EXCLUSIVE: Balancer 🤝 Aave Partnership Chat | Stani Kulechov, Fernando Martenelli, and Dan Elitzer

fireside chat that we are officially hosting we are super excited about this live event we're broadcasting it live on youtube it's also going to come on the premium edition of the podcast sometime next week david what are we up to today yeah we are up to uh talking about the partnership between ave and balancer so there is a pretty unique opportunity here to make capital more efficient in d5 this is a constant theme as defy

matures as these teams collaborate and talk to each other they find ways to make things better and i think one of the reasons why i'm really stoked on this partnership is because dan elliser is really stoked on this partnership and when dan elliser is stoked on something i pay attention and so this is what's so unique about uh what we're doing here today is we are actually handing over the keys to the kingdom to dan so dan elliser is actually going to moderate the conversation between stani the founder of ave and fernando the ceo founder of balancer so can be a pretty unique piece

of content coming out of the bankless youtube and it's great because you and i don't have to do anything yeah we don't we're gonna we're gonna come in after the show and add some commentary and hopefully you guys if you're watching on youtube add your questions uh throughout because we will be monitoring those questions and bring them uh after the panel to you to the surface for sort of a community ask me anything where we'll do a debrief so that's important too make sure you get your questions in you know david uh dan elliser wrote that legendary piece super fluid collateral back in like you know

2019. it seems like that was something like that it seems like a decade ago but it was really the first post that kind of predicted exactly what we're talking about here today because what we're talking about is um actually using a money lego a balancer liquidity pool in ave to uh as a piece of superfluid collateral to receive additional interest on so what he predicted is coming to fruition and now uh doing a panel on it so that is super cool david anything else regarding

logistics did i miss anything yeah no not at all we're going to we're going to hop off here real quick then we're going to hand it over to astani uh fernando and dan for about 30 to 45 minutes of a conversation then when that wraps up uh we will turn to the community ama which will go for another 30 minutes so if you found this link on periscope but you want to ask questions go to the youtube because that's where i am fielding questions we're also fielding questions out of the bankless discord uh for the bankless premium members uh and then of course if you are on youtube like and subscribe because this is how you get

good content up to the front page of youtube where it belongs uh so please go ahead and do that for us yeah absolutely all right before we get to the panel in the fireside chat conversation with dan ellison fernando and stani we want to thank the sponsors that made this episode possible gemini is the world's most trusted cryptocurrency exchange i've been a customer of gemiini since i first got into crypto in 2017 and it's been my main exchange of choice to make my crypto buys and sells gemini is available in all 50 states and in over

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gives you three percent cash back on all of your purchases but paid to you in your preferred crypto asset when i get my gemini credit card i'm going to make sure that i get my cash back in eth so whenever i buy something i get a little bit of eth bonus back to me at the same time you can open up a free account in under three minutes at gemini.com go bank list and if you trade more than a hundred dollars within the first 30 days after sign up you'll be gifted a free 15 bitcoin bonus check them out at gemiini.com go bankless ave is a

borrowing and lending protocol on ethereum and just recently released ave version 2 which has a ton of cool new features that makes using ave even more powerful with ave you can leverage the full power of defy money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan against my

portfolio of a number of different defy tokens and eth i'll choose a variable interest rate because it's a lower rate than the stable interest rate option but i could choose the stable interest rate option if i wanted to lock that interest rate in permanently one of ave's v2 features is the ability to swap collateral without having to withdraw your assets trade them on unit swap and then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the

power of ave at ave dot com that's aave.com hey all thanks for thanks for having us david ryan thank you so much for inviting us on to talk today uh it's really exciting for for me to be here and be with with these two fantastic guests i'm i'm actually a big user via my funday sense of both ave and balancer we've got exposure to both those tokens so full disclosure up front there but

we're also very very heavy users of both protocols because we really think they bring a lot to the table so i'm very excited to get into this partnership today but before we do that let's lay a little bit of groundwork so first stani i know that ave towards the end of last year did a big v2 launch of your protocol can you just in maybe about a minute give us some of the highlights of new capabilities that were introduced in v2 and what the overall goal was of that overhaul yeah i think thanks for for uh

