From Automation to Distribution: The New Blueprint for Onchain Yield

Are they too deep?

Kind of hard.

Hello. Okay, let's get going. Um, thank you for coming and listening to us today. My name is Ashling and I will moderate your yield chat for today. Um, maybe before we get started, there's like I'm not a yield person.

and I know more about payments, uh, moving money, infrastructure, things like this. So, I was asking everybody all week, uh, what do I ask the yield guys about yield now? And the question that came up every single time was where does the yield come from? So, maybe I will start with that, but um, yeah, we hope to talk about automation, distribution, yeah, the new blueprint for moving yield around, how to, yeah, get it from here to there. Um, so yeah, we'll talk about first where it comes from.

uh maybe we'll take a look at you know what is the current state of things and we'll go from there. So I can pass it on to you.

Hello everybody. Um Lucas uh co-founder of Renzo. Um we've been talking about this uh we all know each other pretty well. So it's it's a topic that we talk among ourselves uh quite a bit and over the last let's say two and a half years like we started Renzo in the summer of 2023 the the whole uh landscape around yield uh has really changed and matured. So uh if we look back let's say 23 24 uh staking was really like eat staking specifically was um was getting normalized and institutions and everybody was getting really comfortable with the risks around it and restaking was a massive narrative that we started off with uh two years ago and it it's crazy to see how fast the space evolves because everybody was really worried about restaking the security of it, how slashing was going to work.

Um, but very quickly everybody kind of piled in and what we've seen over the last two years is the restaking uh yield uh literally go down. I think it's a premium about five basis points right now. Uh, and it really became risk-free. And we're seeing a similar evolution uh on Ethereum staking where everybody's uh very very comfortable to to lever up on a lending protocol essentially arb the the premium between ETH uh ETH staking and uh the borrow cost and you know go up to like 90 LTV which is 10 to 12x uh leverage and I think we're going to see another evolution of each sten probably continue to go And with that um we're seeing the whole space kind of evolve where um it's not just around eat staking and this is kind of where CAP and Odyssey come in where there's other assets that uh we're all looking at uh whether it's on the RWA side to to really find longevity uh when it comes to yield. So, um, I'll talk about a little bit more what we've started doing at Renzo over the last 6 months from an experimentation standpoint, but, uh, yield needs to be sustainable.

Um, otherwise it just goes down, right? The the more TVL that comes in, it just dilutes the yield. So, uh, it's a problem that we all try to solve for and find that longevity. And, uh, the CAP guys have done an amazing job. Uh, so I'll I'll kind of hand it off to them.

You want to go first?

We'll go down the list. Uh, sustainability or greater fools can impact yield.

Just kidding. Kind of kidding. Kind of not. I'm Zane. I'm the CEO of Odyssey.

Uh, we're a DeFi super app and among other things, we have an endtoend leverage yield stack. Um, I'll share the anecdote I was sharing with you guys. Uh, I was a defender of Renzo. Uh, there was a DPEG a couple years ago and uh, I rushed to buy the DPEG and then I figured out where's the best place to get the most yield. I took it to Lineia.

I looped it up on Zero Land. Rest in peace. Uh, I got the repeg yield, the zero airdrop, the linear airdrop, the iigen layer airdrop, the Renzo airdrop. Thank you. I appreciate it.

um that's not happening so much these days. Those opportunities are are smaller and smaller. Um so we're we're definitely in kind of this like transitory phase where yield has compressed quite a lot. Um we all know that. Um, but I am optimistic about uh I think kind of once you get past that, once all these crazy opportunities uh dissolve, what's left is who can come up with new access to yield, who can come up with new yield sources.

CAP's a great primitive there. Um, from our perspective, we aggregate all different types of yield sources. We integrate Renzo, we integrate CAP, and so we're always looking out for who's doing something new and adding a new market to generate yield from. And um since my conversations here in Denver talking to guys like you, I'm quite optimistic for what we're going to bring to market the next couple years.

