most of the market doesn't really care enough about privacy for these types of solutions to really kind of take off in a big, big way. Obviously, you have hackers or I guess sort of bad actors that are kind of leveraging technologies like Tornado Cash, for instance, to obfuscate the transaction history or the sort
of fun flows. But then you also have like newer technologies like FHE, for instance, a good friend of mine, she works for Phoenix that allow you to conduct confidential transactions. Or you know, friends of mine at Hinkle as well that actually provide a really good use case and utility that allow institutions to deploy liquidity in a legitimate way whilst having their activity across web free, sort of being private and confidential.
Again, there just isn't at this point I think enough interest from the what I call core web free crowd in these types of solutions, but especially as you know more and more funds and financial institutions come into the space.
The incentives to adopt that technology is just going to grow and grow and grow because for instance, let's say, you know, I'm running my on chain strategy and I found a really good yield source given that, you know, everyone can see my activity and the strategy that I deploy on chain. That will be, you know, kind of identified and copied very, very quickly by other LP's in the market, which will then pile into my strategy and then dilute my rewards.
And then before you know it, the alpha that I'm generating will just evaporate. So there's a, so I think the biggest factor really is the profit motive, right? If there's a big enough motive for institutions to, you know, adopt that technology in terms of actually like making money or saving money, I think we'll see more and more people adopt that. Because right now you can again go on chain and see what all of
the top liquid funds are doing. Like if you kind of know their addresses or, or you can just kind of track addresses that deploy their liquidity really sophisticated in a very sophisticated manner, right? And then you can just kind of copy them, which is quite nice or learn from them, right? What I like to do is I'd say, oh, you know, this dress is
doing this. I like this, but actually in this case I'll probably do this and this not because you know, I'm better than them or what not just because I have a different sort of risk profile or or preference or I might have different digital assets in relation to them. What's missing in DFAI now? Do you feel like there's some sort of, you know, primitives or protocols or, you know, that you think would be really important and you know, would be super
helpful that don't exist yet? That's I mean. I'm biased, right? Because I think like a liquidity, a distribution protocol is missing, which is why I'm kind of yeah. We'll get to that. Yeah, let's get to that after this question. But in in, in terms of other stuff, I think that, you know,
the more liquidity the better. So there are some really interesting kind of use cases that haven't really been fully developed yet, you know, or even existing use cases that just it would be nicer to have more of a liquid market or more efficient market given that a lot of these sort of use cases are kind of starting to emerge. Like for instance, some of my friends that derive it's just a, a options on chain options
marketplace. So, you know, 12 months ago, 18 months ago, you really couldn't do much in terms of on chain options. Sure. There was, you know, a couple of different sort of early protocols that were providing it, but really the markets were
very liquid. Now derive has started to gain a bit more traction and the more liquidity they get the, you know, essentially the now for the first time you can use options to within let's say a delta neutral strategy, right Or you can use on chain options in a permissionless way, which, you know, adds a lot of utility to the DFI ecosystem as a whole. Then yeah, in terms of I guess other use cases, I think the use case isn't really the issue. I think, you know, ad Dexes, bot
Dexes learning and boring. I mean there are quite a few killer applications in D5 already. I think where the friction lies is on the UIUX layer. And This is why I believe that for a lot of the kind of just normal people out there, they're, they're not going to be willing to go onto the front end of a lot of these D5 Daps.
And, you know, actually, you know, approve a transaction and then submit a transaction like we would do when we interact directly with smart contracts or the UIUX on the DAP layer. I think that's going to be abstracted away to the application layer where existing popular applications, you know, whether it be on on Telegram or you know, on your iPhone or whatever the case may be, will connect directly into the
different dabs. And then through the front end on the application, they allow their users to swap, lend and borrow and essentially kind of provide all of these key D5 primitives and use cases. Yeah, directly into these different depths, our front end application. Sorry. Yeah. I mean, I think one of the big challenges here is also right. If you think of a lot of TC fair strategies where like, oh, you do this and then you get a token and you put it somewhere else
and you get another thing. It's it's pretty complicated and it's hard for people to do that. So I think what obviously would be very attractive, I think for a lot of users is if it's just, I can just buy, I don't know, deposit my tokens into some vault or I just buy a token that's kind of like, you know, then on the back end does all of that stuff.
