The Edge Podcast - Fluid DEX

In this episode of The Edge Podcast, which took place on July 27, 2024, DeFi Dad and Nomatic hosted DeFi Made Here (DMH) to discuss Fluid DEX, capital efficiency, innovative liquidity layers, and more! Read our notes below to learn more.

Background

DeFi Dad (Host) – Host of Edge Podcast

Nomatic (Host) – Co-Host of Edge Podcast

DeFi Made Here (Guest) – a DeFi expert and Head of Growth at Instadapp

Instadapp – a full feature platform for both users and developers to leverage the full potential of DeFi

Unveiling Fluid DEX: Instadapp’s Innovative Liquidity Layer in DeFi

DeFi Dad discusses the upcoming launch of Fluid DEX by Instadapp, touted as the most capital-efficient decentralized exchange (DEX). He introduces DMH, the head of growth at Instadapp, who is set to share insights into Fluid DEX and its unique liquidity layer that allows using collateral and debt as DEX liquidity.
DMH shares his background, detailing his transition from the oil and gas industry to the crypto space. During the 2020 COVID-19 lockdown, he explored new opportunities and discovered crypto, eventually focusing on DeFi. He started using and writing about DeFi, gaining significant attention with a thread on Luna UST, predicting its instability before its collapse.
Nomadic reflects on the excitement around Fluid DEX, noting its innovative approach in DeFi. He asks DMH to provide an overview of Fluid’s current state, which includes lending and borrowing functionalities and a unique liquidity layer.
DMH says that Fluid is not just a lending and borrowing market or a DEX; it’s a liquidity layer that supports multiple protocols using shared liquidity. Current protocols include lending, borrowing, and a protocol for staked ETH redemption. The upcoming Fluid DEX will expand this ecosystem. Fluid’s structure allows for efficient capital allocation, offering high returns for lenders, particularly during periods of market instability.
DMH explains that Fluid has reached an $800 million market size within the first 90 days of launch, despite market challenges. He attributes this success to Fluid’s ability to offer competitive leverage conditions and high returns. He highlights the potential to add new assets to Fluid, including wrapped Bitcoin ($WBTC) and principal tokens (PTs) from Pendle, although integrating PTs poses challenges due to their fixed yield nature and potential for leveraged losses.

Fluid’s Innovative Approach: Leveraging ETH, Efficient Liquidations, and the Upcoming DEX Launch

DeFi Dad shares his experience with Fluid, particularly leveraging ETH as collateral to borrow $stETH, highlighting popular use during Etherfi season two. He notes that Fluid offers higher loan-to-value ratios, lower liquidation penalties, and better rates, making it appealing for users. He asks DMH to explain how Fluid maintains such low liquidation penalties compared to other protocols.
DMH explains that Fluid’s unique architecture allows for more efficient and safer liquidations. Unlike traditional markets where liquidators must handle each position individually, Fluid stores all collateral as DEX liquidity, allowing liquidators to process multiple positions in a single transaction. This efficiency reduces costs and enables lower liquidation penalties.
Nomatic expresses interest in how DEX aggregators help solve liquidations, then asks about the upcoming Fluid DEX. He seeks an overview of what Fluid DEX will offer, building on the existing liquidity layer.
DMH describes the key innovations of Fluid DEX, focusing on its dual earning mechanism where DEX LPs gain both lending and trading fees. He explains that Fluid DEX will offer smart collateral and smart debt, allowing users to borrow against LP tokens and utilize debt as liquidity. This design aims to maximize capital efficiency and earnings, with the potential for significant leverage and concentrated liquidity positions. DMH highlights that this setup could lead to high APRs for users.

