DeFi Talks : The new cycle

Introduction from the speakers (4:15)

Nathan Introduces himself as the co-founder and CEO of Kaskade.finance. Kaskade.finance's purpose is to solve liquidity bootstrapping in decentralized exchanges

Pablito.eth is head of security researcher at Blockfence and a member of the Security Alliance. Security Alliance is a group of ethical hackers that help companies/individuals during security incidents, and guides people through proper procedures when bugs are found or accounts are compromised

TokenBrice has been involved in DeFi since its inception, working with protocols and communities as a liquidity manager. He also cofounded the DeFi Collective, which aims to promote responsibility and resilience in DeFi protocols

Carnation is working as a business developper for Polygon DeFi. He believes crypto can be a gateway to better financial understanding, and frames his interest as being in the "lottery" aspect of finding sound investments

What speakers find interesting

Nathan (12:15)

Nathan is hyped about incentivized/gamified DeFi. We're in a new phase of incentives and gamification in DeFi :

• Pendle with future yields
• Ethena with arbing perpetuals

The biased answer is that Kaskade is the most interesting. There is a big gap in the market by bootstrapping volume and then subsequently liquidity.

All of the centralized exchanges have been doing it for a long time, and they won because they ran the platform. Now we must have alternatives for DEXes

Pablo (15:20)

Pablo is hyped about the Security Alliance whitehat group, as the alliance aims to make the blockchain ecosystem more secure through initiatives like:

• Developing secure development procedures for companies
• Creating a "white hat safe harbor" legal framework
• Conducting "war games" to simulate attacks and responses
• Argues security needs to improve for DeFi to scale successfully

Carnation (21:15)

Carnation is hyped about "Chain Abstraction", which means abstract away complexity of using multiple chains :

• Building ZK proof-based systems for chains to understand each other's proofs
• Opening IBC connections between chains
• Near allows a smart contract wallet to hold private keys across chains
• Across that aim to enable swapping assets across chains seamlessly

All these efforts should converge to allow users to interact with any blockchain from just a few apps

Tokenbrice (25:00)

Brice is interested about a "curation layer" to guide users through DeFi complexity.

It's extremely difficult to explain DeFi protocols and on-chain logic to a non-technical user.

There needs to be tooling/frameworks to help users understand risks and make informed decisions. Fortunately, there are tools for curation :

• DeFi Safety for development practices
• Bluechip for stablecoins review

The DeFi Collective would also like to bring curation with protocol decentralization guidelines, to tackle the question of assessing true decentralization head-on

There is a massive disconnect between what projects claim about decentralizzation and on-chain reality. Resolving this gap would be a major point of maturity.

Kaskade News

How Kaskade helps DeFi (33:40)

The core approach of Kaskade is to increase demand/volume :

• Their protocol doesn't require its own liquidity pools that need liquidity
• Focusing on driving volume/demand rather than directly providing liquidity
• More demand leads to more supply (liquidity) indirectly

Volume fuels yields, which attracts users and reinforces narratives for other DeFi protocols and tokens to thrive

Airdrops already partially use demand-driving models successfully. Kaskade is iterating on and improving this approach, and Nathan expects other protocols to experiment with demand-focused incentives too

Benefits from Kaskade (40:20)

Kaskade lets protocols run campaigns offering incentives for trading volume :

• Users earn points redeemable for rewards by providing volume
• Liquidity providers earn more fees from increased volume

In first 2 weeks, $8k rewards generated $1.25M volume and $12.5k fees

Carnation mentionned there were many previous experiments with incentives, but they're still mostly revolved around attracting more TVL & market cap for their tokens. In that regard, Kaskade's approach is pretty cool

Ongoing campaign for kaskade (1:10:00)

Discussions about DeFi

Pablo's collaboration with Metamask Snaps (29:40)

Snaps are like plugins or extensions that can be installed in MetaMask wallet. They perform additional actions or checks when doing transactions

BlockFence snap specifically checks transactions against a blacklist of malicious smart contracts. It warns users when they're about to confirm dangerous transactions.

This helps combat phishing scams, drainers, and other common crypto attacks that trick users into scams.

