Stani Kulechov of Aave Talks Flash Loans and aTokens – Ep. 21

Bobby Ong (00:02):
Welcome to the CoinGecko podcast. I'm your host Bobby Ong. Each week we will be interviewing someone from the blockchain industry to learn more about this fast moving crypto currency economy. If this is your first time listening, then thanks for coming. The CoinGecko podcast is produced each week to help you stay ahead of the curve. Show notes can be found at podcast.coingecko.com. I highly encourage you to join our newsletter where we send out top news in the crypto industry every Monday to Friday. Come back often and feel free to add the podcast to your favorite RSS feed or iTunes. You can also follow us on Twitter and Telegram at CoinGecko.

Bobby Ong (00:38):
Hi! Welcome to the CoinGecko Podcast. For today’s episode, we have the honour of welcoming Stani Kulechov, Founder and CEO of Aave. Aave Protocol is a decentralized, open-source, and non-custodial money market protocol. Depositors earn interest by providing liquidity to lending pools, while borrowers can obtain loans by tapping into these pools in both an overcollateralized or undercollateralized fashion. Thanks a lot for taking the time to join us on the CoinGecko Podcast, Stani.

Stani Kulechov (01:04):
Thanks, Bobby. It's a pleasure to be here.

Bobby Ong (01:07):
Yeah, I mean, it took us a long time to get this podcast. We wanted to have this many months ago, but finally, very happy that we found a time that we can both record this podcast. So I guess for the first question, right, Stani, let's talk us through a little bit about the history of Aave. You're not new in crypto. Before Aave, it was known as ETHLend and then you transition to Aave earlier this year, and then like, we've seen like, huge growth in Aave, I mean, the LEND token price, I guess my question is what insights do you have in conducting this transition from ETHLend, which is more peer to peer kind of lending pool to Aave, which is more like a liquidity pool based lending protocol?

Stani Kulechov (01:44):
Yeah, I guess that's an interesting one because I guess the ecosystem grew quite a lot in the sense that when we started ETHLend, it was beginning of 2017 and the ecosystem wasn't as mature as it is today. So there was practically one decentralized exchange, EtherDelta. At some point after we launched, we saw a new liquidity pools such as Kyber, for example, and Uniswap. But before that it was, the ecosystem was very small and most of the tokens, they were very low liquid, especially in the decentralized markets. And our kind of a goal back then was actually to try to minimize the risk as much as possible.

Stani Kulechov (02:32):
So we were in this kind of like a mindset that we don't want to pull assets together. And we want to have a proof of concept to see how lenders and borrowers could actually conduct loan transactions, have a collateral and as an incentive to repay the loan. But also if there is a non-compliance with the repayment, then the lender can repossess the collateral and there is no systemic risk in the ETHLend protocol back then. And that was the kind of approach that we went forward with. And at some point, I think what started to happen in the Ethereum space especially is that we saw more and more composability and actually more growth in the ecosystem. So once we saw, for example, stable coins coming and also Uniswap, besides Kyber, we started to see substantially more liquidity, not the same amount as today. So you could see that actually pooled models could be a workable solution. And even though back then we had like somewhere around 5 million, 4 million worth of locked value in the peer to peer model, we decided that actually it's now a good time to make a model where we pool assets together and basically make as efficient lending protocol as possible. That's how Aave was born.

Bobby Ong (03:56):
Hmm. And you guys kind of made like a new sort of innovation at the start of the year. You guys introduced this thing called the Flash Loans and where you can kind of borrow and repay your loan within a block without the need to use any collateral, right? So did you come up with this idea or how does it really work without collateral maybe?

Stani Kulechov (04:16):
Yeah. So we had always this kind of like a thesis that we want to unlock value and use value as efficient, capital efficient as possible. And that is kind of like the whole our product offering. So you can deposit bonds or an interest but also you can unlock value by borrowing against your deposits, some other currency. So that's the kind of thesis. What we noticed is that, which is ironic because our protocol has like lot of value locked. I mean, there's like 1.2, 1.5 billion, and that is not like our goal. Our goal is to take away the value and reuse it everywhere. And that's why the Flash Loan as a function serves it very well because in essence, 75% of what's deposited into Aave, they're in the protocol, not utilized. And what Flash Loan allows to do is that it allows to take the whole liquidity or any amount from that and use it in the composability of the whole Ethereum blockchain, which is freaking awesome in that sense. As an idea, Flash Loan has always existed in Ethereum because of the atomicity of the transactions but it's a nice way how we actually get additional yield for the depositers and reutilize the capital. And how it works is quite simple.

