Ask Me Anything | Stani Kulechov, Founder of Aave Labs

Thanks Colton. And yeah, I'm pretty excited about your new setup that you're putting together. I think it's going to be quite amazing once you finish up everything and get the angle straight as well.

Yeah, I think that's, my expectations were much more lower than where we are today and mainly because Aave V4 is a completely new infrastructure for the Aave ecosystem. So the whole protocol was built from the ground up. You know this is probably the first time for a very, very long time we actually designed something completely new by putting the pieces together from a completely new approach. Last time we did that was the obvious transition from ETHLend into more like a peer-to-peer sort of fixed rate lending model that we have in the early days into more pooled model that Aave is today. So given that and sort of that we had to build the whole infrastructure from scratch and design everything in a new, more future proof way. That obviously means that the whole infrastructure is new. So we launched as a security first approach. And what does that mean is that we intentionally cap the growth of the protocol. And the growth is accelerated or released by increasing the supply and borrow caps and also credit lines between different hubs as well. Now I was expecting more slower growth just that users get comfortable, integrators get comfortable with Aave V4 and the new infrastructure although the code base is much more smaller than the previous version, the V3. But it's been very surprising that there has been a lot of demand and usage and now going above 350 million of deposits in just a few months is a great sort of statement that V4 is very useful. There's demand and users want to really use that and it just creates different types of a market structure that V3 has. First time ever Aave has sort of a lending pool where you can have collaterals that are not lended out, rehypothecated with the Aave V4 prime markets meaning that as a borrower you're able to supply into that pool, borrow stablecoins without lending out your collateral. So it's available for you upon repayment across the whole pool. But also there is no tokenization element in that pool either. So there's certain benefits for users that didn't exist before on a market structure level. So I understand why there's particularly the demand there. So I'm quite positively surprised.

Yeah, I mean Aave always has been about going where the users are and where the opportunities are and in our space you know it is quite clear that there's certain advancements in different networks. For example, Avalanche is focusing quite a lot at the moment more on the institutional adoption. They have a great business development team that has been working really hard on actually getting institutions on chain, getting to deploy RWAs and sort of having this business development function that for example Ethereum itself doesn't really have at the moment. So that makes sense for actually expansion to Avalanche and obviously Tempo is focusing a lot on fintech, bringing more stablecoin usage on chain that brings itself various different opportunities and for Base as well there is countless opportunities closely tied to also Coinbase. So the multi-chain strategy is still highly important for Aave. It is true that we as an ecosystem recently have been evaluating which of these different networks or L2s are valuable for the Aave ecosystem. Especially because every network deployment comes with maintenance and that means ongoing technical assessment, risk assessment and that comes with a particular cost structure and this means that we have to be very mindful on where a deployment should exist and those deployments that don't really provide enough revenue unfortunately they will be axed. So there is no compromise in those situations simply because the running cost of Aave and everything that comes with the due diligence that we do with different service providers that has a cost. So I think that going forward there's going to be more selected bets on where Aave should exist. And obviously Aave is an extremely strong brand that really helps these networks to also achieve their goals. So strong alignment and partnership with Aave is something we're weighing heavily going forward with different networks. And I think that's the strategy we're looking forward to.

