Simon Jones on interest rate swaps and DeFi at Voltz

0:00i am ashton addison from block west capital for investment pitch media in the Crypto Coin Show and today on blockchain interviews we have simon jones ceo and co-founder of volts simon welcome to the show and thank you for taking the time yeah it's super nice to be here likewise let's dive straight into it i'd love to just kick off our conversation for the

0:20audience by allowing you the time to talk a little bit about volts some of the solutions that you're driving in the blockchain space and then we'll dive into those details yeah sure so at volts we're building out a protocol that effectively brings interest rate swaps to d5 and i guess just to talk to kind of like the significance of that interest

0:40rate swaps they're just a core pillar of any well-functioning financial system so the kind of like headline there really is that without interest rate swaps in dbfi defy will never be able to serve the financial needs of the whole of the world so we need this to exist in order for d5 and for all of us to kind of deliver on our vision of making d5 a

1:00global financial system and i guess just to add some color to that so in traditional if we look to traditional finance as an example right in traditional finance there is a quadrillion so literally with a q there's a quadrillion of national exchange each year which is almost like a cartoonishly large number but it's that large because it supports

1:21such a kind of wide variety of different use cases so be that from speculation to risk management food to the construction of structured products so whilst interest rate swaps itself might feel a bit drying it might feel like something that you as a consumer have never actually interacted with if you've ever had a fixed-rate savings account or a fixed-rate mortgage what's

1:42actually happening in the background is that's being packaged up off the back of an interest rate swap so for us to be able to create these products and serve the financial needs of the whole world through defy we need interest rates to exist i completely agree and you know i've studied it in finance as well but i feel like there's a lot of people that

2:03have just gotten into cryptocurrency you know as their first venture into investing and they you know they're starting to stake some of their coins and they see that they're getting interest on them and but they probably don't fully understand interest rates swaps and you can explain a little bit more about the swap part and how that sort of playing a role in crypto

2:24and why that's different from people just staking and earning interest yeah sure so in terms of our amm there's basically three different kind of like agents that exist within that you obviously have liquidity providers which functions well there's definitely some differences to other amms but you kind of will pull out to one side then in terms of trading

2:45You have what we described as fixed takers where you are swapping and essentially selling away a variable rate of return in exchange for fixed rates so if you for example you own cdi gives off a variable rate you don't want the variable you can sell that rate in and receive a fixed rate back or on the other side we have what's described as variable take it's where you're

3:08effectively doing the opposite so you sell a fixed rate in and you receive a variable rate back and in both instances you can trade that with a kind of leverage just given the construction of the amm that we've designed which basically means that say if you're on the variable taker side and you believe kind of the variable rate will be higher through the course of the kind

3:28of pool's term than the fixed rate that you're selling you can trade that delta with leverage great explanation and thank you for that simon now i'm curious do you have a history in blockchain or in finance or how did you come about creating volts yeah so i mean for four days worth i was never actually supposed to be in finance i had got into university to study

3:50architecture and like as a kind of relatively young man i remember just this period of time where i couldn't get a job and it wasn't because i hadn't had any kind of experience and i had loads of experience on jobs is actually because we're in the middle of the global financial crisis and looking back that clearly had some sort of impact because i switched from architecture to

4:11economics and then coming out of university i actually went on to set set up three different kind of financial technology companies using that in broadest possible sense so got introduced to crypto in 2012 but it was just too early then really to kind of use technology to build products and services for users so the first two were kind of like

4:30more kind of traditional financial technology fintech businesses with one of those we built the very first kind of fully automated human financial advisor to effectively fully automate what a human financial advisor's brain effectively did but then coming into last year like having kind of been exposed very early to kind of crypto it's always been

4:52this like itch that i just had to scratch and it's very clear that technology in my mind is just ready for like mass market adoption so that's when i set out to find my co-founder he's called arthur i often describe him as a ninja he's got a masters in statistical science from oxford he's been a quantum bank of america and he's been a machine learning engineer at amazon so

5:14he's got great blend of kind of math plus finance plus tech and he and i then set out on a kind of six month research piece to really unlock what we felt was going to be the next zero-to-one innovation that was required to move the whole sector forward very interesting and thanks for that background now interest rate swaps are normally you know from the traditional financial

