The Optimist Twitter Spaces with Timeless Finance

In The Optimist’s Twitter Spaces which took place on November 13, 2023, Charlie hosted Dakotah from Timeless Finance to discuss DeFi evolution, market insights, Timeless Finance’s growth, strategies, the role of Bunni in liquidity management, and more! Read our notes below to learn more.

Background

Charlie (Host) – Co-Leader at The Optimist

Dakotah (Guest) – Lead of Growth at Timeless Finance

Timeless Finance – a yield tokenization protocol where the yield tokens never expire

Bunni – a liquidity engine for incentivizing Uniswap v3 liquidity

Timeless Finance: DeFi Evolution and Strategies

Dakota shares his journey from starting at the bottom in crypto to his current role. He recounts his beginnings at 88mph during the DeFi summer of 2020 and highlights the value of being active in community engagement.
Charlie relates to Dakota’s story, highlighting the diverse backgrounds of people in DeFi, including those transitioning from professions like medicine. Dakota shares his personal interests, including hiking, gardening, and traveling with his wife.
Charlie asks Dakota about the history of Timeless Finance. Dakota explains that the team originally worked at 88mph, a fixed rate protocol, and learned valuable lessons about liquidity management.
Dakota explains the transition to Timeless, a variable rate protocol to address liquidity issues. He mentions the unexpected challenge of handling large investments from a few whales early on. The creation of the Bunni is discussed as a response to liquidity challenges. It was designed to work atop Uniswap, filling a gap in the market.
Dakota says that Timeless V2 will have a soft launch, with the full version coming later, enhanced by the Bunni liquidity engine. He says this positions Timeless favorably compared to its initial version.
Charlie comments on the challenges and opportunities presented by launching in a bear market, noting how it exposes problems early and prepares teams for future bull markets. He discusses Timeless, asking for an overview of its offerings for DeFi users.
Dakotah describes Timeless’s process, where a staked yield-bearing token is deposited, resulting in the issuance of a Positive Yield Token (PYT) and a Negative Yield Token (NYT). He explains that this splits the original token into two, allowing for leveraged positions without the risk of expiration or liquidation.
Charlie says that PYT increases with the yield of the underlying asset, while NYT does the opposite, allowing users to either hedge or speculate on the yield of their underlying asset.
Dakotah explains the mechanics of PYT and NYT, illustrating how PYT offers leverage on the yield. NYT can be used for hedging, especially in scenarios like borrowing on platforms like Aave.
Charlie illustrates practical applications of Timeless’s tokens, using the example of $USDC‘s yield fluctuation on Aave and how NYT and PYT can be used to speculate or hedge in such scenarios.
Dakotah distinguishes Timeless from Pendle, noting the difference in their approach to fixed versus variable rates. He explains that Timeless’s variable rate approach benefits both speculators and hedgers, as it avoids issues like liquidation and expiration that are typical in fixed-rate models.
Charlie asks about the types of assets supported by Timeless, their popularity, and any limitations on assets they can support.
Dakotah expects the launch of Timeless V2, discussing the support for magic GLP vault and $sFRAX pool, highlighting their appeal to different types of investors. He mentions discussions with projects in the veLIT ecosystem, highlighting the predictive nature of their model.
Charlie comments on the strategy of utilizing high initial APYs to drive demand, relating it to market dynamics and traditional finance interest rates.
Dakotah adds another asset, all LSTs, and notes their conversation with the Swell team about potentially joining the platform. He explains Timeless’ permissionless nature, allowing anyone to create a vault, with the stipulation that the vault must be yield-bearing and cannot lose money.
Dakotah mentions constraints for vaults on Timeless: they cannot have negative returns, nor can they have withdrawal or deposit fees. Additionally, they must adhere to a specific ERC-4626 standard, with adaptations available for Aave and Yearn V2 products.
Charlie mentions that on Timeless, it’s permissionless to create a yield market using the factory page, highlighting the openness for anyone to establish a market. He discusses the presence of PYT, NYT, xPYT tokens, and traders who are involved in activities like longing, shorting, and hedging yield.