introduction dan and the v3 was launched uh i think was like we were in mainnet in december and one of the things that we tried to improve is we just optimized the architecture so we had more gas settings there but we optimized the protocol so that we can create more pools and and currently as obvious protocol we have a main market uh but the idea is that the protocol is capable of creating multiple markets so

let's say that uh if you want to use something like uh balancer liquidity provider of services lateral and uh and other kind of laterals to liquidity uh the protocol is more scalable in in that sense and also we can list uh into the main market quite substantial amount of assets without creating unnecessary gas but another day we also wanted to improve uh the user experience so one of the issues that uh the the other users had is that when

you borrow something against your collateral in in most cases uh you you want to return uh your loan at some point you want to refine your debt but you know if you spend that loan somewhere else already uh it's very difficult to to close that loan position so we introduced so-called uh collateral swap uh functionality where you can actually with this functionality you could close your loan position so you could repay your loan with your collateral which is super cool but also you could uh swap your plateaus let's say if you now that uh for example you might have e

position and uh power is now for example listed as talking you want to swap uh part of the position into pal you can actually do now without without free paying your loan so kind of like user experience things which which are a way to just make the product better that was our complete focus fantastic and fernando i understand that uh recently you've announced balancer v2 this is i guess the proposal from the the balancer labs team and the community as a whole has to i guess approve it and

push this forward but can you please you know tell us what are some of the big changes that you're planning on for this v2 sure so what we did mainly was uh also change the architecture to have more uh more efficient ways that you interact with the protocol um this this has been done by separating the logic from pools um from the accounting and custody of the tokens so in balance if you want today

each pool is its own smart contract so the pools are siloed and completely separate from each other they hold the tokens and also the logic that um kind of uh rules the amm that they uh how they sell and buy tokens and now we we have a vault that holds the assets of all the pools ambassador but each pool is free to have any logic arbitrary logic that they want so you can create a different amn style

and plug that into balancer and the vault will hold the assets while the the pools will hold or manage the logic why is this so useful because imagine like if you wanted to do a multi-hop trade or you wanted to do a trade um in a pair that there's a lot of liquidity in different tools today you would have to send let's say a for b you would have to send a to like all three pools and then get b from all the three poles that you're interacting with as opposed to if they are all like all

the tokens are held by one vote you just need to send a to the vault and then the vault communicates with the pools to like understand how much uh what price they offer and then the vault gives be back to the to the user who's buying um who's doing this trade and this also allows us to do something really cool which is what we call internal balances so imagine like many arbors out there and people who do lots of trading every day retail users or smart contracts it's it's kind of silly if you

stop to think about it to send token a and then get token b back if they know they're going to be selling b for a and then they have to send the b back to get a so what balancer v2 allows is for you to have like some credit within the vault so you can just deposit a and b and then you you sell a for b and then that only changes your internal balance within the vault but it doesn't involve any year c20 transactions so there's no external contract calls it's a lot cheaper so we the numbers were we're playing around today

for a normal transaction a normal swap we are getting things around 100k um probably gonna maybe go down or up a bit from that and for for transactions that use the internal balance we're getting sub 70k uh swaps and the nice thing is that if you add more like if you if you trade a for b and then b for c so you're doing a multi-hop it only adds marginally more gas because you're you're interacting with the same contract it's the same vault it's just adding more like calls

to to votes but all the logic is done in the same ball so we're pretty excited about that and and that allows projects to build on top of balances so they can build whatever amm logic they want and kind of um take advantage of this infrastructure which is the vault and all the other stuff around balancer like the sor and um bowel liquidity mining and so on support so maybe that's a an overview about balance survey 2. yeah and so it sounds like in both cases

the goals of these v2s of your protocols have been about really refining the architecture and making it so that it can do a lot more volume be a lot more efficient offer better ux um through these new capabilities that you're introducing and the the piece that you mentioned fernando that where i think we're here to talk about today is really that vault piece right the idea that rather than having you know eth be part of all these different pools and sitting across the