But then of course, I think the big challenge there is, well, there is like some obviously there's like risk going on underneath and like, how do then these people deal with that risk, right? If they don't understand really, I mean, it's, it's hard enough to understand the risk if you actually do those things. But then if it's fully abstracted, then I think that's, you know, it's also it's a tricky 1 I think. Oh for sure. But I mean, this happens in trad FIRE as well.
In during the financial crisis of 2008, a lot of these banks were creating these toxic essentially securities, right, or mortgage-backed securities when they were just packaging a bunch of these, you know, ninja loans together, like from essentially lending people with no jobs, no income and no asset, right? And they were like bundling them up in the form of a factual debt position or CDO.
And then, you know, they didn't really care how they constructed the the asset because it was their business just to sell it so that the liability would be on the book of someone else's balance sheet, right? The problem was obviously as the music stopped, they got caught with their pants down holding all these toxic assets. But yeah, we we don't need to sort of go off on the tangent there. But but yeah, that kind of happens in in traditional
worlds. And, and actually there's been kind of much bigger blow UPS, right, Given of the the history of the traditional financial market over web free. But to sort of go back to your point, I think, you know, a lot of these things are quite complicated in terms of how a lot of these strategies are, you know, the different moving parts that they're sort of made-up of and the way they interconnect
with one another under the hood. But all you need to do is you just need to put a shiny token wrap around it, you know, and a nice sort of meme and, you know, and then people like, you know, kind of buy it, right? So. So, yeah, I mean, there's a obviously, you know, like I was mentioning sort of prior in, in in our conversation, there's obviously a lot of risk in the space and people, even professionals find it very, very hard to quantify.
So what feels sometimes like a good move can, you know, be obviously terrible. But I think a great example actually of a really interesting kind of strategy is what you're doing with the stake wise war, right? When you're allowing people to essentially deposit a, you know, OS ETH as collateral that generates, you know, the native staking yield and then borrow against that collateral on RV at
a lower interest rate, right? And then kind of leverage Loopid obviously geared towards the individual risk reference and exposure of BLP, right? And you know, have a, you know, to tokenise that I think makes a lot of sense because now for people that are willing to take sort of a higher risk, right, they can now leverage that leverage looping strategy as collateral again, sort of to leverage, you know, and, and deposit or kind of utilize within the sort of wider web
free or DFI ecosystem, right? And as long as the risks are sort of well understood or communicated, like I see no problem with that, right? People should be able to, you know, kind of deploy their liquidity or take on risks, right? Yeah.
So just briefly for listeners. So at course one we use a lot is a protocol called Stake Wise and we have a Eve staking bolt and that now allows yeah, this what I see mentioned, right, Basically staking the Eve and then meeting liquid staking acid OS Eve and then putting that into RV borrowing Eve and then looping this. And then you can you can generate with that on on Ethereum. I think right now it's around 7%. It's obviously a much higher than the the base staking rate.
So yeah, people are interested in that. Just go to the Stake wise website and then you'll see the course one wall there. Let's talk about turtle. So how? What's the Genesis story of Turtle? Yes, it's a, It's a pretty long 1. So I, I was working for one of the largest GPU miners in the space as as a director of Define in 2021. I was really enjoyed my time
there. And you know, back in 2021, I was, I guess inadvertently, I started building a bit of a network of, you know, LP's just being in the trenches and all these discords, coming across some really clever LP's and, you know, sharing ideas and getting second opinions on my strategies or vice versa, sharing my opinions on other friends of
mine strategies. And I was always looking to how can I, you know, generate a better upside or increase the rewards that I was generating whilst reducing my risks. And in 2021, I came across a lot of, you know, I started noticing that a lot of protocols were starting to engage in what I call these sort of backroom deals.
And that were happening behind closed doors where they were offering LP's a certain amount of additional private incentives that they weren't extending sort of publicly to the market for different liquid funds or LP's that would commit a certain amount of liquidity over a certain period of time to help bootstrap, adapt. And there's nothing wrong with that, right? So for instance, imagine using an exchange or lending a boring market.