That was good. Uh I'm Weso, uh CTO at CAP. Uh we are a three-sided uh private credit marketplace plus a stable coin um trying to generate real yield. Uh but I think uh was what is interesting is most of the yield from DeFi summer on has been like just subsidized yield. So when you say where does the yield come from?

Most of it was on either VCs buying the token. So you know then you know obviously you're selling the token that you earned in emissions or then it's retail right and we haven't really seen retail participate in this as much anymore but uh it's all basically token speculation then you resell it tokens go to zero that's not very sustainable uh I'd say even if you think about like staking right in the in the broader context that's exactly what it is right we're just like kind of subsidizing the yield and it's good while the price is good and the yield uh you know percentages are good but then that's not sustainable either. So I think the whole shift and the meta for like the last couple years has been like hey let's go to real yield right like act activitydriven yield you know whether it's trading fees borrow fees like how can we start to utilize like you know the uh movement of money as a source of yield also there's a lot of off-chain yield so now like I think especially for this conference specifically uh there's a lot of discussions around rwas and bringing offchain yield onchain and utilizing not only you those as like yield sources, but also being able to like leverage up that yield, being able to use RWAS in order to to get liquidity and then be able to go ahead and use that liquidity for something else. Um, so I also for somebody who's actually, you know, building a stable coin, we think about stable coins as like basically three different types, right? One is, uh, you get yield from T bills.

So just like T- bill rappers, we see Bil Benji, um even ones that don't distribute the yield to you like USDC, USDT, but they're they're really just T- bill rappers and that's all they basically do. Then there's type two, um where it's basically relying on either the Dow or the team to go and generate the yield for you. So uh either that's curation uh maybe doing the basis trade um but there is like some you know centralization with that or you know you're still relying on the team who's actually both supposed to be the technical product owners and also the ones who are good at you know going out and curating where the best yield sources are. So it for some people we've obviously seen that doesn't really work out for them. Um, and then there's a there's a type three, which is what we're building here at CAP.

And that's where we don't have to worry about uh going out and generating the yield. We don't need to go find a new yield strategy. Instead, we're a marketplace of yield generation where anybody can come to us, they can borrow the funds, go and be the specific owner of that yield generation. Uh, it could be scalable to all different types of strategies. And from there, I think we put one, uh, transparency around the yield because the yield's coming from the borrowed of the asset.

Two, uh, we're not having to go and source the yield ourselves or be the proprietary owner of that strategy. And three, it can be scalable into the billions of dollars. So that's what we're doing right now.

Very nice. Thanks a lot for the comprehensive and, you know, intelligent overview. I was expecting one of you to say if you don't know where the yield is coming from, you are the yield. So

that's generally true. No, but this is great and it gives a kind of view of where yield has come from in the past. Um, where you kind of see it going a little bit in the future, but maybe like it's good to kind of mention now like you talk a lot about I mean the title of the panel is about automation and distribution. This is a little bit different I guess to what we've seen before. So maybe you can each say a few words about this like where you see this going.

Yeah. So essentially when you think of a maturity curve when you have new assets and new yield sources um people tend to or LPs and projects they do things manually right they need to understand what the rails are like how they operate and everything else and what we've seen uh probably I would say in the past year especially is um automation come in in a very big way so we were chatting about it uh as well when you lever up on any kind of asset, let's say on a lending protocol, there's something called the kink where uh the borrow rate uh stays relatively flat and then when you hit that utilization point, the kink, the borrow rate just spikes. And you probably see a lot of this on on CT with a saying, oh, ETH uh supply rates are really really high. I think they were like 6% even a couple days ago. It's because uh supply is coming down and the borrow utilization is so high and it drives up the borrow cost.

Um but the reason I'm bringing this up is it's really um like when when you're moving hundreds of millions of dollars around in multi-IGS um it's very labor intensive. Uh it's a lot of signatures. It's a lot of time that's wasted. So where automation has come in uh over the past year year and a half is uh being a able to automate uh predefined we do for example predefined strategies uh we do with a lot of our LPs uh who use easy eth and some of the other products that we've launched over the last six months and they know what they're comfortable being exposed to let's say a and morpho uh they know what asset what pool and they're trying to maximize um there's a risk return, but they're trying to maximize what that yield is. And uh where automation comes in, for example, in that part is when you hit that kink and the borrow rate spikes up, depending on how fast it spikes, you could lose all your profits uh in a matter of a couple hours.