Yeah, I think that particularly layer twos do bring some cost advantage for these deployments. And as I mentioned is that our goal is to ensure that we maximize revenue as much as possible and minimize cost to every single penny as much as possible and that's the sort of deployment philosophy that also goes all the way to the users. Now if users can save on transaction fees even in the cases that they're abstracted away from the users by the application layer that is a big benefit and one particular exciting use case is simply holding accounts on an L2 where the user deposits are taken in directly with on-ramping facility and then using multiple revenue sources from Aave Ethereum mainnet to then actually create a yield product that has a predictable rate and that is basically what the Aave app is going to achieve together with the Stable Vaults. Stable Vaults is a way to connect into Aave but also they do a lot more. We probably will cover a little bit more about this later on but just to give a brief is that the reason Aave Labs built the Stable Vaults is because there wasn't a really good tool to actually connect a mainstream experience into DeFi by providing predictable savings rate, being able to attach any sort of viable strategies, being able to swap stablecoins inside of a vault from one stablecoin to another based on the allocations and most importantly set the predictable rate based on user groups. Which is very common that a more user-facing application such as a neobank might for example have categories of users for example premium users that have larger balances and so forth. And this is sort of the answer from Stable Vaults to actually support the Aave app but also it is the perfect world infrastructure for fintech and our philosophy is that at Aave we're going to build a lot vertically integrated products and if you look at the Aave app there's vertically integrated vaults but also on-ramps as well, native on-ramps to make the experience as smooth as possible and also Aave accounts that act as embedded wallets with full white-labeled experience. And this is something we already started building a few years ago knowing that mainstream really needs a simple way of interacting with the protocols while keeping the custody of the funds. So everything we built vertically should lead to a better experience and more wider adoption. But at the same time our model is open meaning that everything we build we also open that infrastructure to other participants, other fintech whether they are crypto-native neobanks, existing fintech or institutions they're able to select any sort of feature or a product from our stack and integrate that and that sort of grows the whole Aave network to a bigger value proposition. Regarding V4, I think one of the exciting sort of use cases comes from the modularity of Aave V4. So compared to the other V4 monolithic infrastructure, V4 allows to have custom code attached into the core infrastructure as long as it's compliant with the hub and spoke architecture that the Aave V4 has. And one of the use cases that we're super excited about is actually being able to use native Bitcoin as a collateral that is secured natively on the Bitcoin network and then borrow liquidity from the Aave pools and then the follow-up integration happens where you could go one step further and actually then allow collateralization of Bitcoin or other assets that are sitting in qualified custodians and being able to borrow from Aave. So what it means is that the collateral precisely doesn't need to exist in the Aave smart contracts as long as that implementation is compliant with the Aave V4 architecture and there's a way to actually repossess that collateral and those risks are understood by the users that are then supplying liquidity to an isolated hub and spoke that has this sort of feature in where the collateral is located elsewhere.

So variable rate in DeFi is the whole basis of supply and demand of lending and borrowing. That is the sort of fundamentals of how lending and borrowing works and how it's grown in DeFi. And there has been countless attempts to build a bit more sort of a fixed lending market by matching the peers. We've started basically from a more fixed approach because back in 2017 and 16 there wasn't much liquidity on chain and we had to find a way of actually pushing the risk discretion towards the users instead of delegating that to any particular system. But one of the interesting pieces is that once you have that variable rates, you can actually then start constructing a bit more predictable rates. And when we think about institutions or we think about even more consumers and the new waves of users that are coming on chain for them predictability is something that is easier to grasp than for example a rate that might change block-by-block basis. And this was one of the main reasons why Stable Vaults were necessary. And the second thing is that there wasn't a feasible way of swapping one particular stablecoin into another one and keeping that in the same sort of accounting system. So you have to typically withdraw a stablecoin from one vault and rebalance to swap it and rebalance to another one that causes friction and then in most cases another issue is that most of the yield is on Ethereum mainnet while the actual user experience is much more cost efficient on layer twos for example Arbitrum and if the most of the yield is on mainnet and the UX is on L2, what you simply need is a system where you can benefit from the UX. So having the accounting on L2 while being able to attach yield strategies from L2s but also from the mainnet. So these were really important decisions and I think the Aave app and actually Stable Vaults are a symptom of actually designing DeFi products directly from the user product perspective. I think over the past decade we've been building a lot of products from more of a protocol and technical angle where we're trying to achieve clean primitives that can be integrated by any sort of party or can be used as building blocks. With Stable Vaults and the Aave app the focus has been purely how do we get the maximum from the adoption from the new wave of users, what are the problems that we need to solve and let's go and actually solve them because so far no one has been able to do that and I think no one is in a better positioning than Aave to actually do that because Aave does have a protocol that produces yields, it has integration point with Stable Vaults, it has the application interface with really great design and experience, vertical on-ramps. So you have sort of the end-to-end stack to actually onboard the next waves of users and that is sort of how the Aave app and Stable Vaults were built and now we see more actually interest from third parties to either integrate existing Stable Vaults or deploying their own to actually bring this utility for their own user bases.

