Michael Bentley on Euler's permissionless lending and borrowing protocol

0:00i'm ashton addison from block west capital for investmentpitch media in the Crypto Coin Show and today on blockchain interviews we have michael bentley the ceo of euler michael welcome to the show and thank you for taking the time to come on today yeah thanks ashton really great to be here yeah i'm excited to dive into the intricacies of d5 i know you're fairly

0:21familiar with it and euler has an interesting perspective that i think is going to be more moving forward more predominantly the way that i think d5 is going to move into and i'd love to hear your thoughts on that later in the interview but to kick us off could you just talk a little bit about euler the platform what your team is doing in d5 yeah sure so we've built euler as a

0:45permissionless lending protocol which allows users to deposit almost any crypto asset any fungible token into a liquidity pool and allow borrowers to come and take assets from that pool and go away into the wider dfi ecosystem and trade with them arbitrage hedge that positions and so on the borrowers are going to pay interest to the lenders which means

1:08that the lenders the guys depositing into the pools earn a yield on almost any crypto asset so we are a lending and borrowing protocol that's fully permissionless you can activate any market yourself on the protocol we're built on top of uniswap v3 which is of course a permissionless trading protocol and yeah once you've activated a lending market it's good to go straight

1:32away so this really opens up the space and of possibilities for people now to be able to yield on a whole bunch of assets that they previously couldn't do very cool michael thanks for that intro and i'd love to dive into that permissionless part a little bit more just to understand the difference between regular d5 protocols that are you know decentralized not a c5 and then the

1:56permissionless and like being able to add your own assets is that something that is the normal in a regular d5 protocol in some protocols yes like unispot for example is a great example on unit swap you can activate a trading pair for almost any token right and get started straight away but in the lending and borrowing space that's not really the

2:18case right now it is for some protocols which you can get into later if you like but for two of the biggest protocols compound and rv they open more operate on more of a permissioned kind of listing process where users have to create proposals to create new assets asset markets on those protocols and so if you want to lend up or your favorite new token

2:41you would have to go through quite a lengthy process to get that token listed on those protocols whereas on euler you'd be able to come and activate a lending and borrowing market for it straight away there's some trade-offs with that our approach to be honest and a lot of those comes come around risk management so the reason other protocols don't allow

3:00this permissionless listing aspect is that listing almost any asset really does open up a whole world of possibilities in terms of new risks to the protocol some of those risks are localized to the people lending and borrowing on that asset and some of those risks are more systemic they really affect the whole protocol if a particular collateral asset really

3:21goes down then that could bring down the whole protocol leave all sorts of lenders involved suffering various kinds of losses so yeah euler implements the way the order works and the way that we allow users to do this permission listing process is that we build on top of unisquat v3 that allows us to get prices price oracles which tell us essentially what these assets are worth

3:45and allow us to determine how much people can lend and borrow on the protocol to stay in to stay out of violation and yeah this essentially means that yeah and almost any asset can be used how do we either mitigate the risks of some assets being malicious or super illiquid well the truth is that when new assets are listed on the protocol they

4:09go into a kind of isolated borrowing mode where all the risks are contained within that particular market similar to how all the risks you know with tokens are specific to the trading power and units what all the lending and borrowing risks are isolated for that particular market on euler in the first instance which really protects the protocol as a

4:30whole and puts the lenders and borrowers on that market makes them responsible for whether or not they're prepared to take on the risks of lending or borrowing on that particular market we really try to make transparent as well the risks associated with lending and borrowing on those on those isolated markets on the really risky riskiest of markets so it's really up

4:50to you as a user at that point whether or not you want to yeah to engage with that market ultimately that kind of process can be somewhat capital and efficient we have to set very conservative risk parameters to enable that permissionless listing to really work and so ultimately we have a process of governance upgrades where people can

5:13vote to promote assets that they know are not malicious that they know are fully liquid on the market that have reliable price leads we allow them to promote them up a series of assets which means that they can be used in a more capital efficient way so for example some of the you know the popular defy tokens and stable coins and eth and btc will be able to use as collateral