different pools all of that eath or all of that usdc from all these different pools all end up in a single vault and that creates opportunity because while you may have a lot of depth in a lot of these pools people aren't using probably the you know eighty percent of the debt point it's only that twenty percent that's in use most the time and when you aggregate it across all these pools that's probably even more so uh so now please you know can you talk to me

about like what what you're going to be doing with the fact that you have all these assets collected in a single vault and how ave then plays into this sure maybe i i i kind of saved the best for for this answer about v2 that i haven't mentioned so it's a known fact that amms don't use um most of the liquidity because unless the prices are moving in one direction like what you get is kind of the the the balance is just fluctuating

back and forth as people trade of course if something gets more expensive then that uh balance goes down so let's say you have a pool with eat and die and it gets more expensive you're going to have less and less eat in that pool so actually eating up some of that balance so what we have in battle survey 2 is the concept of asset managers so pool deposits assets into a balancer and means bpt's balance of food tokens it's like a share lp shares but the pool should have full control of

what the pool wants to do with the assets that it deposited to the product it's not it doesn't belong to balance it belongs to the pools and of course the pools represent the lps that uh trusted those schools with their assets if the pool decides to say well i know that uh most of the time as i said then just like the 20 uh top of of my of my balances are being used to um facilitate or enable trades why don't i just use 80 of those balances of the two tokens and put them

on on ave for example because i know that i could be earning i don't know depending on the token five twenty thirty percent uh yearly on top of the the swap fees that the bouncer pool is also generating so the nice thing is that we we made it so that each fool can decide on its own whether they want to do that or not because there's always additional smart contract risk right even if it's a protocol uh that that's been battle tested has been it's like ave people

might feel scared like oh my my assets are not actually where i'm depositing them so it's all opt-in so you can have a pool that does that and you can have pools that just hold all the assets have less api but don't have that extra um kind of complexity and and um smart contract risk and you can have like different different types of implementations so you can have an asset manager and just to recap here so what we're talking about today is um this partnership between ave and balancer where we know

that most of the assets in balance or pools are not being utilized just some of it to be um to allow for trades to happen so what we're talking about is those pools will put those assets in avi and it's very simple actually the concept is very simple the tricky part is that we need to manage those assets because as i said if you have an eath diet pool and dye is getting more expensive or beef is getting more expensive then the balance will go down and if that buffer which is actually in

the vault goes to zero then people cannot trade anymore because the vault it cannot kind of count on tokens that are not inside itself so um even though we trust this contract like the vault should not trust anything that's outside of of of itself so if the tokens are not there it cannot allow the swap so if the buffer of a pool went to zero that swap is gonna fail so the asset manager then needs to go to ad and say i need some of my back and and put it back into the pool to allow for

trades to happen again does that make sense so yeah so what so what you're saying here is basically there there's a need to kind of manage that balance there and then a need to actually earn yield on the part that is is not being reserved right in this moment so uh it sounds like this is great for lps and balancer at least the ones who opt into this and are willing to take some additional smart contract risk potential economic risk right around this but they get

better yield on the assets they've got deposited into balancer pools stanley what what's the advantage to ave for working with balancer on this what what does it add to your protocol in your community yeah that's uh actually that was a very very good explanation from fergando on how it how the asset manager allocates the the capital and i think there's plenty of relation like plenty of uh synergies there and and i think how the system is built where the asset manager

can themselves to decide to uh you have this kind of feature is fundamental because uh we we have this narrative of let's say capital efficiency and governance and protocols deciding upon how to reallocate funds between other protocols where the yield is and one of the kind of like my concerns always is that what if the end user doesn't want to subscribe to that risk or liquidity provider and this asset manager actually does it in a way uh where

they they basically uh they've liquidated people are subscribed to that kind of uh asset manager uh functionality that's that's pretty great uh in terms of like the synergies i think like with faster souls uh with asset manager uh in the other protocol is that we get more liquidity and that's that's the key point here uh especially when it comes to stablecoin liquidity at the current moment uh a lot of stable point liquidity is sitting in uh amm pools and and for example in in balancer