But when you buy and sell, there's a huge spread, right? And it's very liquid and you can't really buy and sell much, right? Because there's just not much liquidity in the order. But well, same with sort of lending and borrowing, right? There's just you can't borrow much. And if you do borrow much, the APY starts shooting up because again, there's not much liquidity. So you actually need a certain amount of liquidity within a DAT so that it operates at a really
effective utilization rate. And, and when I noticed these deals were occurring, I said, you know, I wanted to kind of look into it to see if I can essentially gather deal flow that, you know, other friends of mine could be potentially interested and obviously myself as well. And then on the downside, so on the auditing side, a friend of mine set up Omniscia in early 2021. It's a smart contract auditing firm. I believe they've done over 1000 plus audits and they asked me to
join as a part time CFO. So I, I did some, you know, high level BD for them. I onboarded, you know, some of their biggest clients, but they'd also outsource on a case by case basis, you know, really fun jobs, frankly, sometimes we had a, you know, crypto hedge fund that wanted to do a risk assessment or well, a second opinion on a strategy or maybe some LP engagements or just tokenomic modelling protocol
design. And yeah, so I, I learnt a lot also working with some really, really talented hackers inside of Omniscia as well as just more generally within the auditing industry. And one of the best things there was trying to learn to quantify risk also on a more technical level, given that I'm not a developer by truth.
And so, so, so the idea of Turtle kind of sprung out of that, given that now I had a really good insight into how I could quantify risk better or, you know, get auditors within my network to audit certain strategies before, you know, different LP's would deploy into these strategies, right. The problem with that model was that, you know, auditing is very, very expensive, especially if you're not work with the best
guys. But you really do want to work with the best auditors because if you don't, then the best it is or hackers are going to hack you, right? So the problem was that if you deploy a small amount of capital, you need to absorb the security cost over a small amount of capital. So if you're only deploying let's say $100,000 and you're paying, you know, 10K to do your due diligence, you're already down 10% on your principal, which makes the strategy just not economical.
So really the idea of TUDDLE was how can I leverage the collective liquidity and bargaining power of numerous LP's and liquid funds at the same time to negotiate better, you know, deal and sort of incentives or upsides on behalf of, you know, the entire community. While also being able to spread the cost of security over a much
larger subset of capital. So that I wouldn't need to pass on the cost of security to my LP's, but I would still be able to pass on the benefits of doing a extensive risk assessment or kind of a light audit, quote UN quote. So again, boosting the upside of my LP's and decreasing the downside risk. So in March of this year, I decided to step down from on issue just to kind of give it a go. And, and really it was more of a experiment at first, just launched an MVP very, very
quickly. And I think the MVP kind of proved sort of proved that there was a lot of demand for
something like this. The way I went about it is rather than developing a set of smart contracts that would route the liquidity of all the LP's into and then deploy it like a traditional, you know, Volt or like a traditional protocol on top of it. I wanted to, I didn't want to have the, I guess risk or, or like legal liabilities, compliance liabilities and also kind of create like a bit of a honeypot to sort of adopt A structure like this.
So what I did was I created a set of APIs that would track the positions of all of my LP's across different chains. That's and protocols. And if they interacted with any of the partner protocols that had a, a kind of a liquidity offering in place that the Turtle Dow would start issuing rewards directly to these addresses of Elps of ours that essentially conducted those activities that our partners deem valuable enough to start paying the Dow for.
And the way it works is you just connect your wallet to Turtle dot Club. You are prompted to sign an on chain message. There's no risk in signing this on chain message. It's not like an approval transaction or transfer transaction. We don't, you know, siphon off any of your existing rewards. You know, we literally can't do that. We can't get, you know, hacked ourselves or, or the protocol
can't get hacked in that sense. So it's a a much safer way for us to essentially track the activity of all of our users and, and pay them additional boosts from the partner protocols that we work with. On the upside and then on the downside, we're starting to do more and more risk assessments and spending more and more money on doing due diligence on protocols before we integrate with them.
I wouldn't say that, you know, LP's should just rely on our due diligence, but the idea is that as time goes on, we just want to spend more and more time, you know, doing these risk assessments due diligence. And, you know, hopefully eventually we'll get to the point where we're conducting full audits on all of the different protocols that we work
with. And this way we can again, pass on greater rewards to our communities while, you know, trying to take out or reduce the risk that they're being exposed to. So that was title V1. That worked pretty good. We have around 300,000 wallets, give or take, that have signed up to turtle. We generated again depending on the oil price, all coin prices because sort of they've gone up or down quite a lot, but between 5:00 to 8-9 mil in contributions to the Dow.
