Stani Kulechov on Building Aave to Last [Avalanche Summit NYC]

Yeah, I think quite a lot and I actually love this topic about how to make Aave last because I think Aave went through many phases and DeFi kind of grew on over the line as well and I think DeFi sort of expanded to a whole concept of on-chain finance and you know a big part of that growth has been obviously the native crypto assets but also stablecoins and now obviously more tokenized assets. So but what's interesting here is that we started as a more kind of focusing a lot on building resilient infrastructure in the early days of DeFi was really new to everyone and it was a little bit unclear what is the end state of DeFi and where things are going towards and one of the important DNAs at Aave is that we are always innovation first. So we simply want to build infrastructure that lasts and we can basically innovate upon and expand and I think that DeFi started quite a lot with these native crypto assets and I looked some of the data and over the years we processed over four trillion in net deposits and one trillion in borrowing volume with few hundred lines of code. And when I explain this point to a lot of friends or partners that come from the traditional financial world, the next question is like how many people you have working on this like how many people you have on credits, how many people you have on settlements and back office. And the answer is almost zero because you're running this sort of really scalable business function directly on chain. And I think that has been really a sort of proof that on-chain protocols can actually really disrupt the way we do financial transactions whether it's like lending, borrowing, moving value or exchanging value. And now obviously the landscape is changing again because we now have more assets coming into the space and we have completely new audience there's a lot of institutions and trying to adopt this technology and I think what really Aave proved over the years is that you can provide this resiliency you can have scale also when it comes to lending and borrowing and you have improved cost structure because you have less middlemen you're not dealing with people you're not dealing with legal agreements you have executable code that is doing all the heavy lifting and that cost structure translate into pricing and with also open networks that pricing translate into lower cost of capital. So being able to borrow today against native crypto assets has been cheaper than for example doing the same arrangement in a more traditional sense with let's say qualified custodians and whatnot. So DeFi truly proved what will happen when you actually condense the different middlemen and the sort of structure into code and that's the end result and now I think we have a sort of a new chapter opening up that how we do the same for these traditional assets you know through RWA tokenization and actually I would love to stop talking about RWA at some point and just say assets and they happen to be on chain.

Well, it's always a user choice and I think what V4 tries to solve as well is to really bring flexibility and into the market structure which is really important when it comes to RWAs and I think that one of the key problems in on-chain finance is simply liquidity fragmentation because that increases cost of capital and also creates inefficiencies and what V4 tries to solve is to establish liquidity efficiency by being able to share liquidity across different markets and use cases while at the same time being able to isolate these markets and segregate risk and that is very important for institutions. So institutions care about obviously cost of capital but also the risk management side as well and Aave V4 is there to actually allow to have various different market structure. What kind of assets could be borrowed against what is the cash leg as well and a great example is that Aave V4 will cater tokenized assets in the future such as tokenized stocks tokenized bonds tokenized money market funds credits and various different asset classes and you can't really serve them all in the same sort of like category of risk management. You have to sort of create various different markets but you have to have a way how you distribute liquidity across these different opportunities. So that is what Aave V4 solves and brings a lot of risk management tooling that didn't exist in DeFi before and that's what we're really proud of bringing on the table again and obviously the existing deployments of Aave they will be always running there. So I think that's why I love the title because I actually truly believe that the technology that we build and deploy should last forever. And maybe there's always a better innovation that we come up with every year or every couple of years but the existing infrastructure is there usable for any purpose. And then the architecture is quite important is that the V4 is a modular model. It consists of a hub and spoke architecture where spoke is a lending market and a hub is a way to share liquidity across different lending markets and we can expand the protocol to new use cases and one of the biggest use case that we announced yesterday is being able to actually borrow from the Aave protocol while holding your collateral in qualified custody such as for example Anchorage and using Chainlink to actually communicate the proof of that collateral in the custody. So what we're trying to do is take the best pieces and trying to offer them also in the more off-chain world and going where the customers are.

Yeah, I mean first chain outside of Ethereum, you know, it was my sort of like I have a big love for Avalanche because we've been building DeFi there from day one. And I think that's what Avalanche really has is a really strong community that is focusing on building finance. And the early days few years ago, it was mainly about decentralized finance. And now I think what it's all about is basically on-chain finance and moving like the whole financial system on chain. So Avalanche has that it has a great technology that can be utilized on the main network or this sort of like custom networks that a lot of the institutions are interested in and I think that's a big category that will grow as well and the main important thing is that there's a really strong focus on tokenization and I think tokenization is the next catalyst for bringing a lot of value on chain And to make these tokenized assets really producing a lot of value and you have to make them productive and to make them productive you need lending and borrowing because the collateralization is one of the biggest maybe the primer for everything that we're doing on bringing these assets on chain. I like the idea of being able to you know trade 24/7. You know, I like the idea of buying like a fraction of a share, but I think that all will exist in the traditional world, but what will actually be a really good catalyst is actually the collateralization aspect and moving a tokenized asset as a collateral from one sort of venue to another one. And then making these sort of traditional financial business models like brokerages credit lines, lending, borrowing more competitive on chain but also more transparent and by that effectively making a bit more open system for risk management, having more transparency and lowering the cost of capital for everyone by just connecting the world together and also lowering the cost structure by reducing a lot of these middlemen. So I think for tokenized assets to be successful, the biggest catalyst is lending and borrowing and the collateralization. And I think Avalanche is positioned well because they're really focusing on this problem.

Yeah this is one of the most exciting announcements we've been working on this year so what we're launching is a RWA hub fully focused on RWAs on Avalanche and we partnered with USDa for the cash leg and why this is important is because what we're bringing with Aave V4 onto Avalanche is a completely new market structure for RWAs. So typically when you think about lending and borrowing on chain with RWAs and Aave has been pioneering that with Horizon a market that we grew over half a billion and you have this heterogeneous market where you have various different on-chain assets tokenized assets there to be used as collateral you can borrow stablecoins. The big difference for the tokenized asset hub on Avalanche is that we're going to have multiple different markets for different asset categories and that ranges from tokenized stocks tokenized debts money market funds funds in general and wide category of assets and the cash leg is going to be a USDa that is then used as a connective tissue from the hub across all the markets and providing the liquidity for lending and borrowing against other RWAs. This is massive because it's very hard to do outside of on-chain and in the traditional world. And what's going to be even more exciting is that once you are using these tokenized assets as collateral, they can also be lended out in some of these markets. And that gives also a catalyst for bringing securities lending on chain and this sort of deep liquidity that we already achieved in the native digital assets into traditional assets and I think this is going to be a really big catalyst for growing RWA on chain.

I would say that the RWA hub on Avalanche is the continuation of Horizon. So, Horizon is our RWA baby. So, the RWA hub on Avalanche is basically like a more grown-up version a sort of like a teenage version of RWAs when it comes to lending and borrowing. And it's going to be really significant because that is the place where Aave is going to grow RWAs over the next years to come. And why it's important is that Horizon obviously is a market where you have multiple different assets you have tokenized T-bills you have money market funds you have receivables as a way to use as collateral and in the Avalanche RWA hub all those different categories and asset classes are segregated from each other while sharing liquidity amongst multiple of these use cases and having a new set of risk management tools to manage that. So I'm extremely excited about the progression and we learned a lot over the year. So I think this is a big moment for us big moment for Horizon and also the future that we're building.