and and that means that when that liquidity is sitting there it isn't or is it for borrowing and one of the approaches we have done before is that we look at the uh the the kind of uh liquidity provider shares and collateralizing them and and then creating the loan market but that creates even more demand so it's it's it's a solution where the stable coins become even more uh sparse and with the the asset manager uh functionality what

happens is that uh you unlock those uh steam points but all of the other assets 12 were from the polls that have this feature uh into the other protocol which means that there's more liquidity to borrow and there's more yield to the depositors and the asset matches are also the depositories so it's kind of like uh solving a lot of liquidity crunch that we have at the moment and i think what's unique here in this solution is it actually uh creates

layer layers where the capital is really efficient because when you look at the normal model how we have function and b5 is trying to achieve they are taking liquidity provider shares and putting them as pedal that creates just more scarcity for for for the stable points so i think like a solution-wise is is uh it's very interesting and for the developers i think they they they love the the feature in the fact that you can uh on monster version two you can build different kinds of interesting uh things and a useless asset manager

feature but also in the future maybe there could be other things that asset managers could do for example they could credit delicate between other asset managers uh and and kind of like increase the liquidity within balancer uh and also the deals on those assets so i think this is probably one of the best things happening since defined and this is only like possible because uh there is this kind of like a community relationship between balancer and and and the other community and of course like there's always this kind of

additional smart contract piece that is coming on and and in this case like uh i think the relationship and the of it uh as a protocol has been proving uh quite well in those uh benchmarks and i i for me this is the best thing happening now uh and and i think like i think daniel wrote about this in 2019 first time and seeing it now live coming it's just amazing yeah well i think i was uh

a little overly optimistic at the speed at which some of this stuff would happen but it's it's now happening at a scale beyond what i would have ever predicted two years out um so i wanna i do wanna talk about the community piece and how the communities really fit together but before we we get there um there was a piece danny that you mentioned that you know i hadn't really explicitly thought about in the context of this partnership it makes a ton of sense when i think about my own activities doing yield farming which is that

when you start using uh bpts the the balancer pull tokens or other kind of liquidity pool shares as collateral and ave the folks who are doing that generally want to borrow stable coins against them that's what the real demand is and they're generally not borrowing other assets when i think when i when i've got assets that i'm not looking to borrow sometimes i'm looking to borrow eth but i'm generally not looking to borrow a lot of the different tokens that are

available in ave i'm usually looking to borrow stables and so that's great as you bring in more pool shares that can be used as collateral i'll borrow more stables that pushes up the price to borrow stables but where where are more stables coming in and this is where this partnership comes in is that the most common assets besides eth to pair with are stable coins currently primarily usdc

die usdt are probably i would guess the top three there um and this should open up probably at least tens of millions of dollars of additional capacity to be lent out on ave as a result is that is that ballpark what what you think we're looking at here yeah i think so i mean the potential could be i haven't calculated the whole amount of liquidity that there could be but

uh i think like uh eventually quite a lot in stable points and stable coins is that what the other particle needs and i i think like maybe this is a good example for a whole sort of like dfi ecosystem like how you could actually like think of the the capital efficiency and you know in a different perspective so i i definitely agree that this is uh this is going to help a lot on bringing those uh borrowing costs in and uh it's it's it's i don't know i'm not sure am i more

interested in the actual solution or the fact that what could you build as a developer on top of this functionality in later stage so but it's it's it's a quite substantially um significant change and i think it sets a different kind of a narrative as well in the d5 ecosystem because here is like two protocols and uh trusting uh each each other and the same way for example uh the other balancer relationship is

that we we have uh race out together like uh let's say we have to reach out balancer community and they've been in to contact us and and we have agreed to do something something big and we have usually achieved it so we created this uh uh part of the autonomics uh when you stick to the safety module to backstop the protocol uh from any kind of uh uh events uh so uh one of the ways to backstop is that you you you you have this special uh balance report where you

