Revelo Roundtable #3 : Ethena, Liquity, Mountain, and Gyroscope

In Revelo Intel’s Twitter Spaces which took place on February 26, 2024, Kirk hosted Conor Ryder from Ethena Labs, Sam from Liquity Protocol, Albinmrc from Mountain Protocol, and Ariah Klages-Mundt from Gyroscope to discuss decentralized stablecoins, innovations, risk management, governance, scalability, multi-chain strategies, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Conor Ryder (Guest) – Head of Research at Ethena Labs

Sam (Guest) – Comms & BD at Liquity Protocol

Albinmrc (Guest) – Head of Business Partnerships at Mountain Protocol

Ariah Klages-Mundt (Guest) – Contributor at Gyroscope

Ethena Labs – a synthetic dollar protocol on Ethereum, aimed at creating a crypto-native dollar alternative

Liquity Protocol – a decentralized borrowing protocol that allows you to draw interest-free loans against Ether used as collateral.

Mountain Protocol – a digital asset platform offering yield-bearing stablecoins and regulatory-compliant financial services

Gyroscope – a decentralized stablecoin featuring a novel all-weather stablecoin design combined with more efficient stablecoin liquidity pools.

Stablecoin Solutions: Ethena, Mountain Protocol, Liquity, and Gyroscope

Connor explains Ethena’s approach to creating a delta-neutral synthetic dollar with $USDe and $sUSDe. He highlights the importance of using centralized and decentralized exchanges for hedging collateral with short $ETH perpetual future positions, aiming to solve scalability and censorship resistance issues within the stablecoin trilemma.
Albinmrc shares her background in trading, education, and financial advising, highlighting her commitment to providing USD holders access to native yield through Mountain Protocol.
Sam explains the protocol’s focus on issuing loans over $4.6 billion since its 2021 launch. He points out Liquity‘s uniqueness due to its immutable nature, reliance solely on $ETH as collateral, and the upcoming V2 that promises significant changes.
Connor discusses Ethena’s design decisions, focusing on scalability, censorship resistance, and stability. He contrasts Ethena’s reliance on a mix of centralized and decentralized liquidity sources to overcome past challenges faced by delta-neutral stablecoins, highlighting the avoidance of traditional banking systems to provide an uncorrelated risk profile among stablecoins.
Albinmrc explains their design choice, highlighting that $USDM is fully backed by treasury bills, notes, and bonds, aiming for a secure and stable token. She explains the advantages of investing in treasury bonds over cash, highlighting the lesser risk and the custodian’s role in protecting assets.
She explains that holding cash entails bank-specific risks, such as those experienced with Silicon Valley Bank, whereas their model aims for a higher security standard by investing in government bonds. This strategy is portrayed as superior to those of $USDC and $USDT, particularly in response to bank-related crises.
Albinmrc acknowledges the appeal of decentralization for assets but notes the current necessity for assets backed by widely accepted real-world currency. She hopes for future resolutions that favor decentralization but prioritizes security to ensure the token’s value remains stable over time.
She says for the security and inclusivity of permissionless stablecoins like $USDM, which, unlike bank accounts, do not require user whitelisting and are accessible to anyone not blacklisted. This makes them more inclusive and cost-effective, with $USDM additionally offering a reward.
Albinmrc provides an overview of $USDM, noting its ERC-20 token format for broad compatibility, regulated by the Bermuda Monetary Authority for added confidence. Unlike $USDC and $USDT, $USDM rewards its holders with a 5% daily rebasing reward, highlighting their commitment to redistributing profits.
She highlights the scalability and safety of their model, supported by the vast and liquid market of US treasury bills, which allows for easy entry and exit. The focus on very short-duration treasury bills minimizes sensitivity to interest rate fluctuations, ensuring the safety of their dollar-backed token.

Strategies and Challenges in Managing Risks Across Stablecoins

Sam highlights the importance of giving users choice regarding risks. He discusses their approach with a crypto-native dollar resistant to sensitivities, exemplified by the stability of $LUSD during the Silicon Valley Bank crisis, unlike other stablecoins that depegged.
He divides the stablecoin landscape risks into counterparty risk, highlighting their model without governance and only requiring $ETH as collateral for minting $LUSD and its V2, collateral risk, highlighting the need for awareness of the asset backing the stablecoin, stability risk, detailing mechanisms to maintain peg, and liquidity risk, stressing the importance of enough liquidity for survival.
Sam explains that their goal is to achieve high marks in all these aspects while being adaptive to macroeconomic changes. He introduces Liquity V2, featuring user-set interest rates and support for multi-collateral $ETH and LSTs, which may slightly reduce decentralization but remain crypto-native and scalable.
Ariah explains that Gyroscope aims to create a common risk control infrastructure to manage asset risks across the crypto space, particularly focusing on stablecoins. This involves diversifying the risk associated with different stablecoins types and implementing automated risk control mechanisms.
Ariah points out that different stablecoins come with their own risk profiles and trade-offs, whether they are centralized or decentralized. The goal is to balance stability, decentralization, and censorship resistance. He mentions the stablecoin dilemma, where achieving perfect stability may require compromises in other areas.
Ariah uses the example of Black Thursday and how it affected MakerDAO‘s $DAI, highlighting the challenges decentralized stablecoins face in maintaining stability. He says that solutions like using liquidity or negative rates have been explored, but each has its drawbacks.
Ariah highlights Gyroscope‘s approach to spreading risk, using fallback mechanisms, and automating monetary policy adjustments based on changes in collateral asset values.