So, you you want your infrastructure to be able to delever it as quickly as possible. Uh but it's not always that easy because you're putting up collateral. That collateral is usually locked up in another protocol. So with uh within Renzo, we've we launched reserve vaults uh a few months ago. We've kind of automated this and when you use it um we have things like withdraw buffers that we maintain for liquidity so that we don't have a DPEG event and if you use our vaults um our vaults tap into that buffer liquidity right away.

uh otherwise you have to wait you know a week or two with IGEN layer it's two weeks to get your collateral back if you have to wait two weeks to delever most people will go and swap out uh and there's slippage and you have all these kind of things that happen so uh automation when it comes to risk management and being able to manage your exposure be able to get in and out it's the same thing it's essentially when the borrow rates drop um the profitability of that trade goes up, you want to be the first one in there as quickly as possible because and push it up to the kink. So, uh we see automation uh essentially when it comes to some of the early assets that we've launched um that's how it's worked. Now, we're starting to see other assets come in and they're kind of starting from the very beginning. So, you talked about type two, right? The basis trade.

So uh many of you know Athena uh Superstate is another one with USCC. Uh we built an integration with them where uh you get exposure to that and then you could go to like a Horizon and be able to lever up on uh let's say USCC's paying 6% and you're borrowing USCC or U uh USDC at 2%. You could loop that up as well. And um we're seeing these other assets now use the infrastructure that's been built out over the past year, year and a half from an automation. They want access to that um at a risk return level uh that they could also predefine.

Yeah, I'll uh I'll speak to the distribution side because that's uh a lot of where we're at with Odyssey. Um we're unique in that we maintain uh all of the components of DeFi infrastructure to get a leverage yield market. We have synthetic stables, synthetic ETH, we have uh lending markets on Morpho and Oiler. We have our own yield vaults. Uh and what that means is that a new boutique yield source, something that didn't exist before that needs to get its first 50, 100 million TVL, uh they can come and have one conversation with us and get their first leverage market because uh yield has suppressed and people don't want to buy the tokens as much.

The uh the private LP deals going to the market makers uh you can't go to them anymore and say we're going to give you tokens. They want guaranteed uh APY in dollars. And um I think that the next couple years is going to be uh how can we get these new interesting uh yield types, new sources of of assets uh into enough mind share where they can get that initial startup uh usage, startup TVL. We're one of the first borrowers and one of the first uh delegators on on cap as well, which is a great example. Um I think that's going to be a big differentiator is who can get that distribution in the world when no one cares about the airdrop as much when you can't just rely on we're going to have a token so come on in.

You have to really fight for that uh that initial TVL. Once you get there, once you get your first 50, 100, 500 million, whatever it is, then you get the economy of scale and it's easier to maintain and it's easier to uh get your iterative growth. But um I think that's going to be where we'll see a lot of focus across DeFi, especially if we continue to have this really uh disappointing bare market uh that we're in now. Yeah. Anything you want to add?

No, I was going to talk about curation for a second because I think um what we've seen is that the yield market is so fractured. We have I don't know. I used to work on Beefy and I think Beef is deployed on 37 blockchains. Like 37 there's no need for 37 blockchain. They all do the mostly the same thing.

And so they all tell you something different like we do consensus a little bit different. We're a little bit faster. What they're all just like a morpho unis swap and that's it. And then they when the incentives run out, everybody leaves and the TVL dies and you know we re rehash it again for a new chain. And so um but that creates like obviously fragmentation from all the different places where yield can possibly be.

So it's crosschain you know um maybe it's really hot on base right now or you know the you know new product on Ethereum and uh as like a user a retail user like it's totally confusing like where do I go? How do I get the yield? Uh what do I access? And so, uh, what we've seen is that there's, you know, a growth in curated products. People who are going to say, "Hey, I'm the more of the DeFi expert.