have eighty percent of oven twenty uh twenty percent of each uh uh the the the pool so you stake those pool tokens into the safety module and you get like the keys from balancer the power token and also other for the safety module and and we were planning that maybe this could be actually if if it's done right with the ergonomics and so forth and safety module staking it could be the biggest pull uh in in balancer and it happened like now it's the biggest poll there and that's like super efficient you know in

that sense and it's only possible because our community trusts uh the balancer community in terms of like because the funds are there in in in the uh balancing on balances smartphone checks and then in the same way balancer is trusting all the in terms of security here so it's it's kind of like a something that uh uh requires a lot of work and time and i think this shows very good messages like once once the teams achieve certain security level in terms of like building uh safe and secure uh

infrastructure then you know this kind of partnerships are possible to do in a scale otherwise you could not scale into like hundreds of billions uh in what we have with the uh safety modules taking with balancer and and so that's a great point you know this is not the first significant partnership that these two protocols have had so are there other things that you're thinking about what are some possibilities for things that these two protocols could do together going forward

there's a lot of things i was a terrible host there fernando why don't you answer this yeah i think i think i i i'd agree with sunny that um the most exciting thing is not what we know we built and we know we can vote but the things that the crazy developers out there will come up with because um because of composability and the way those things are like legos and and people come up with ideas that we haven't expected but i think some

obvious uh next next steps would be to have a a better kind of coverage of bpts as money markets so like if ave understands how balance works and like the smart contracts uh kind of uh can talk to each other you can always withdraw liquidity there's no like wait period or cool cooldown period so if if avi needs to slash someone or to um yeah use that collateral it can always go to balancer

withdraw the underlying tokens and then use the if that's uh in that if let's say um ave pool so in a way like it's just a bpt is just a passport uh to the underlying tokens it's easier said than done there's like some complexities how to price the dbt and uh but but it's it's kind of doable and we're here to solve those nice challenges that i i think the credit delegation for asset managers is an amazing idea

i've already thought about that and we discussed uh some some of the kind of cool things we can build with that but yeah we're just just getting started sorry stunning yeah yeah yeah yeah just to add on that like the one of the markets we we're now working is that we we have the the uh the uh balance report tokens as a collateral and and you can borrow liquidity against and what's interesting here is that even though it's a like other market and and

build on ave uh what we're going to do is that the oil token holders have also uh floating power because the way that the other uh version two governance that we released end of uh last year works is that we can create different kinds of uh voting strategies and and for example if you create a new pool we can add there uh other tokens to be also used uh to vote so so it gives uh power to the balancer uh community and because they know the assets as well they know how their

system works and you know it's kind of like an inclusive way uh to to get uh communities together and and govern things together and i think this is quite new because usually uh you know there's a lot of partnerships in india and you know we're just working together but uh if you look at all of those partnerships there isn't that kind of like a much of my inclusivity to this level where actually govern something uh you know that's that involves both of those uh stakeholders and and you know and

combine the expertise and understanding and community uh culture there and i think that's going to be interesting interesting to see how it will evolve i think that's super exciting right i feel like so many of the partnerships not just between these protocols but other protocols in the space have largely been kind of developer driven um you know behind the scenes working together on something and what you're talking about here is is as far as i'm aware like the first case where we're talking about two

very significant protocols actually sharing governance via the token holders over a meaningful amount of assets and kind of economics and how that's going to be used i mean that's that's tremendously exciting to me yeah so we're going to have to talk talk with uh with fabian and and the snapshot folks about you know what what this is going to look like to integrate that on snapshot and have the dual voting and stuff that'll that'll be a lot of fun um

so so before we kind of open it up and and bring david and ryan back in there's one last topic that i wanted to hit on to make sure we kind of set the stage top of mind for everybody right now is kind of congestion on ethereum right it's it's too crowded nobody goes there anymore right um it's it's really great to see so much activity happening in ethereum but gas fee is just out of control and so we're seeing a lot of teams racing towards uh