However, V2 is kind of, we're now evolving from a pure liquidity protocol that monetizes just on chain activities in terms of moving liquidity to a distribution protocol, which what is a distribution protocol? It means that rather than just limiting our, you know, the part of protocols that we work with that are willing to sort of pay to tap into distribution, right? Because they want to, you know, get users to use that. The Apple platform.
Now we allow them to plug into the user bases of the different distribution partners that allow plugging into Turtle and building different communities or networks or porting over existing communities and networks into the Turtle distribution protocol. And this enables quite a few very interesting things. You know, imagine you, you have a web free wallet, right? And you have a lot of multi
active users. By partnering with Turtle as a distribution partner, you can monetize the activity of all of your users across all of the different partner protocols of ours that want to sort of plug into and pay for that distribution. And we can do it in a way without exposing any of the users to any additional risks and smart contracts. And then we can then accrue that extra value that we're generating to both the distribution partner and their users, right.
And I think this is a really nice way to monetize your existing user base whilst also accruing more value to them and providing more utility to without again, exposing them to any additional risks. So yeah, we've, you know, we're making that pivot now to V2. So yeah, hopefully become a bit of a one stop shop or essentially allow our clients to tap into a much larger base of different distributors as well.
So to to walk through an example here, so that would be let's say you go to some wallet and then the wallet says, OK, we want to participate in this. Then the wallet would kind of register all the wallet addresses with Turtle and then and then kind of like surface to the users like, hey, there's this, you know, special program you use a protocol A and you're going to earn, you know, a little bit additional yield that you guys negotiated with the protocol.
And then some additional yield goes to the users. Some goes to the wallet maybe, and then some goes to a turtle doll, something like that. Correct. So there's I guess two parts to this. And the V2 you have like the signing up to Turtle.
So if you as a distributor kind of promote Turtle on your front end and and get your users to sign up, when they sign up, they use essentially your referral code and and as a result that user is assigned to your community that is kind of built on top of Turtle. That means that now from then on, from the point at which the user signs up to Turtle, any activity that they do current or sort of current of in future on any of the Turtle partner protocols, they'll start
accruing additional value. And as a result, whether it be Turtle, the Turtle token holder, the distributor and the user that generates that activity will accrue an additional value. So that's kind of one part. The second part is we're in the process of developing a plug in that should, should be ready sort of sooner rather than later.
And that will allow every distributor that we work with to essentially spin up their own, what we call earn page on their front end where they can select all of the different current deals or integrations that we have in place. They can kind of select which ones are aligned with their community. Potentially this one is too risky, so they don't want to sort of show it on their front end or promote it, or this one is of a competitor, so they don't obviously want to promote that.
But they can kind of cuss in a very customizable way, essentially curate their own list of different deals on their front end. And then whenever user essentially deploys liquidity through their front end, not only can they sort of retain the kind of control or retention of their users, but they'll also be able to, you know, monetize when their users deploy liquidity into these different protocols.
And more importantly, actually provide their users with some really, really competitive and interesting, you know, offerings in the market in terms of being able to utilize their liquidity in interesting ways by deploying it directly and kind of, yeah, like a sheet of some of the most competitive deals in the space. I think one of the challenges still is, right, like, OK, you have to choose these different strategies, figuring out which
one maybe runs for some time. I know you were saying before like you don't when you started, you know, you didn't want to do the kind of vault thing, but I'm sure this is still something that would that would be quite significant amount of demand,
right? If if like, you know, users can just say, OK, I'm going to put stable coins into, you know, Turtle Vault and then I don't know, maybe the doll, there's some sort of process where, you know, different strategies are created and it says, OK, I'm going to deploy it into that. And then maybe it's something else in the future. Is that a direction you think you want to go in as well or or that's kind of like a different something that doesn't align
with your vision for Turtle? You know, that's a great question. So on the base layer of the protocol, you know, I don't want there to be any smart contracts meaning tell us a trustless protocol, right? We we can't get hacked and we can't rob our users saying that it's clear that the yield market changes all the time, right? And you know, what was a nice yield source yesterday is no more. And a new yield source browsers
like sprouts up, right? And as a result, you continuously, if you want to generate the best risk adjusted returns, you're kind of forced to move your liquidity continuously throughout the space to try and move that liquidity closer to the alpha source, right? As the alpha source kind of moves around.