Maximizing DeFi $Opportunities: Leveraging Debt as Liquidity and Revenue Potential with Fluid and Instadapp

DeFi Dad shares his experience using Fluid, highlighting the platform’s ability to leverage debt as liquidity. He explains that traditionally, his DeFi portfolio choices were limited to either lending and borrowing or providing liquidity (LP), often missing out on stablecoin LP fees. Fluid allows him to earn fees on his debt, which previously was a cost due to interest payments. By opting into the smart debt feature, he can have a debt mixture, such as $USDC and $USDT, that serves as liquidity on the Fluid DEX, earning fees from trades.
DMH adds that trading fees can sometimes offset borrowing fees, effectively paying users to borrow. He notes the need to balance market demand and supply to maintain competitive rates and prevent market destabilization.
Nomatic observes a trend in DeFi towards protocols generating real revenue and asks about Instadapp’s token ($INST) and its potential for revenue accrual. He sees significant revenue potential from the Fluid DEX’s unique fee structure and wonders if these revenues will benefit $INST token holders.
DMH confirms that $INST governs all Instadapp products, including Fluid, which already generates substantial revenue. With the launch of Fluid DEX, he expects this revenue to increase significantly, potentially making Fluid one of the highest revenue generators in DeFi per dollar in TVL.
He mentions that as Fluid matures, Instadapp is exploring tokenomics to allow $INST holders to benefit from this growth. Potential options include revenue sharing, buybacks, or direct earnings distribution. These proposals will be put to governance for approval, with tokenomics development being a priority for the near future.

Navigating Market Downturns and Ensuring Security in Fluid DEX

DeFi Dad discusses the potential implications of a market downturn on Fluid DEX users, especially those using smart debt and smart collateral features, and asks DMH to elaborate on how users might be affected in such scenarios.
DMH explains that users benefit from high loan-to-value ratios and low liquidation penalties. In a market downturn, while users could experience typical risks associated with providing liquidity on a DEX, they also earn trading fees which can partially offset losses.
DMH clarifies that if a significant sell-off occurs, for instance in staked ETH, a user’s collateral might fully convert to staked ETH, while their debt would be in $ETH, similar to a leveraged position. However, this scenario would also generate substantial trading fees. He highlights the importance of maintaining blue-chip assets in Fluid to mitigate risks.
Nomatic points out that users often trust established lending platforms and might be hesitant to move to newer ones, despite potentially better features. He asks about Fluid’s security measures and any potential risks that users should be aware of.
DMH acknowledges the challenge of attracting liquidity from established platforms but highlights Instadapp’s strong track record over six years, managing up to $15 billion in TVL without security incidents. Fluid, being new, has undergone multiple audits and has a bug bounty program. Additional audits are planned, and Fluid employs security features like automated withdrawal ceilings and the ability to freeze markets in emergencies. These measures limit the potential damage in case of a security breach, ensuring that even in worst-case scenarios, losses are contained.

Exploring Fluid DEX: Innovations in Risk Management, Capital Efficiency, and User Experience

DeFi Dad reflects on the features of Fluid DEX and the importance of risk management, particularly the protocol’s automated response to potential exploits. He highlights the importance of such features given the high levels of liquidity involved and the history of similar issues in other protocols. He also mentions the benefits of Instadapp’s flash loan recipes, particularly for migration between different platforms like Maker, Aave, and now Fluid.
DMH confirms that Fluid will support a refinance feature, allowing users to easily migrate their positions from other platforms to Fluid, leveraging the smart debt and smart collateral functionalities. He discusses the user interface’s potential evolution to accommodate these features and acknowledges the importance of making these processes intuitive for users.
DeFi Dad talks about potential complexities when managing smart debt, such as owing different stablecoins and the need for features that allow easy consolidation of debt. He underscores the importance of the underlying innovation in Fluid’s design, which aims to improve capital efficiency in lending and borrowing.
DMH assures that Fluid’s user experience will continue to improve, mentioning the existing strategies like one-click leverage and vault swaps. He encourages users to try the simulation mode on Fluid, which uses a forked version of Ethereum to simulate transactions, helping users understand the system before committing real assets.
DeFi Dad highlights the versatility of Fluid and Instadapp as a comprehensive DeFi hub, noting the significance of trading and lending/borrowing as core use cases. He concludes by thanking DMH and pointing listeners to resources for learning more about Fluid and Instadapp.
DMH shares updates on the Fluid DEX launch, expected in early August, 2024, with potential delays due to ongoing developments. He hints at future projects, including the possibility of a stablecoin protocol and other DeFi innovations like prediction markets and margin trading. He expresses enthusiasm for his first podcast experience and appreciation for the opportunity to discuss these developments.

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Show Information

Medium: YouTube (Video)
Show: The Edge Podcast
Show Title: Is Fluid DEX The Next Major Innovation for DeFi?
Show Date: July 27, 2024