5:38assets and they're probably the classical assets are always the riskiest assets for a protocol the lending and buying protocol but they are the most capital efficient as well perhaps the most useful assets on a lending bottom protocol but we're very very conservative about what assets initially can be used as collateral and that's that's the way that we protect lenders

5:56and borrowers yeah i think that's a great mechanism that your team has built out michael because define itself has just allowed so much more liquidity and access to capital for people that didn't previously had it have it but there were still limitations and now moving with nfts or having other assets that might be sort of illiquid how can you lend against

6:17those borrow against those and move them into a protocol without having to get you know the board of directors approval and you know 10 levels of bureaucracy just to get some liquidity on an asset how do you build a mechanism that protects risk and protects you know from assets that are fraudulent or faulty or anything like that and build that out in a

6:39decentralized way is really tough and i don't think people understand that fully and so props to your team for coming out with a protocol that can actually do this yeah thanks it's been a long a long development cycle and it's taken an awful lot of a lot of research and development just to get where we are now it's been 16 months since we started building the protocol and

7:04yeah we've had to keep our eyes closely on the market as well and learn the lessons of you know from failed experiments elsewhere there's been a lot of hacks particularly on lending and borrowing protocols very notably over the past 16 to 18 months so it's it's probably one of the hardest problems in d5 to be honest and it does yeah it's

7:26yeah it's been a really really tough development cycle but we're very very pleased to i'm very proud of what we've built and you know we've been very very risk conscious whilst building this protocol it's been audited by five different partners and viewed by many many more more people so it's a real challenge to build in this space but i think it's going to be very

7:45rewarding and it's a really important service for the wider d5 ecosystem so i yeah i think i think and hope it will work out well i think it will and especially starting 16 months ago as you just mentioned d5 was a lot smaller there has been growing exponentially every month and you have to anticipate and where the market's moving in the future and

8:09i saw that you recently came out with like a mainnet launch maybe you could talk about that launch what that means for euler and where do you go from there yeah definitely so we've been sort of working in a development mode now for a long time and we opened up our test net just a few weeks ago really to allow people to experiment with euler in a risk managed

8:35way obviously they can use test tokens we've mocked all the tokens up on the test net on the robston version so that the prices match the main net and people can come on and play around with make themselves millionaires for a day and play around with tokens lend or borrow what they want and really experiment with the system in a safe environment

8:53but ultimately yeah testnet has many differences to mainnet and of course it's important to get out there and launch so that people can you know use euler in the real world and so we launched very recently on monday actually our mainnet deployment which people can go on and view now and play around with we're launching the protocol in two

9:17phases really the first phase just started now and this phase is a very sort of risk-averse phase it's a somewhat of a guarded launch as people describe them where we've essentially tried to lower yeah limit limit what people can do to lower the you know the potential risks of a new post call launching so for now we've launched with just a few collateral assets for

9:37instance and we've we've sort of scaled back on lots of the innovations that we've introduced into the protocol so that we're we're sort of testing one thing at a time and you know not exposing our users to too much risk but so far it's going very well and we're getting lots of good feedback about the ux and how people can interact with the protocol we've worked really

9:59hard on one aspect which is the ability for people to build up a transaction in transactions in batches to reduce their gas costs so that feature in particular has been really popular from a ux perspective you can come and you can deposit and borrow and do a whole bunch of other stuff in a single transaction on aurora by building up these batch transactions

10:23essentially which can dramatically lower your gas costs and it can also allow you to do lots of fun stuff in terms of rebalancing positions and you know taking our leverage positions and so on all in one concise cheap transaction very cool i like that functionality and you talked there and a little bit before just about how bitcoin ethereum and these major assets will be you know

10:47the primary assets that you know they have liquidity in the markets you'll be able to stake and earn from those more easily and i'd like to know if there's also an euler token or a token ecosystem that's involved into the platform and if there is how does that work and how does it provide value to the players in the ecosystem yeah so euler in the long run needs to

