In Optimist’s Twitter Spaces, which took place on September 28th, 2023, Charlie and Ameeth discuss Timeswap, current DeFi lending solutions, and the future of Timeswap. Read our notes below to learn more.
Background
- Charlie (Host) – Co-Leader at The Optimist
- Ameeth Devadas (Guest) – Co-Founder of Timeswap
- Timeswap – a fixed time preference protocol for users to manage their ERC-20 tokens over discrete time
Ameet’s Background and Journey into DeFi
- Ameet says that he has worked in the fintech and TradFi sectors before joining into cryptocurrency ecosystem.
- He adds that his initial interest in crypto started during the 2017-18 bull cycle. He started to invest in ICOs and subsequently got deeper into blockchain technology.
- Ameet says that the DeFi summer of 2020 stirred his interest in blockchain applications.
- Ameet says that he met with his co-founder for Timeswap at a Gitcoin Hackathon and decided to work together.
Resilience and Independence in Decentralized Tech
- Charlie emphasizes the importance of technology that can be resilient and have longevity.
- Ameet adds that blockchain platforms like Ethereum and Bitcoin have achieved a significant level of decentralization. They can function even if the original teams behind them step away.
Motivation Behind Timeswap Protocol
- Ameet points out how Uniswap‘s permissionless pool creation was a significant enabler during the DeFi summer.
- He emphasizes the decentralization aspect of Uniswap and compares this with the vision for Timeswap, highlighting the value of full decentralization.
- Ameeth talks about Ricsson‘s idea of developing a DeFi product, one that functions similarly to Uniswap but focuses on the lending and borrowing aspect.
- Charlie says that he observes that the existing system works efficiently for assets with high market caps, but challenges emerge when dealing with assets with low market caps.
Design Limitations in Current Lending Systems
- Ameeth talks about the limitations in current popular designs, specifically mentioning Aave and Compound. The main drawback he cites is their reliance on oracles.
- Charlie notes that the expansion of both Aave and Compound is restricted because of their inability to have reliable oracles for long-tail assets.
- Ameeth talks about their decision to remove the dependency on oracles for their new design, pointing out that this change allows them to better serve long-tail assets.
- Ameeth says that brainstorming for Timeswap began in late 2020. Their first testnet was rolled out by October 2021. The transition from this phase to the mainnet launch took place in February 2022.
- Ameeth says that user feedback contributed to changes in their initial design. He highlights the shift from a three-variable AMM “xy=k” to a design that optimizes the process.
- Charlie appreciates the merits of being oracle-less, such as catering to exotic assets without the associated risks that oracles bring.
- Ameeth adds the mechanism of Timeswap is similar to Uniswap’s design principles.
Market Creation in Timeswap
- Ameeth says that the process of market creation involves setting up maturation periods, interest rates, and transition prices. He adds that liquidity providers (LPs) ensure there’s adequate demand and establish market parameters.
Borrowing, Lending, and Collateral
- Charlie raises a hypothetical scenario in which a borrower defaults on their $USDC loan. He mentions the redistribution of the locked $ETH collateral to the lenders in the event of a default.
- Ameeth confirms Charlie’s understanding by elaborating on how the deposited collateral gets redistributed when the borrower defaults.
- Ameeth highlights that in many lending protocols, risk management is outsourced to the DAO or the platform’s team. This can lead to potential pitfalls as these entities decide risk parameters and the assets that get added.
- Charlie points out that lenders need to keep track of governance decisions, which they might not always be aware of.
- Ameeth says that on Timeswap, lenders have more control and are only exposed to one asset, thereby limiting their risk.
- Charlie underlines the significance of having a fixed APY, especially for longer-duration pools.
- Ameeth says that the complexities lenders often overlook in DeFi can greatly affect their returns.
Siloed Markets and Risk Distribution
- Charlie discusses the inherent challenges traditional lending protocols, using Aave as an example, face due to accrued bad debts over time.
