Talk to Aave executives: Protocol ambitions, StarkNet expansion, and the future of DeFi

One of the ways to stay true in a bear market is to talk to successful people in the field.

This article is about an interview with Marc Zeller of AAVE Strategy Department, whose conversation allows us ordinary people to understand the direction of cryptocurrency from a broader perspective.

What is your cryptocurrency origin?

I understand Bitcoin because of drugs and the dark web, which I guess is common in crypto OG. My first impression about Bitcoin is that it’s incredible in economics – because you can’t create money without inflation.

I lived through the altcoin era of 2014. After that, a good friend of mine introduced me to Ethereum in 2015. So, when my friend told me about Ethereum, my first reaction was, another altcoin – one new bitcoin every week, but most of it was worthless.

He told me, wait, Ethereum has something different, introducing concepts such as smart contracts, world computers, and so on. I thought, it seems like this altcoin is a little different, at least it sounds like it’s doing something. Curiosity at the time changed my life in many ways.

In 2015, I and a few other technical friends decided to create Ethereum France. The Ethereum Foundation contacted us to organize a community meeting in Europe, which began in 2016 and has been held every year since.

In addition to this, I joined the ecosystem in 2016 as a full-time job, working at Consensys, working on stablecoins.

In 2019, I joined ETHLend as they moved to AAVE as we now know it. I supported the creation of AAVE and have been working here ever since.

What have you learned from the last industry cycle?

We have learned a lot, but we can say that we have achieved nothing, and this cycle will be much better than the previous one. The 17/18 ICO cycle was basically people selling PDFs, white papers, and dreams – basically.

We have encountered a lot of narratives in this cycle, mostly nonsense. However, all of these are practical applications on the blockchain. During this cycle, the actual usage of blockchain networks has increased by several orders of magnitude. We have running code, applications, DAOs, and an actual ecosystem. We have full DeFi, we have NFTs, we have many other levels of industry.

I think this is the first cycle, even if the price falls, no one will say that cryptocurrencies will die.

I think it’s the ecosystem finding enough product-market fit that can last for years. That’s why this cycle is so different, and I hope we can learn and raise awareness, but we shouldn’t have a value cult in cryptocurrency, especially on DeFi. We attract a lot of capital and attention, while DeFi and cryptocurrencies are decentralized – and don’t place too much emphasis on individual entities.

So my hope for the next cycle is to have fewer superstars in the ecosystem and more builders and protocols to speak for themselves.

Why do so many DeFi platforms fail but AAVE survive?

Being the last person alive carries terrible responsibilities. We are basically the last DeFi protocol that has never been exploited, hacked, or mentioned in rekt.news.

From 20-22 years, we spent $1.6 million on auditing AAVE V3, which I think is the largest audit spend of any single application.

We do everything a human could do to keep our users safe.

So far, it has indeed produced good results, but it is impossible to want zero risk.

How would you describe AAVE today?

AAVE’s vision is quite complex and takes years to mature, but we will move towards our goals step by step.

V1 introduced flash loans, stable interest rates, A-Tokens, all things that didn’t exist in DeFi at the time.

Then came V2, which was an order of magnitude improvement in gas cost, new features, and functionality.

Now that we have V3, we are actively preparing stablecoins (GHOs), content creator protocols, monetization protocols, i.e. Lens or social media.

All of this is forming some form of roadmap, we still have a lot to do, and as I said before, AAVE has only delivered 5% of the plan.

What is the remaining 95%?

A little over a year ago, we tweeted about debit cards, and people forgot about it due to the low profile of DeFi and cryptocurrency Twitter. But since then, we’ve been licensed by an electronic money institution, and we’ve built a whole dedicated team to deal with that.

We have announced the launch of an AAVE app and wallet that will be a one-stop shop for social media and DeFi services on top of fintech services.

And we will use stablecoins (GHOs) as the main currency.

Many things have already been made public. We’re not working in the dark, we just post things step by step. It’s clear that we’re focusing more on what we can deliver in the short term, like V3 and GHO for mainnet that are likely to come in the coming weeks.

The only thing we do at AAVE is work on the technical side.

We need to make sure it’s mature, it’s secure, it’s audited, and then we submit it to the DAO, and we worked on the stablecoin GHO for a year.

Moreover, this voting occurs directly on the governance contract, and the implementation is done by the governance contract.

So, it’s a whole new way of working.

This has never existed in other industries in the past: you organize a team to contribute to a protocol, and then the community of token holders makes governance decisions to make things happen or reject them.

Why is GHO needed and why is it important?

There are two answers to this. In the context of AAVE, having a decentralized stablecoin is a natural path when you have one of the largest liquidity protocols, because in economic terms, the ability to borrow USDC using ETH is almost indistinguishable from the ability to mint GHO using ETH. It’s basically the same thing, the same market, and AAVE’s stablecoin isn’t exploring a new frontier, it’s just an extension of what we know and what we’ve done over the past year. And, because the protocol has formed a critical mass of liquidity, it makes sense to enable these services because we already have all the liquidity, the participants in place, the brands in place, and all that’s left is for GHO to succeed.