The most important roadmap for the Aave app is to make it much, much easier to move fiat from bank accounts into Aave across all regions or applicable regions globally. That is the single most important thing. We have a roadmap of other interesting features as well. There's for example feature sets relating to cards and then thinking about what other things the users could do besides having a good savings account. I think those are very exciting features for the next year and a half. But what is really important is that how do we remove every single bottleneck and a barrier between the user moving the funds from their bank accounts into Aave at the lowest friction and at the lowest cost as well. And this means that for example today you will be able to already move pounds into Aave in obviously form of stablecoins down the line when it enters into the protocol in few seconds. The same will apply for users in the European Union and the same will apply also for users in the US. Now our work goes into how do we make this possible also for our rest of the world strategy as well. So making it as easy as possible moving funds and that is sort of the key USP for the Aave app and then all the additional features, being able to do more bells and whistles can follow up later. The Aave app doesn't really want to become a finance everything app. First, the first is to really provide a really good access into DeFi in a way where users can actually keep holding their keys in a way that it's really simple, good account recovery with biometrics ensuring that there is good protection for the users on the smart account level against phishing attacks. Those kind of things are really important for our team going forward. But down the line obviously it's going to be interesting to think about what we're going to add beyond basic savings, what could be the next sort of product, will the users should they basically have also beta exposure to tokenized assets or something else. These are the kind of things that we're brainstorming quite a lot these days but main focus is actually on the onboarding.

Yeah, it's a bigger part of the licensing strategy. So we believe that on a protocol level you have to have a resilient system and the resiliency comes from the fact that you're using smart contracts and they are hard to actually reconfigure or make any sort of changes and that is what the decentralized governance process actually brings on the table and also immutable contracts as well which is also part of our contract stack. And then the point of actually how do we get people in using this technology comes to that onboarding piece. And we looked at every single option on how and what will be the means of moving fiat from bank accounts into Aave in a non-custodial way. What will be the best ways to do that? We looked into every single on-ramp provider over the years. There's been a lot of progress there. We see a lot of reduction in fees. But obviously like one of the biggest bottlenecks is the actual user experience. And we want the fee experience to be zero. Users being able to move funds without incurring any sort of basis points for doing that because we believe that the mainstream users won't understand why moving funds from one account to another one will basically cost a portion of their capital essentially. And to actually make this happen, we obtained, we built a vertical on-ramp basically owned by the Aave ecosystem under a brand called Push and Push has secured a MiCA license in the European Union being able to cover all the EEA countries. We have an EMI license in the UK and also a VASP license for crypto exchange services as well and in the US we've partnered with Bridge. We have applications for money transmitters and this is all to actually service the purpose on improving the onboarding into Aave and DeFi so it's been a big strategy so I guess this approach is very unique to any other DeFi team out there at the moment because we really believe in the ability of building something better when you have more say on the actual underlying rails and building those rails in the right way. So that has been the really important piece and now our goal is to also figure out how do we onboard the rest of the world in the same way where you don't need to rely only on stablecoin deposit paths but also connecting better into the existing financial applications globally.