11:10be needs to be decentralized it needs to be managed by a decentralized community of custodians and those users need to be those custodians need to be users of the protocol they need to be people that value it that they either generate yield for themselves or are you know benefiting from the profits they can make from borrowing and trading and doing all the all the fun stuff on

11:33that side of the market and so they need to respect how the protocol works understand the risks involves with using the protocols and really really get value from it and so the idea on euler is to distribute our governance rights to those protocol users through a process of liquidity mining essentially people who come and lend or borrow on the protocol will be given

11:55A future saying how the products call runs and as for instance in what types of assets can be used as collateral on the motorcycle yeah and the this token oil as we're calling it eul will be distributed to token hall to liquidity providers from probably early next year i expect maybe late january we'll start to do that and start to give people a say in how the protocol

12:19runs and really decentralize the management process there right now it's obviously controlled by the team you know we need to be really reactive and to changing changes in market conditions and make sure things are you know safe to use so we're fully in control right now but we hope not to be in the very near i like it and that's always something big

12:42to look forward to in 2022 and i'm guessing that the d5 market will do what it did this year and just completely continue to grow and change and alter and since you've already been following it building out the protocol for the last 16 months and more i would love to know if you have any insights or what your vision of what you think the d5 industry might look like you know three

13:08to five years from now and how euler will fit into that yeah that's a really real i mean it's really tough to make predictions in indeed fires you know because the place moves so quickly i can't really believe what it looks like now if i if you'd have asked me a year ago what would it look like today i would have got a terrible so but i would

13:31my big bet on the way that things will shape up is that you know if we just focus on ethereum because that's you know the area i know most about i think we'll see ethereum layer one become this base layer that is used by large d5 native institutions cryptonative institutions and then a lot of the activity i expect we'll move on to these kind of silos on layer 2

13:55networks and that will reduce the gas cost for everyday users allow them to trade and interact on layer twos so i think for now we're seeing this sort of migration of protocols to layer twos and people are starting to experiment there and get to grips with them but there's a lot of cool stuff going on i think 2022 even will be a really big year for layer twos

14:17Does loyola have plans to go to layer two anytime soon well it's actually a little bit tricky for us because we build on top of unit swap as a core dependency and right now yeah they're still just getting started on layer two so we have to take things carefully and go go steady really and follow them when the time is right but i think yeah certainly next year i think we'll start

14:40to explore moving on to layer two solutions ourselves and providing an opportunity for people to use the protocol at a lower cost because yeah layer one right now can be a little bit expensive for memory folks definitely and you do have that combining transaction functionality to help but i was thinking that in the back of my head i'm like where are the other

15:02layer two is in the scaling solutions and will those come into play in euler so thanks for dropping those hints on that michael for the viewers that are looking to learn more about euler as you come up with these updates and just with the products that are out right now and how to use the platform and to get into the communities too what is the best way for

15:20them to get involved well i would say firstly check out our website that's euler.finance there you'll find the links to pretty much everything else but we're very active on our discord channel that's a great place to come if you want help if you want to ask questions you'll get lots of support on how you know with how to use our test net so that's a really

15:40great place to start it's just come and experiment play around on testnet build some crazy batch transactions take out some risky loans see what happens and then yeah beyond that i think our twitter is a great place to just keep up to date with updates we have a blog as well where we post not just updates but also a lot of a lot of our core research gets put on

16:01our blog so we have people that really like to get into the weeds of things there's some nice technical articles there sometimes with even some maths in them which i know some people find scary but i think it's important to really you know make sure that we're really transparent about what's powering these these protocols so that people can understand

16:19them from from you know the ground up and then if you really want to understand how the whole protocol works our white paper gets a lot of praise it's very very clear and concise white paper it details a lot of the innovations on euler about how we sort of maximize capital efficiency how we limit risks to users and so on i hope that people will check that out

16:41amazing thank you so much michael i will leave all those links to the website community links and the white paper as well for euler in the description box below all the best with the platform moving forward i'd love to follow up in the near future when the next stage is coming out and until then all the best thanks i really appreciate it you