Decentralized Governance Strategies and Monetary Policy Adaptations in Stablecoin Protocols

Kirk discusses monetary policy and governance, asking how each protocol plans to adapt to market conditions and the role of decentralized governance.
Conor discusses the importance of reducing the dominance of centralized stablecoins like $USDT and $USDC in DeFi. He stresses the need for decentralized governance in protocols to remain true to the ethos of crypto.
He mentions Ethena’s roadmap towards decentralized governance, including collateral-based decisions and risk measures.
Conor highlights the dynamic nature of collateral, especially in different market conditions, and the potential for governance to make decisions on such matters to support the stability of the protocol’s stablecoin.
Albinmrc says there is a spectrum of stablecoins, each with varying risks and user bases. She highlights that their token aims to be the safest, minimizing risks associated with bank deposits and focusing on the risk of US government default.
Albinmrc explains the risk hierarchy among stablecoins and the importance of users understanding and tolerating their risk levels. She highlights the need for appropriate governance, whether centralized or decentralized, to ensure checks, balances, and regulatory compliance.
Sam explains their approach to governance should be limited to non-core aspects of their protocol to maintain immutability. He discusses the lessons learned from their collateral debt position (CDP) protocol’s first version, highlighting the challenges in maintaining the stablecoin’s peg due to market dynamics and incentive structures.
Sam explains the changes in their upcoming protocol version, aiming for a market-driven monetary policy and a more flexible, responsive system to market conditions. He expresses optimism in adopting a wisdom-of-the-crowd approach for protocol development.
Ariah highlights the importance of governance in managing complex decentralized stablecoins beyond basic liquidity. He says that predicting the evolution of DeFi is challenging, necessitating a governance role to guide system evolution.
Ariah advocates for minimal but safeguarded governance, aiming for transparency in monetary policy through the dynamic stability mechanism, which automates policy adjustments based on the system’s state.
He highlights the need for governance to focus on the slow tuning of meta parameters due to decentralized governance’s inability to make rapid decisions.
Ariah discusses setting the right governance incentives, mentioning the development of a multi-stakeholder governance system, optimistic approval to empower users, and conditional cash flows to align governance participants’ incentives with the system’s long-term health.

Strategies for Scalability, Liquidity, and Multi-Chain Operations

Kirk discusses scalability, liquidity fragmentation, and multi-chain strategies, mentioning the importance of these aspects in decentralization trials.
Conor addresses liquidity fragmentation, stating that Ethena will initially focus on where liquidity is most abundant, particularly on layer-1 networks.
He explains Ethena’s interest in decentralized exchanges due to their distributed open interest across chains and exchanges, contrasting with the concentration in centralized exchanges.
Conor mentions Ethena’s exploration of LayerZero and bridging solutions for cross-chain operations and plans to power layer-2 networks incorporating native yield.
He discusses the potential of using yield-bearing collateral in decentralized perpetual exchanges, aiming for Ethena to eventually operate across multiple chains and prioritize decentralized exchanges to scale effectively.
Albinmrc says that their product strategy is simple and proven, aiming to create a superior version of $USDC and $USDT by expanding to many blockchains with semi-native integration that simplifies integration through a bridge involving locking and issuing.
Albinmrc says they plan to develop a cross-chain native bridge for unified liquidity, similar to Circle’s CCTP, highlighting ease of scaling due to ample treasury resources and the goal to make $USDM ubiquitous, questioning the need for $USDC or $USDT when $USDM offers comparable stability and potential yield benefits.
Sam discusses Liquity’s strategy for V2, focusing on expanding to every Ethereum-aligned Layer-2 and exploring borrowing integrations on L2 for cheaper gas fees and transaction settlement on Layer-1. He references an existing integration on Starknet and mentions plans for similar integrations with other L2s, based on previous success and user preference.
Ariah highlights Gyroscope’s focus on utilizing Layer-2s to enhance usage and experimentation in DeFi, emphasizing the benefits of cheaper gas and the ability to handle smaller transactions. He notes the importance of selecting secure bridges for L2 strategies, especially for decentralized stablecoins, due to Gyroscope’s emphasis on risk control.
Ariah mentions the potential risks associated with non-decentralized bridges or those lacking core security mechanisms, and he talks about considering bridge risks and liquidity fragmentation between L2s in their strategy.
Conor mentions Ethena’s current focus on staying on Ethereum Layer1 due to concerns about bridge risks, though plans to expand to Layer-2s are in the short term. He references recent partnerships with Movement and Parallel and highlights the importance of transparency about risks in their protocol, indicating caution towards introducing additional bridging risks in the near future.

Multi-Chain Bridges, Protocols, and Innovations

Kirk asks about multi-chain hacks and learnings that are taken away regarding choosing a bridge.
Sam says their approach has been to use just the native bridge so far, highlighting the importance of the stability pool in their protocol, which acts as a chief liquidator. He mentions being conservative with bridging and the potential interest in Chainlink’s CCIP for future liquidity solutions, stressing security as their top priority.
Albinmrc expresses excitement about the mono-projectable model’s simplicity and low risk, akin to the reliability of US government bonds. They aim to democratize access to high-yield checking accounts through Mountain Protocol, offering a 5% reward by tokenizing existing financial products and improving on $USDC and $USDT without increasing risk.
Sam shares enthusiasm for Liquity V2’s innovative user-set interest rate feature, describing it as a new standard in DeFi. He highlights the ability to borrow against multi-collateral LSTs and access to a stablecoin generating real yield without token inflation. He says that Liquity V1 will continue to exist for users preferring a decentralized approach with Ethereum as collateral.
Conor looks forward to educating people about Ethena and maintaining transparency about the risks involved with their innovations. He mentions the launch of season two of their shard campaign and a Pendle integration, expressing excitement about the potential yields from $sUSDe and the aim to keep users informed about $USDe.

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Show Information

Medium: Twitter (Audio)
Show: Revelo Intel Twitter Space
Show Title: Revelo Roundtable #3
Show Date: February 26, 2024