All righty, guys. We are back live at DeFi Day here in Cannes at ECC. It's day one with Stani. Obviously, a big day. Stani, how do you feel, man? How does it feel to get this out there in the wild? I know the team's been really on it, man.
It's been amazing. A V4, we've been working for like two and a half years or so and getting it out, new generation of a protocol and also a pro that is the interface for that. It feels incredible.
So, it's a milestone for sure, but it's just the beginning in its own way.
Oh, yeah. It sets new dimensions for the A protocol to have new types of use cases and collaterals. We're super excited and it also opens up the whole architecture of A enabling anyone to come and actually build new use cases as well. So, that's really cool. We're going to see a lot of development not just from the AVA team but community developers and third-party developers that want to tap into the AVA liquidity.
Yeah. And so this was the first kind of restructuring of the way the protocol works in several years.
How do you think about that from a risk perspective? I think one of the things that A is known for is its resiliency and its ability to manage risk very effectively. We've seen even just recently vault exploits and different kind of like DeFi mishaps. How do you think about the risk kind of parameters when it comes to this new iteration? I know you guys spent almost what a whole year kind of risk testing this thing. How do you think about that?
Yeah, I think what A is really known for is the resiliency. Obviously, it's the protocol that has been seeing multiple market cycles. We saw FTX, we saw a lot of market down cycles and A has been able to be extremely resilient and it showcases that the protocol works really well and the parameters that are always prevetted and applied to the protocol has been done correctly. And A V4 simply introduces new tooling for risk managers and the A community to manage the risk. So couple of features for example risk premiums allows now to actually price the risk per collateral asset where it's useful and applicable. So every borrower doesn't necessarily have the same rate when they're borrowing a particular stable coin. The second is dynamic risk configuration meaning that now configurations can be applied to new positions without affecting old positions. So this is really fundamentally new tooling that didn't exist before in A architecture itself isolates risk into these spokes and liquidity is tapped into from a hub that gives credit lines to spoke. So it's a way of actually ensuring that we don't fractionalize liquidity but we have a good amount of segregation of risk profiles in A.
Yeah, and so when you have this kind of hub of liquidity and these spokes of different kind of different risk profiles for different collateral assets, how is the kind of delegation of liquidity, how does that choice get made? Is that just based on user demand for that type of asset or how do you kind of allocate the capital in this pool to each spoke?
Yeah. So first of all there is three hubs. So there is a Prime that is the sort of lowest in the risk curve and then there is a Core that is more of a risk adjusted and then Plus which is risk return and each of those hubs have connected spokes depending on their use cases. And it depends a lot on that hub's risk profile. So Core is where you have the risk adjusted markets connected to that hub and the idea is that there is the deepest liquidity and then Plus is where you have more sort of tailend opportunities and then Prime is kind of like the lower end of the risk curve. So it all goes by risk assessment. But now what's different with A V4 compared to existing A markets is that you don't have only one entry point you have multiple selection while still keeping the capital relatively concentrated in a particular risk profile and allowing to tap. So the way the decision actually works is that it's still a governance decision how much capital is allocated from a hub to a particular spoke use case and that's done by a risk assessment as well.
So it's kind of like the tranch model in finance with like a junior tranche as one hub, a senior tranche much less risk as a separate hub and then you've got a third as well.
Exactly. Tranche it out.
Exactly. And there's sort of scalability there. So every new use case can also start from a Plus connectivity but as that use case actually matures it can be then connected into the Core hub and credit line can be issued from there and that is actually really interesting because one of the biggest challenges for DeFi builders has been to ensure like when they build incredible innovation how to actually bootstrap their product and liquidity, right?
And this is the perfect way where if you build something really exciting and really cool that can be connected into existing liquidity in A.
Yeah. Because one of the things about A was that it's been notoriously difficult to get your assets on A, which is by design. Because of kind of like the pool structure of V2 and V3. But now essentially you're saying okay the gates can open to more risky but innovative ideas in a specific tranche effectively or this specific hub and then those protocols if they succeed get access to the other capital in that tranche or in that hub and then potentially other users on A of other hubs who may want to you know increase their risk limit or try something new as well.
Yeah, it will be still hard to get liquidity from the most sort of resilient and low-risk pools, but it opens up the sort of like a tail side of new markets, new hubs and also down the line even hub factories where new hubs and spokes can be created completely tailored to for example B2B or institutional use cases. So it simply opens up the whole system into faster onboarding and then when these use cases or assets gets proven then they can access deeper liquidity by accessing these more larger hubs.