I'll go take your funds, deploy it where I think there's safe and secure yield sources, and then unify it all in one product, and then deliver that to you." Um, I think that that's obviously way easier for a normal person to understand. I just come with USDC, pop it in the vault, you guys go ahead and find the yield as long as it's safe. Um, just the problem with that is that they blow up and then everybody loses all their money. So, I I I do think it's just a problem that still needs to be solved.

But I I I see that's where the automation play is sort of going is that like instead of relying on uh a bunch of retail users who are airdrop farming to be the experts that where they're going to go and bounce to different yield sources, we're seeing now these growths or like a whole bunch of products coming and building these curation sort of models where, you know, they're going to be the experts. So, they're going to organize everything. Um, make like an easy to use, uh, easy to understand UI and, uh, maybe like break it down just get a little bit easier.

Yeah, just to add to that, um, I think we've also taken for granted how hard it is, right? So, Beefy being on 37, I think Renzo, we got up to like 16 17 networks. It's actually really hard, right? It's really hard from a bridge perspective, from a liquidity standpoint. Um, it's really hard to be able to get on certain lending protocols like a has always been kind of like it's not like everybody is able to get every single asset as a collateral.

Um, it there there's things around oracles and DPEGs and liquidity. Um, so it is super important when you're looking at yields, especially when you're doing it yourself. Um, it's it's enticing to go and chase the the highest yield sometimes, but as we saw with uh just over the last couple months, we saw a bunch of stable coins where nobody knew what the counterparty risk was. And we're kind of back to where we were in like Celsius and BlockFi where um we've kind of come back to that, right? like yields go down and people go start chasing yield and now um that yield is being generated offchain but you can't actually track it.

You don't know what your counterparty risk is. Uh and that happens in cycles and I think we're actually going to see more of it if if we believe that interest rates are going to be going down. Um you could see for example Tether is heavily diversifying their business into other companies. Why are they doing that? Well, we were in a high rate environment.

they were printing money. Um, and now they know that a lot of their revenue is probably going to shift. So, they're diversifying. Um, automation and curation is also evolving. Uh, I'm sure everybody here over the last couple weeks with open claw and AI and stuff like that.

Um, it is going to be a thing. We still don't know exactly how it's going to be, but like for example at Renzo we internally we we build uh a ton of stuff that we actually don't release and we experiment with. One thing we're experimenting with right now is 707 um and essentially allowing um individual users because vaults right now are pulled right so you can't uh diversify and say oh I I want 5% here 10% here. um and it's pulled with other assets. So, we've even started experimenting and saying, "Oh, well, with uh XRC uh or um uh ERC7, you're able to essentially wallet by wallet have individual vaults.

Uh but somebody still has security and like predefine what those strategies are and where to go get yield, right? So some of the it automation is evolving, right? Um and it's going to be somewhat interesting how we see this kind of play out over the next six months.

Yeah, I think curation's fine. Uh I don't think curation where we're taking the money off chain and nobody sees what you're doing with it is fine. So, uh, hopefully that's like the part of, uh, this model that we stop, uh, promoting because we've seen too many times that there's like, uh, stable coin issuers that are doing that exact model, non-transparent, take it off chain, I'm going to do some basis trading or, you know, uh, HFT market making and going to bring you yields and really they're not, and then they blow up and then all of a sudden it's like, you know, directly impacts all of the rest of us. Yeah, the the one thing that's changed though, right, with the current administration, especially in the US, we're seeing a lot of proper funds, right? So, I think Superstate is a perfect example.

Um, they're here in the US, they're properly registered. Uh, as an individual, you can't just go and deploy capital there. So, we've built uh a layer there where uh we actually KYB and we're the counterparty risk, but allows access for anybody else to go in. Um, that's the type of stuff that we look for versus um I think there's a number of examples I I don't want to uh name them where uh it's just high yield on a stable coin and you go and look where the counterparty risk is and they're they're not a registered fund. Uh they don't do the proper reporting and everything else.