- Ameeth says that permissionless markets that function independently can ensure that the entire platform isn’t jeopardized if one market fails.
- Ameeth says that he advocates for giving users full control while also offering the flexibility to outsource, drawing a parallel to Uniswap v3.
Advantages of Timeswap’s Model in Unique Market Conditions
- Charlie asks about situations where Timeswap’s model proved beneficial, especially in cases where assets didn’t have a robust Oracle. He talks about the difficulties of holding illiquid assets or “shitcoins” and the need for liquidity.
- Ameeth shares a specific case from a few months back on Arbitrum. He describes Plutus’s role as a governance aggregator within the Arbitrum ecosystem, similar to the Convex.
- He explains the challenges around the $ARB token’s launch. When the token went live, there were congestion issues. The Plutus team provided a solution to claim the $ARB token directly, but this inadvertently led to it being staked, causing discontent among users.
- Ameeth mentions their partnership with the Plutus team to offer a solution. They allowed the $plsARB token to be deposited as collateral to borrow $USDC. The model proved to be successful and popular among users.
Shifting Risk Toward the Lender and Borrowing Activity
- Charlie talks about the importance of moving more risk to the lender side to encourage borrowing.
- Ameeth agrees with Charlie’s perspective and highlights that many current models, such as Aave’s, are designed with the borrower’s convenience in mind. This design approach is due to the predominant demand in DeFi being for leverage, where liquidity is abundant and borrowing is maximized.
- Ameeth notes that the present DeFi demographic comprises traders who are actively managing their borrowing positions and trading portfolios. The current design fits this demographic, expecting borrowers to be active in their borrowing activities.
- Ameeth draws a parallel between DeFi and TradFi, pointing out the differences. In TradFi, the borrowing process is made less complex for borrowers who want a straightforward way to access capital to deploy in their operations. In contrast, lenders in TradFi, such as bond investors, are expected to manage their investments more actively.
- Ameeth foresees a shift in DeFi where the lending side will become more proactive, while the borrowing side will turn more passive.
- Charlie agrees with Ameeth’s sentiments, adding that while DeFi’s lending mechanics might evolve to be more intricate, there will be solutions that can simplify these processes for the users, presenting a trade-off with decentralization.
Discussion on Yield-Bearing Assets
- Charlie brings up the topic of yield-bearing assets, wanting to understand how they work, especially in scenarios where there’s a fixed APY, fixed maturity, and how it compares with the yield the token generates.
- Ameeth defines yield-bearing assets as those that are staked in a contract to receive rewards. He uses the example of TraderJoe, which when staked in a contract, offers rewards in the form of fees and TraderJoe emissions. However, once staked, these assets cannot be utilized elsewhere.
- Ameeth says that Timeswap’s goal with yield-bearing assets is to allow users to earn from their staking activities and simultaneously use the asset as collateral on Timeswap.
- Ameeth says that yield-bearing assets can be used for leverage farming and potential yield trading. He also touches on the dynamics within Timeswap, where lenders get a fixed yield, but liquidity providers earn a variable yield based on transaction fees.
Future Plans for Timeswap
- Ameeth mentions potential development for Timeswap V2 and other feature enhancements.
- He adds that Timeswap plans to collaborate with other protocols. He says that they have collaborated with Aerodrome and Beefy.
- Ameeth says that they are planning to expand to Optimism.
- Ameeth says that they work for “moonshot ideas”, including liquidation without oracles. He adds that they have plans for a concentrated liquidity model, similar to Uniswap v3.
Important Links
- Listen to the Twitter Spaces
- Follow Charlie on Twitter
- Follow Ameeth on Twitter
- Follow Timeswap on Twitter
- Follow The Optimist on Twitter
Information
- Medium: Twitter Spaces
- Show: The Optimist
- Show Title: Timeswap <> The Optimist
- Show Date: September 28th, 2023