Yeah. And this is a different model than V2 and V3 but also different than having like a lot of different individual trenches or individual vaults, right? Per asset or per collateral type. Why choose something more in the middle between like a pooled model and an individual vault model? What do these two models, your previous and kind of this individual vault model, what do they fail to achieve that this V4 model allows you to do?
Yeah, I mean the infrastructure with V4 enables all of the models but the chosen market structure, the way we compose the hubs and spokes take the best of both worlds. So the one entry point model has worked really well for A but also bootstrapping new use cases has been more challenging. So with this model liquidity is concentrated in hubs and new use cases can be bootstrapped much faster. So users will have the choice on what kind of risk they want to subscribe to. And that is important and that choice allows to take less risk or a higher risk. And that is fundamentally what's different but also we believe that it is difficult to navigate hundreds of vaults. And also have enough information. So there is still governance managed risk unless it's some sort of like institutional use case that is deployed separately. So I think it takes just best of both worlds.
Yeah. And I think a lot of the mental models that the industry has had for valuation heuristics and just generally thinking about DeFi protocols and companies on chain is specifically for crypto assets. Right? So we've got a couple trillion dollar TAM here of Bitcoin, Ethereum and a bunch of other types of tokens. These assets some of them are onchain on Ethereum on L2s L1s. Some of them are in DeFi protocol. So, it's kind of like it gets smaller and smaller and smaller as you get to eventually using these assets. We were just at D last week and it was very very clear that large asset managers are coming on chain and they want to take their assets and put them into yield generating opportunities on chain whether that be treasuries, equities etc. What does V4 enable for that next cohort? Right. And I know that you gave a talk earlier about this kind of abundance framing with regards to AI energy infrastructure. We're almost kind of going through a new adoption curve within the onchain ecosystem in crypto of like this abundant new capital coming in to a certain extent. How does V4 set A up to kind of be the home of tokenized treasuries of equities and kind of do more with your you know tradfi asset let's say?
No, it's quite fascinating because A has been able to grow because you couldn't go to a bank and give them your bitcoin or ethereum and borrow right you had centralized lenders doing that at the same time as A but you didn't have the transparency and that is why A has been able to eat all that market share. Now, we are strong believers that native crypto assets like Bitcoin and Ethereum are going to drive a lot of value and it's going to be the bread and butter for A but we also know that there's going to be a lot of value coming outside of the native ecosystem and that will happen through tokenization, yield bearing stable coins and also lending not even against ERC20s or 721s but against data directly. So using DeFi as a capital allocation layer and channeling that liquidity into real life credit opportunities. So A before essentially is a credit protocol and I think this is really fascinating because we're tapping into 400 trillion asset base that already exists in TradFi. On top of that we see a lot of benefits in lending against infrastructure that is creating this new transformation where we're heading towards which means people having abundance of intelligence, abundance of energy, abundance of labor with robotics, compute and this infrastructure effectively is what is the direction we're going to go towards the next 50 years and being able to bank that infrastructure and fund it is a way to actually capture over 80 trillion worth of market value and move that into DeFi and create the most transparent credit market. So I think if you look at the old like banks how they started JPM and so forth they obviously they funded railway companies they funded electrification with Edison and Tesla you had the industrial revolution and now we have a new transformation towards abundance economy and these infrastructure assets are abundance assets. So it is a big opportunity. It's maybe not something that we are going to tap into the extremely near future but that's where the world is going towards and that is a big opportunity for DeFi and for A and RWAs in general is going to be big part of A story.
Yeah. And I think even more so in the near future, these kind of tokenized equities or RWAs will be kind of part of that near-term story as we evolve into more digitized versions of AI infrastructure, energy infrastructure, figuring out ways to kind of package that and tokenize that is more on the longer term. But I think right now we're seeing people are interested in doing more with their, you know, equities or their treasuries or looping and all these things are happening. Is there going to be a pool specifically that is going to be in that risk kind of basket for these RWAs equities? Like is there a specific pool? Is it different? How is that going to work?
No, that's an excellent question because now with A V4 we can actually use the market that we have the A Horizon where you can use RWA as a collateral and borrow stables and lend stable coins against traditional assets on chain. So in V4 we can actually create hubs and spokes where collaterals can be isolated based on asset categories into different spokes and decide how much credit line and exposure each hub gives to each spoke. So it is a really big opportunity to manage risk more better on chain and expand the RWA business for A and the native crypto stable coin plays a big role because GHO has a full 100% margin as there is no LPs and GHO is going to be crucial of these credit use cases whether it's against tokenization or against lending against yield bearing stable coins or even against let's say credit itself.