Second, for AAVE, stablecoins will be the focus of all these services working together. In terms of efficiency, make stablecoins the dominant currency, or at least one of Lens’s currencies. As well as AAVE can use it to provide liquidity for the services of the fintech segment, which can then be converted into fiat.

In the larger context, I think the whole ecosystem is basically obsessed with centralized stablecoins or fiat. And I think the only solution is to reduce the importance of assets such as USDC, which are not bad assets, but they are too centralized for crypto.

USDC is likely to account for 80 to 85 percent of DAI support, and GHO may have been the same initially.

However, I hope that in the future the proportion of DAI may be 50% USDC, 20% GHO, 20% Curve stablecoins, and then 10% others. If we have more and more decentralized, strong stablecoins, we can reduce the importance of USDC in the ecosystem over time.

I love GHO, DAI, CRV, FRAX or any kind of decentralized stablecoin because I think strong diversity will make stablecoins’ collateral more diverse, which will make the ecosystem more resilient and more censorship-resistant.

When can we expect Portals to be released? When is CCIP?

In terms of roadmaps, Portals has been pushed back a bit. In order to have portals, the launch of V3 is required. V3 was supposed to be released earlier on Ethereum, but it was delayed until the next few weeks, so this also delayed the launch of Portals.

The current plan is to release V3 on the Ethereum mainnet, then release GHO, and then activate the portals.

In terms of Portals’ infrastructure, the current roadmap is to have a V0 and V1. V0 simply uses a credit limit that is assumed to be trusted. Therefore, we whitelisted things such as cross-chain bridges, market makers, etc., who can make A-tokens out of thin air in the context of credit limits, and they are incentivized to replenish their credit limits, so it is portable. In any market where AAVE pays interest rates to the protocol in exchange, this is “timely” cross-chain liquidity.

V0 was implemented first because we didn’t have access to the actual cross-chain interoperability protocol, which is what CCIP means.

So two of the most established companies in the industry right now are Chainlink and CCIP, which we’ve been working with since day one, and Layer Zero.

Truth be told, none of them are yet mature enough to meet our high demands for decentralized security and security.

For example, Layer Zero is heavily centralized in its current form, while CCIP is not usable. That’s why we have to stick to V0 now.

When we have a robust cross-chain information solution, we will launch V1. V1 will introduce dynamic credit facility features, such as cross-chain collateralization of credit lines, and will allow other use cases to transfer liquidity beyond just cross-chain bridges. With a cross-chain messaging infrastructure, you will be able to own cross-chain lending positions. So if you have some LINK on Ethereum and you want instant access to USDC Polygon, you’ll activate the portal through a third-party dApp, your debt will be on Polygon and your collateral will be on Ethereum, and that’s the long-term vision of Portal.

Do you get regular updates on CCIP from Chainlink?

We talk weekly with Chainlink to discuss CCIP and other synergies with them, and we have a very good relationship. They have the same high safety standards as we do.

They won’t release anything unless they are 100% sure that it is safe for the public to use.

That’s why you don’t see Chainlink and AAVE in rekt.news.

Will AAVE be deployed on non-EVM chains?

The answer is yes. And we’ve voted, against StarkNet and Cairo. The two chains have been budgeted, and they have received a budget from the DAO and organized a working team to deploy to the project, known as BGD Labs. We expect to happen when StarkNet goes live in 2023.

Talk to Aave executives: Protocol ambitions, StarkNet expansion, and the future of DeFi

AAVE is definitely not an EVMIST. However, there is some analysis that is needed. Non-EVM means that all your expertise on Solidity is immediately zeroed out because that’s not the same code.

So if you’re a world-leading developer on Solidity, you’re probably on Rust. This is a fact because when you change the language, some skills don’t magically transform. You’ll need to find or transform your current talents to make them compatible with the new environment. Acquiring new talents costs three main currencies, time, attention, and money.

When you rewrite all the codebase into a new language, the audit firms you’re used to working with are basically useless, because the best companies in the world that can validate Solidity smart contracts have no experience with Rust or other smart contract languages. Therefore, you need to find a new audit firm, even if you have no experience, it doesn’t matter.

You also want to consider whether the cost of deploying on a new chain is reasonable? If you spend 6 or 9 months and $1 million on Solana and don’t succeed, you’re wasting the DAO’s money.

Why StarkNet?

What propelled us into StarkNet is that it is a game changer. It is an actual L2, compatible with Ethereum, and eventually settled on Ethereum. However, since it is non-EVM, there is a big difference in terms of, for example, calculation.