So, I would say from that standpoint, I've been pleasantly surprised um on how the space is kind of maturing and we're we are starting to see access to that. I still wouldn't put 100% of my money into one thing, right? You still want to be able to diversify because these things can blow up. Uh we've seen a couple of um hedge funds stop redemptions over the last two weeks, right? Uh kind of out of nowhere.

There was a private credit like a big private credit fund that just locked

withdrawals.

Yeah. Like yesterday. So um

maybe we have less than five minutes left and there's one point that I would like to touch on. I think you kind of started to touch on it there a little bit but following from the automation, distribution, curation like the whole space seems to be maturing a lot. It's less like being in the right DGEN chat group at the right time and like you know getting in and out at the right time like having this kind of better stability and predictability and you know you said like you can promise you know a genuine APR in dollars and things like this. um like in payments and generally in the Ethereum space you see a lot of conversation about the institutions coming and like from my perspective like I work a lot on privacy tech like one thing that is very interesting for them from that perspective is that like you know one of the things stopping the institutions from moving on chain is a lack of privacy the fact that everything is public you say like you don't want everything to be done like um without transparency this is possible with privacy now you can have verifiability and things like this I I think this was talked about on the stage already this morning, but I think it would be nice if to hear your views on, you know, what does it mean for the institutions coming first of all, are they coming? Are they like are you seeing that they're coming?

Are they interested in if they come, what does this mean for the yield space and DeFi generally? And like this is a bundle of questions now for three minutes, but just a final remark like do you see the need for privacy in all of this? So I think the the first thing you need to think about is how do you define institution right it's such a broad category and what we've seen initially is liquid hedge funds uh kind of being the institutions but when uh internally when we think about institutions we think I I'll paint a picture especially if you're based in the US finance for the most part in the US has been um not very accessible to a lot of people in the US, right? There's a lot of constraints about being an accredited investor, having access to different kind of yield products. Um but I for example I would not be surprised in like two three years where Apple Pay or Google Pay that's an institution they have massive distribution

where where you're on your phone and you're holding stables um to pay for stuff and you have access to different kind of uh yield products that today just don't exist and you don't have exposure to. Right? So that's one spectrum uh of thinking about institutions and how they already have the distribution and they want to be able to expand their products that they offer to their users. Now is that yield going to be necessarily onchain or is it going to come from onchain? Probably not.

But the rails are much quicker. They're cheaper. Um and we are going to see that market. I think maybe two years is wrong, right? Tim timing is really hard, but especially in the US, you don't have access to that kind of capital.

I think we saw Robin Hood this week um start offering access to private pre-I uh IPO deals, right? So, that market is really opening up and when we think about distribute uh or institutions, I'm actually not thinking about like directly working with a bank. it's what kind of rails are they going to need and what kind of products are they going to want to offer their users? Um because they do have the distribution. Distribution is really really hard to be able to generate.

So that's kind of our perspective on it. Um I don't get too worried about like privacy and stuff like that when you think of it from that concept. But we are seeing some of the bigger banks uh start launching their own networks that are private for that settlement because they could run centralized validator nodes that are very quick. Uh they don't have to worry about gas and ETH and uh all this other stuff. Um so you're going to see this kind of divide where like the big banks to be able to offer some of these products, they're going to have their it's finally happening, but it's happening very differently.

Uh, and then DeFi is just going to evolve uh differently the the way we know it today.

Nice. Any final?

I know we're we're at time. I'll add really quickly on the what does it mean when the institutions are here? My contrarian take is that the sophisticated retail onchain user is going to benefit from whatever onchain institution looks like not get hit by it. Institutions have investment mandates. They have a lot of due diligence.

They have a lot more restrictions than what a regular person can do. They can't be the first borrow on a new morpho market. They can't be the first depositor to the a fork on the new chain. Um but yeah, exactly. But and at the same time, they contribute to more TVL, more access to opportunities.

So I think that uh once the institutions are massively deployed, it'll be good for us regular folk too.

Yeah. Quickly, yes, they are on chain. They're borrowing from cap. Yes, they want privacy. I think that's a limiter.

And they want transparency around the where the yield is generated. Thanks very much. I think we're at time. Thank you all.