Millions or hundreds of millions of users potentially over time. But I do say that you can build a really good on-ramp and product in the US. There's certain credit risk that you have to figure out, and we put a lot of effort into it. The EU is actually the most progressive because there is a concept of strong customer authentication. So the fraud is much minimal, which is the risk that the on-ramp builds. I think the hardest region is definitely the UK because it introduces a financial promotions regime where you have to give a cool-down period for the users after creating their account before they can deposit. And you also have to add various kinds of disclaimers about buying stablecoins being a high-risk investment. So I think there's sort of a lag or displacement on existing regulation in the UK, but I think that's just sort of a temporary status quo. And well, that's something that we actually spend time on as a company as well, giving feedback to the people in government across all of these different countries, especially ones where we have employees and are located. And so that's a big part of the work we do as well. And we've been trying to get it out there more and post about it more. But if you're really interested in the legal side of things or some of the regulatory work we're doing, you could follow Linda or Maria or even Stania from our team and get some insights into how we're thinking about regulation globally. If you're kind of a nerd about regulation or anything.

Yeah, I think the general take on onchain stocks has been sort of lukewarm in the sense that I think there are teams that are working on this and are seeing that this is the future where the space is going to expand to. But there's a lot of, I would even argue most of the DeFi doesn't really see onchain stocks growing at least anytime soon. So I do see that that's sort of the existing take. I think our team probably is the most bullish from an onchain lending perspective on onchain stocks. That is because we have a really high conviction, and a big reason for that is Luigi, who is our chief strategy and business officer, who joined a few months ago, really prioritized this category quite a lot and also made the case internally the benefits and viability of this use case. And I don't think it was a really hard sale internally. You know, Aave Labs is a really small team, very lean and scrappy, and decisions are made really quickly. And this is one of the biggest decisions that we made with relatively little pushback and also amongst different service providers and across the community as well with different community members. So what is fascinating about onchain stocks is you sort of have a perfect combination now where obviously these stocks are traded on public markets that actually close outside of the trading hours and weekends, which creates a lot of problems, pricing problems especially when you're using these assets as collateral. So this is sort of a very interesting product and typically provided for high net worth individuals part of a larger banking services to unlock liquidity of existing portfolios. What is interesting about onchain stocks in general is that they provide more accessibility to a category of wealth creation and even wealth preservation that is not equally accessible to everyone at the moment. So a lot of finance has been really well built in the western world but not on the same level accessible. So if you read and hear about some interesting companies online that you basically made some research and you don't have access, that is about to change with the onchain stocks. And because now we also have perpetual markets and this is a big innovation by the crypto industry, we're actually able to price these assets on a 24/7 basis which means that from this angle, DeFi versions of what I call SBLS, securities-backed loans, can be priced in a much better way including also securities lending than traditional brokers are offering. So I think this is going to be a really good opportunity to actually expand the onchain lending TAM just beyond the existing main crypto assets from Bitcoin, Ethereum to all the relevant assets. So the increase of time is actually substantial. And to add to that point, I think the biggest challenge with onchain stocks is that every provider is issuing their own version. Yeah, you have Coinbase with their own thing, you have basically Robinhood with their onchain stocks and I think this is the sort of reality we are adopting from the Bitcoin wrappers, the different stablecoins, and this is probably the reality we have to live upon. The interesting piece is that every implementation has also a different legal structure and some have their own sort of pros and cons and there isn't a silver bullet there. So there's very little incentives and it's going to be very difficult to actually achieve anything standardized and get everyone to accept into the same sort of model. So I guess the biggest growing model maybe will sort of show the rest of the industry like what will be the preference, and this is obviously for non-US-based customers and audiences, and then obviously US is a completely different beast. But I do believe that this category is very important just to increase the base use case how Aave was built upon on the idea of being able to unlock liquidity. And I do believe that crypto and also equities are sort of the new American dream in the sense that typically the dream is also always to work hard and basically being able to buy a house and whatnot. I think today it's more about being able to earn enough and save enough to actually then invest into the stock market and being able to then benefit from the companies that are publicly traded. And obviously this is not financial advice, but I think from a more theoretical standpoint, this is where things are going and how wealth preservation is going to happen.