5:36world as you said i'm curious if implementing it into the cryptocurrency world are you still targeting the traditional finance investors and traders and showing them the cryptocurrency side of it or are you also targeting you know people that aren't from tradfi and they're just for crypto now bringing them new kind of financial products or is it both

5:59it's it's a combination of both but it's certainly for the most part at the moment more lean towards people who are kind of like web3 native and kind of really the way that we think about vaults is that we're a super low level piece of infrastructure so we expect lots of teams and this is already happening we expect lots of teams to build on top of vaults protocol

6:19to use what is essentially like a new market to construct a whole bunch of new products which otherwise weren't possible so that can range from stuff which kind of one end of the spectrum is like a fixed rate same as account i'm all the way to kind of like the other end of the spectrum where we've actually had teams reach out who are trying to do stuff

6:37like fixed rate mortgages on chain and you know from our perspective yes there's going to be traders and we speak to traders and institutions all the time but we also work very closely with lots of other builders in this space as they look to build new products and services that sit on top of vaults that's great and yeah i feel like you know when d5

6:58first exploded in d5 summer it's been over a year or two now almost it was like such a significant impact in blockchain it just drove so much more capital and so much more interest from the financial world into into blockchain and how important do you see you know interest rate rate swaps as being you know the next big thing that's going to help d5 and

7:21blockchain grow yeah i think it will act as like the catalyst for a whole bunch of new products in this space so we kind of had if you think about it in waves you kind of had like your kind of really important kind of money markets and kind of dexes which which could need to exist and always can be like the first wave of innovation in this space

7:40But with the advent of interest rate swaps and the ability to kind of like trade rates and use that as a way of structuring it into new products and services we expect that to trigger like saying this wave of new products that are built such that d5 can start to serve the financial needs of the whole of the world definitely and i haven't heard of any

8:03other d5 projects working on interest rate swaps yet is it something that is new to the industry or is there you know a rush of competition coming up in this area as well yeah it's pretty new we kind of did our or we did a seed round at the back end of last year and at that point in time pretty sure that we were we were kind of one of the first if not the

8:23first in this phase since then there are there are people popping up it's like it's clearly going to be a massive market it's incredibly important to continue to grow but we don't really think about it as like competitors but it's worth you know we need other people trying other ideas in a space off the back of that it actually forces more innovation and

8:45ultimately helps us all be forwards definitely and i agree especially at this early early stage the more awareness to these kind of products the better i believe and speaking early stage you just mentioned there your your seed funding not not too long ago i'm curious where the protocol is at at this stage you know in terms of functioning and usability

9:08yeah so we did we did the seed round back end of last year for what it's worth at the time just given the complexity of actually building out an automated market maker for interest rate swaps is super complicated there's a whole bunch of like design decisions within that are but we just unlock new things for the space as well like even the separation

9:28of the amm relative to margin engine such that people can trade with leverage but given the complexity everyone said it's gonna take six months for us to basically build it and get it audited we did it in three and what that means is that we have now got it onto testnet and we're steadily ramping up towards our mainnet launch that's great to hear and you know defy

9:50and investing in general obviously has risks as well one of the ones that come to mind with d5 is impermanent loss maybe you can talk about that and also any other risks involved with interest rate swaps in d5 as well yeah so what's super interesting actually is that we have essentially removed the concept of impermanent loss from kind of kind of

10:13the volts ammon and the reason for that is that if you think about like a normal amm where you say have die and eat you know as basically as the price moves there's a risk that you kind of end up crystallizing or loss if that moves you kind of against what you want to have but with an interest rate swap amm what you actually have on one side is you

10:32have fixed takers who are receiving fixed rates of return and on the other having variable takers who are receiving variable rates of return and that's created on top of an asset like c die but because it is on top of an asteroid c die your fixed rate payments there are in die and your variable rate payments there are also in die so as an lp you only have to deposit one asset in order

10:55to create either side of the market at which point you don't have the risk of impermanent loss there are other risks we describe it as fund rate funding great risk where you can basically get locked into a swap where you're supporting someone else's trade up but the concept of impermanent loss has been removed from the voltage that's great to hear because i feel like