Exploring Liquidity and Market Trends in the Timeless Ecosystem

Charlie asks about the role of liquidity in these markets, specifically asking about the PYT and NYT liquidity providers (LPs), their incentives, and the importance of deep liquidity in yield markets.
Dakotah describes Bunni, as part of the Timeless ecosystem, built on Uniswap V3. He highlights that Bunni facilitates liquidity for token pairs on Timeless, with governance proposals required for pool inclusion.
He explains that the governance token veLIT incentivizes holders to vote for certain pools, directing emissions and offering rewards, including high APYs, for liquidity providers.
Charlie reflects on the early challenges of attracting liquidity in a bear market and the development of Bunni to address this. He says Bunni’s role in facilitating efficient liquidity positions and mentions exploring Bunni’s pools.
Charlie asks Dakotah about supporting staked $ETH ($stETH) derivatives on layer-2 platforms like Optimism, citing the presence of related derivatives on Ethereum.
Dakotah expects to see developments on Optimism, mentioning the slow adoption rate of the ERC-4626 standard but expressing optimism about its future integration with platforms like Timeless and Bunni.
Dakotah discusses the potential of partnering with projects like Popcorn, which use the ERC-4626 standard, to facilitate the integration of LSD-related vaults into Timeless.
Charlie says that the staked ERN token is an ERC-4626 token and expresses enthusiasm about establishing a market for it on Timeless, alongside a corresponding feature on Bunni. He appreciates Bunni’s ability to direct incentives to specific liquidity ranges, which concentrates liquidity around desired ranges, particularly for stablecoins aiming to maintain their peg.
Dakotah acknowledges the effectiveness of Bunni, mentioning its recent involvement in the Aave stablecoin $GHO peg situation, where Bunni is being used to direct liquidity effectively. He says that stablecoin projects and LSD projects are major advocates of Bunni, either through governance tokens or incentivization.
Charlie asks about the potential changes in the use of yield markets like Timeless in varying market conditions, particularly in a bull market. He speculates on how the popularity of different yield markets might shift in response to market dynamics.
Dakotah discusses the utility of indicator tools in yield markets. He says that Timeless V2 will feature a forward-looking indicator showing the market’s implied yield based on current PYT prices. This tool is expected to be valuable in understanding market expectations and making strategic decisions.
Dakotah speculates that in a bull market, long-tail assets, especially those related to borrowing, might become more prominent. He says that behaviors like borrowing on platforms like Aave could increase borrowing costs, while those staking assets like Ethereum might become more aggressive and shift their strategies. He highlights the value of observing PYTs and NYTs prices in Timeless.

DeFi Innovations and Governance: Timeless and Bunni

Charlie says he finds the topic of yield markets in different market conditions fascinating, noting the maturity and growth of tools available in each market cycle. He foresees the potential of yield curves for various DeFi assets, similar to traditional finance, providing insights into market sentiments about yields. He sees Timeless and similar protocols as crucial in understanding yield market dynamics.
Charlie reflects on the clear use case and importance of yield markets in financial systems, expressing excitement for the growth of protocols like Timeless. He recognizes the significance of understanding different yield behaviors across market conditions and the insights they provide.
Dakotah describes Timeless as a platform that offers unique opportunities not available in Web2 and traditional finance, positioning it well in the derivatives market for both hedgers and speculators.
Charlie recognizes the emerging significance of derivatives markets in DeFi, with a focus on perpetuals and options, and notes the growing importance of yield markets in finance.
Dakotah discusses the potential of Real-World Assets (RWA) in the market, highlighting the need for further development of the ERC-4626 standard. He mentions Timeless’ interest in Frax’s FPI product and its possible opposition to the sFrax market. Dakotah notes the involvement of other protocols like Blueberry and TProtocol in Timeless ecosystem.
Dakotah explains how Blueberry and TProtocol are integrating into the ecosystem, highlighting the differing motivations of projects to join, ranging from the allure of permissionless systems to leveraging the liquidity engine. He discusses the dynamic entry points for protocols into the ecosystem and the subsequent pathways they explore.
Charlie discusses the relationship between Bunni and Timeless, highlighting that $LIT, the governance token for Bunni, also influences Timeless markets. He asks about how proposals are passed in the timeless governance system.
Dakotah explains that proposals in Timeless governance are initiated by anyone, requiring a four-day comment period before a vote. A 1% holding of total veLIT is necessary to push a proposal to a snapshot vote. He highlights the active participation in governance and encourages listeners to engage, especially if they have ideas for the platform.
Charlie expresses his admiration for active governance in communities, highlighting its significance for protocols like Timeless and Bunni. He suggests everyone to engage with Timeless to hedge yields, participate in Bunni for efficient liquidity positions, and explore the governance forum to influence incentives on Optimism markets.
Dakotah says that the Cookie Monsters, a community initiative, are free NFTs limited to 125 pieces. These NFTs offer community members a role in marketing, reflecting Dakotah’s vision of creating opportunities for people to contribute to the crypto world.
Charlie plans to acquire a Cookie Monster NFT and contribute to the community.
Dakotah mentions the upcoming launch of Bunni V2, which will be built on Uniswap V4. He expects this update will significantly impact the platform, aligning with the excitement around the Uniswap V4.

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Show Information

Medium: Twitter (Audio)
Show: The Optimist Twitter Space
Show Title: Timeless <> The Optimist
Show Date: November 13, 2023