The MetaMask collaboration allows BlockFence to integrate their security functionality directly into the wallet

It makes crypto security more user-friendly and approachable for non-technical users

Audits are overrated (37:00)

According to Brice, there is an overreliance on audits as a security guarantee :

• Projects boast about being audited, but code changes after the audit invalidate it. Audits from a year ago are meaningless if critical code changes occurred since.
• Audits are treated as a marketing/PR tool rather than a process. Some projects use "audited" as a way to generate confidence, but audits are not an end-all-be-all for security
• Human error is inevitable in code audits. Community involvement, AI/ML tools can help catch issues auditors miss, and rely on a single auditing firm is risky
• Code can change frequently after audits. Many projects have updateable code bases. Without re-auditing every update, earlier audits provide little assurance. Users should check if an updated codebase was re-audited

Carnation's ideas (43:45)

He expects more of incentives innovations beyond token incentives in the future. Some ideas for lending protocols :

• Track net deposited/borrowed amount rather than gross
• Incentivize net liquidity suppliers more than maximum borrowers

This would align incentives with supporting lending platform's core purpose

Thoughts on Vote escrowed tokens, aka veTokens (45:25)

veTokens must evolve

Core idea of veToken is a "crowdsourced oracle" to direct emissions/incentives

According to Brice, veTokens have merits for directing emissions/rewards, but early implementations had major problems : tokens aren't transferable, and they have "LP Boosting" that leads to suboptimal token accumulation games

veTokens should be used situationally, not as a default design choice. Proliferation of veTokens have negative consequences :

• Increase of the opportunity cost of locking funds
• "Distribution arbitrage" advantage diminishes as more protocols adopt ve models

Future innovations should adapt ve to specific use cases rather than templated approach (E.g. Velodrome with the ve(3,3) model to incentivize volume over just TVL)

Brice Expects to see more innovative veTokens tweaks for different domains :

• Lending protocols could use non-inflationary veToken for preferential collateral treatment
• Avoid downsides of token emissions while getting lock-in/buying pressure

Potential Future Evolutions

• Using ve situationally where it provides clear benefits vs. overusing
• Abandon LP Boosting which is suboptimal
• Standardized tools to easily deploy customized ve models (like "veFactory" from Maverick)
• Lending protocols using non-inflationary ve for prioritized collateral parameters

Being scam or legit in web3 (57:20)

The intention of the founders before launching the project is a key factor in determining if it's a scam or not.

Projects designed from the start to steal assets or funds from users are considered scams. That said, legitimate projects that get hacked or have assets stolen are not necessarily scams.

It's sometimes difficult to differentiate scams from legitimate projects, as scammers can be highly professional in their communication and design, while legitimate projects may have poor design and communication.

Misconceptions about volume and liquidity (1:00:20)

Many projects face challenges in achieving sufficient trading volume and liquidity to satisfy safety checks required by third-party oracles for integration with lending protocols or perpetual exchanges.

Some projects have to wait for months to be integrated. The problem is 1 year in real life = 2.5 years in Web3. Time waiting for integration almost means death

Protocols like Camelot can encourage more trading activity to reach the required volume metrics for oracles.

Some protocols, like Infinity Pools or Ajna, use internal pricing mechanisms and combine lending and swapping features to determine prices and enable integrations without relying solely on external oracles.

In the fast-paced Web3 space, it's better to have tools and products available as soon as possible rather than waiting for a long time before they are implemented.

TVL as a metric(1:04:00)

Nathan identifies four categories of TVL :

1. Incentivized liquidity (through liquidity mining, airdrops, rewards) - considered a burden
2. Stagnant capital (liquidity stuck due to complex/expensive migration process) - considered a burden
3. Unutilized liquidity (e.g., liquidity outside trading ranges in AMMs) - considered a burden
4. Liquidity used by active demand - considered important and valuable.

TVL is often used as a vanity metric to showcase success, but it doesn't necessarily have a strong link to fundamental value.

While TVL is important, it is often misunderstood and overlooked, leading to incentive campaigns focusing more on liquidity than volume, whereas volume is considered the "oxygen" for protocols

Narratives for the current cycle (1:08:40)

Brice : Restaking

Pablo : AI and machine learning

Carnation : Chain abstraction

Nathan : Volume, yields, and stablecoins