11:16a lot of people especially ones that don't fully understand impermanent loss don't really know what they're getting into when they add liquidity into you know these liquidity providers on the amms and often the variable rates can fluctuate quite highly especially when there's a new d5 product that touts a high interest rate to start you know

11:39the apys can be in the hundreds or thousands of percent and it seems a little crazy and they often go down right away i'm curious with interest rate swaps you know with the variable rates that you talk about you know swapping for something fixed are you seeing or will we see the variable rates be very volatile like we've seen in early stage d5 products

12:01well so we it depends where we create the so we can create a pool on top of any asset with a variable rate of return and in fact actually the volts market is entirely synthetic so that all we need is an oracle for you coming in and we build on-chain rate oracles to ensure it remains composable and fully decentralized but as long as there's a rate oracle coming in we can create a

12:19pool on any asset with the variable rates so kind of some of the early kind of kind of projects where you get these kind of really high apis yes we could build pools on top of that but actually to begin with we're kind of more likely to lean towards kind of your more traditional markets traditional you know where there's just greater volume greater demand for

12:41interest rate swaps definitely yeah and i agree that's probably the safer way to go about it especially at early stages so i'm looking forward to seeing how that plays out and you know speaking on about how that does play out maybe we can talk a little bit about the future of volts you mentioned that you've already ahead of schedule in building out the test net and everything

13:01with the rest of 2022 you know what are some of the plans for the roadmap and continuing to develop yeah so i guess the long-term i come back to this kind of like long-term vision which is that we're building out vaults because we want d5 to become the financial system for the whole of the world so the really really long term is that quadrillion that i talk

13:18about in traditional finance we want all of that to exist on vaults protocol right and actually if you project into the future like what why why should it continue to go through centralized entities which are using legacy technology and legacy ways of working it just shouldn't happen and we expect a lot of that to move across to blockchain-based infrastructure and for us as a kind of

13:38business project we obviously want all of that trading activities to go through vaults and if we're doing that then actually what that means is it means that default is becoming the financial system for the whole of the world so it's pretty exciting but in terms of like the shorter term you know kind of all we're focused on right now as a team is moving from

13:56this test net phase into kind of mainnet and from that point it's about kind of just growing kind of within d5 and then and then ultimately kind of starting to bring kind of all of that market across into the infrastructure we're creating great to hear and yeah that's pretty ambitious i would love for the quadrillions of derivatives in the stock

14:17market to fully be tokenized onto d5 and you know to have all of these great innovative solutions to be the norm so let's let's hope for that yeah one thing i sometimes say i'm based in london so one thing i sometimes say to like the team is london clearing house it is literally like based over there right london clearinghouse is responsible for about 90 of the world's

14:38interest rate swap clearing and within five years we don't want it to exist as an entity and if it has an exit if it no longer exists in density then that's basically us doing our job very cool and you know from the last two years we've seen you know the exponential growth in d5 do you see that same trend continuing with the introduction of cool financial products like interest

15:04rate swaps and others you know how quickly do you think d5 will escalate to replace these old technologies yeah i think i think what's happening right now is d5 is really getting to this point where it's no longer this like weird kind of you know kind of environment which kind of you know chad files like oh we don't really pay attention to that

15:24it's getting to the point where kind of everybody kind of all across the world is really starting to become aware of this system and the potential benefits they can provide all right so i personally like kind of when things are on an exponential growth curve i personally believe that they're going to happen a lot quicker than perhaps other people expect so you

15:44know i genuinely think it's possible in the next five years for a lot of this kind of kind of trading activity to move across on blockchain-based infrastructure great i'm looking forward to seeing that happen simon and now for the viewers that are looking to learn more about interest rate swaps on d5 and just volts and follow along with

16:05the road to the mainnet launch as well what is the best way for them to learn more and to stay involved yeah sure so you can follow us on twitter studio tz underscore xyz or you can go to the website vaults.xyz and there's a bunch of information which you'll find there but alongside that i would really encourage people to come through and kind of come into the discord

16:30engage with the community we host amaz pretty regularly there's teams obviously they're building on us we just yesterday had two teams presenting to the community kind of some things which they hacked together it's a recent hackathon it's a really great place to be awesome i will leave those links as well in the description box below all the

16:48best with everything in interest rate swaps and volts moving forward simon and let's follow up in the near future awesome great to talk to you