And it's clear that because of the UIUX and a bunch of other stuff, the average, you know, user or even very sophisticated users, they just don't have the time or just don't want to kind of manage that whole process manually. They actually like the idea of deploying liquidity in a vault that automates that whole process for them. And there's just a lot of great vault providers now, infrastructure providers, for instance, total, we just partnered up with veda dot ET by TBL.
They have the most liquidity in their vaults. And yeah, there's just like a lot of really great builders in the space that have just created. Yeah, great. Like, you know, nice vaults and and they've, you know, made the whole user experience much better for the mass market in my opinion. So I'm not against false. I think they're great.
I just again, just in the first iteration of Turtle, I I didn't want to take any kind of custodial risk for legal or compliance reasons, but also, you know, why would I would want to kind of control the liquidity of my users if I don't have to, right. But I think after obviously kind of working on Turtle for like 11 months now, it's clear to me that many of my, you know, friends or LP's clients have, you know, been asking us to do this for quite some time.
So we're planning to launch a like our first vault in tandem with our first ecosystem bootstrapping campaign with TAC dot build later this month. So really, really excited about that. The way I'm structuring the vaults is slightly different in the sense that yes, it's going to be on the turtle front end, right. But we're not actually going to use any of our in smart contracts. So we're going to piggyback off the vault infrastructure that Vader dot Tech created.
So all of our vaults will be Vader dot tech vaults. In terms of curation, for legal reasons, according to my lawyers, I'm I'm not allowed to curate strategies unfortunately. So I need to work with external curators. So we'll be working with RE7 on the theorem side, Tuliper Capital on the BTC side and Edge Capital on the stable side.
So there will be the ones, you know, actually kind of signing off on these strategies and deploying the underlying liquidity through default infrastructure provider. However, given the risk free framework that I developed with Gonzalo and Cheyenne, the idea is that we want to conduct, you know, very, you know, thorough risk assessments on every strategy and protocol that we plug into the vault with the intention obviously of trying to reduce that risk as much as
possible. I want to actually keep the vault in terms of risk adjusted rewards very high obviously. But the underlying strategies, I don't want to, you know, kind of expose our LP's to too much risk, but we are going to start developing a secondary market for the receipt tokens of the vault so that you can, you know, start generating really good risk adjusted yield on your underlying Ethereum deposits,
Bitcoin stablecoin deposits. And then for those LP's that you know, want to go up the risk curve and leverage their receipt token of the vault as collateral and let's say a Morpho or Oiler or you know, in Curve to generate some additional trading fees can do that. And as a result, then the LP's can kind of create different strategies or flywheels are geared towards their preferences and their risk profiles. Cool, cool. Anything else you want to share about what's coming up for a turtle?
Yeah, we've been working on a lot of different things. It feels like I've aged about five years and over the last 11 months. It was meant to be a kind of a bit of a hobby to be honest, more of an experiment that has sort of taken on a life of its own. And before you know it, I'm, yeah, working a bit more than I have liked or intended to. But it's been a really enjoyable
journey. I've got to meet a very, you know, a ton of very, very clever people in the space that I've learnt a lot from, including yourself, Brian. So, you know, at the same time enjoyed it a lot. We will be the, the title team will be at East Denver in full force. So if you're out and about or if you're intending to come to East Denver, yeah, definitely reach out. Would love to meet in person.
But yeah, in terms of a couple of other things, yeah, like I kind of touched upon, we're developing a lot of different sort of products and services and we're porting over to our V2, redesigning the website, launching the vaults, doing an ecosystem bootrapping campaign with TAP, which is really, really interested. We are also, you know, very, very close with the linear teaming ecosystem. And again, I can't mention too much but but yeah, a lot of people have been asking me about a token.
So yeah, they should look for a couple of announcements with the linear team about that. Cool. Well, thank you so much for coming on AC Really enjoyed the conversation. I'm super excited about what you guys are building and yeah, excited for Define General and and I think that this sort of liquidity layer that you're building, which I think is super useful. So thank you so much for coming on. Thank you for having me Brian. Take care everyone, all the best.