When you do something on the blockchain, everything you do in terms of technology costs money. So if you’re going to store some data, you need to spend money. If you change a variable, it costs money.

On Ethereum, doing smart contract-level math on the blockchain costs a lot of money. But on StarkNet, it’s pretty much free. Now, DeFi is simple and stupid, not because we can’t do the math, but because complex math costs a lot of money. Risk parameters, interest rate curves…

What’s exciting about StarkNet is that we’re able to create an AAVE V4 on StarkNet. It’s not a mature thing, but it will have more math, optimization, and efficiency. That’s why it’s interesting for us in terms of experimentation.

Where does Lens fit into AAVE’s overall vision?

It’s a new way to monetize content. If you’re a content creator who earns money by creating content, you empathize with Web2’s poor content environment. Lens will empower content creators and earn revenue. I think that clearly matches what we’re doing at AAVE because there’s a lot in common between liquidity protocols and content creation.

For most users, the only visible association between AAVE and Lens is GHO, and I think most of them don’t even know about DeFi, but they do use GHO. For example, they will use their credit card to purchase GHO and support their favorite creators. But for content creators, Lens will be a game-changer. Most (but not all) of the value provided by their community will go directly to them. They will be able to do cool things with their audience that is basically impossible in Web2.

I have a YouTube channel with a large audience, and YouTube takes 60% of all ad revenue, probably more. The same goes for Twitch. When someone subscribes to my Twitch channel, they pay about 4 euros, and I make less than 1 euro and the rest goes to Amazon.

I only have a small community on Lens compared to Twitter, but I’ve made $350. That’s a lot of money. In the month I released AI-generated artwork, I never made a penny from Twitter (70,000 followers). So I’m very much looking forward to seeing how it develops.

What are you optimistic about in the coming years?

I think the upcoming narrative in DeFi will be LSD, or liquid staking derivatives. LSD is the best type of collateral.

Talk to Aave executives: Protocol ambitions, StarkNet expansion, and the future of DeFi

When you have stETH, you have a 5% ETH yield, which you can use to borrow DAI and spend, or borrow more ETH in order to convert it into more stETH. And depending on your leverage and collateral, you can increase your yield and make sure you have a leveraged directional bet on ETH. So it’s up to you. I think it’s a good form of collateral because if ETH is stable, your collateral will increase by 5% in a year, and so on.

Experiments in this area began with stETH on AAVE. It was a huge success, and since then, stETH has generated $3 billion in deposits and about $1 billion in borrowings on AAVE. I think we can roll it out to Polygon with stMatic and MATIC X. MATIC borrows more efficiently. Once governance is passed, AAVE will roll out an Instadapp feature so you can do similar leverage on Matic.

I think more LSD diversity would also be good for Ethereum. Because Lido now accounts for 30% of all Ethereum stakes, it would be even better if Rocket Pool, StakeWise, and other alternatives developed to have a more decentralized ecosystem. A good way to do this is to have more LSDs join DeFi.

If I only own 1 ETH, I will stake or stake the rest of the ETH except for the gas fee. There is no point in having excess ETH other than paying for gas. If you have ETH, it’s best to stake it, or use staked ETH as collateral.

The second thing that should be promoted in DeFi is the use of LP tokens as collateral, which is actually something we pioneered at AAVE in 2022. At that time, the market was not mature enough, so it did not achieve great success. But I think the market is ripe now. For me, for example it makes sense to use Curve LP tokens or 3CRV as collateral, borrow other stablecoins, and place leveraged bets on top of that.

For example to provide liquidity on Convex, or even Curve stETH – because at the end of the day the underlying asset is ETH, which can be a good form of collateral because you will be incentivized.

I think it’s time to improve DeFi efficiency. Because most basic projects have found a niche for their products these days, it’s time to deliver their profitability and efficiency.

L2 for DeFi is also interesting. For example, AAVE has a layer 2 called Momodo. Morpho allows you to create a P2P layer on top of AAVE. If you have a stablecoin and you offer it to Morpho, you will get a yield of AAVE or a yield that matches the P2P borrower of the Morpho layer. So, as an LP, you can get an AAVE yield or a better yield than an AAVE, but never less. So, your capital utilization as a participant will always be the best. As a borrower, you will get less cost than AAVE.

I think we’re going to launch more yield derivatives. The first one that comes to mind is 88MPH, which allows people to get their yield early, so you can lock up your collateral, which is deposited in AAVE, and you get your yield liquidity in advance. There are many protocols like this on the market, such as Element Finance, AP Wine, etc. They haven’t gotten attention yet, but I think these are the leading projects of the future if they can become more efficient.

Obviously, in the future, cross-chain holdings will be strong, and we still have a lot to build at the moment.

Finally, is there any life theorem to say to cryptocurrency investors right now?

Fixed investment.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/talk-to-aave-executives-protocol-ambitions-starknet-expansion-and-the-future-of-defi/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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