Stani Kulechov (05:32):
So you can borrow without a collateral from Aave but the condition is that you need to return that borrow on the same Ethereum transaction. So, how the Ethereum works is that there's block that is confirmed roughly every 13 seconds. And each block has estimate of gas fee consumed. And that means that there is a bunch of transactions on each block and each transaction can have nested transaction, so-called sub transactions. So what happens is that whatever you do in this block, you have to set all your transactions when the block is finalized. So if you take the Flash Loan from Aave and you, let's say you buy an asset in Kyber, sell it in Uniswap and don't return the loan, what happens is that the, this function will fail. And that's the relying of the atomicity of Ethereum. It's kind of that simple but it's super powerful because you can create new products without requiring you to have capital, for example, the refinancing, currency swap, collateral swaps and probably a bunch of other things that we don't even know yet.

Bobby Ong (06:35):
Yeah. I think Flash Loans are very powerful because it serves as a very strong use case for people who do a lot of arbitrage because it helps to keep all the price level across the various trading platforms. So I guess my question is like, what's the growth rate for Flash Loans? Are there a lot of people utilizing Flash Loans? Do you have any numbers that you can share on the number of Flash Loans that was taken on Aave on a month to month basis, for example?

Stani Kulechov (07:01):
Yeah, we do have, I mean, we have a very nice dashboard in Dune analytics and also in the Aavewatch, which is made by one of the community members and the Flash Loan is pretty interesting because it's the beginning, one of the launch, there wasn't that much utilization. We were basically giving inspiration to the community members, as what kind of things you can build. And today the story is completely different. I actually lost even count like how much Flash Loans we have in terms of cumulative and databases. One of the biggest Flash Loan days we have probably like 133 million worths of Flash Loans, a day. So there's a lot of consumption. So on a daily basis, we see, I think roughly 10 to 15 million worth of Flash Loans, even more so it's pretty awesome, honestly.

Bobby Ong (07:49):
And at this point in time, like Flash Loans, they pretty much only available to pretty much the developers who can write smart contracts, who can know how to do interact [with the smart contract]. Do you see a future where Flash Loans will be made available to non-developers where like, I can just kind of click, click, click and then kind of implement it.

Stani Kulechov (08:06):
Yea, there is actually already a couple of interesting projects. One of them is Furucombo. So it's a DeFi project from Taiwan and they made this no-code version of Flash Loan. So you could actually program different kinds of things by using Flash Loan. So one of the things could be for example, that you use a Flash Loan to borrow from Aave and to close a CDP in Maker or refinance it into another place or set different kinds of functionality or you could do just a basic arbitrage in that sense. It's very fascinating. Like I'm very bullish on this no-code thing because Flash Loan is exactly a feature that is basically meant to empower the developer community. And what developers have done, they have taken this feature, made it accessible, also innovate for the end users. And that's pretty cool because in most cases, when a Flash Loan is executed, you as an end user don't know.

Stani Kulechov (09:05):
So if you go to DeFi Saver and you, you basically close your CDP without returning the DAI, let's say you have spent the DAI somewhere else. What happens is that DeFi Saver smart contract will take a Flash Loan from Aave in DAI, repay the CDP, take the Ether, liquidate it in Kyber, for example, and return the DAI into Aave and return rest of the proceeds to the end user. So the end user doesn't suffer of the liquidation instead, if that otherwise liquidators will get. Some very nice value added feature. For what I see, like there's going to be quite a lot of more experimentations with the, this feature.

Bobby Ong (09:48):
So one of the things that you guys have is this aToken, where you deposit like collateral, any coins like Wrapped BTC or ETH, you get like aTokens in return. This is quite similar to Compound's cDAI token as well. I guess there are subtle differences between these two tokens, I guess mainly with respect to the interest paid, I believe. Do you want to share some of the differences between these two tokens, the aToken and the cToken from Compound?

Stani Kulechov (10:14):
It's actually very fascinating because we were, when we were building aTokens, it was a kind of interesting experiment because usually what DeFi users has been accustomed to is the cTokens, where you get bunch of cTokens when you deposit compound and then the amount that you get, doesn't tell you anything, for example, what's your balance if you buy them from the open market or what's, how much you're earning. So it's based on exchange rate, which is pretty good in terms of like implementation wise. But for the end users, we were thinking like, okay, so how like, how would we make this more friendlier and more easier for the eyes so that the end users understand like, how by looking at their Etherscan balance or basically looking at CoinGecko's ticker of aTokens and seeing how much there is actually like deposits in Aave and how we make it easy for people.

Stani Kulechov (11:09):
And we came up with a solution where we actually fetch the balances in tokenized form and also the interest rate that is credited to you. So in essence, what it means, when you deposit DAI into Aave, you get aDAI, the aToken version, which is interest bearing token in that sense. And it's one on one. So 100 DAIs equals to 100 aDAIs. And once you get them into your wallet, what happens is that the balance of the aTokens starts to increase periodically, which is amazing because you see how much you're earning and it actually gives you, you don't need to deposit them, you can just buy those aTokens from the open market, for example, Paraswap or some exchange, Balancer and Uniswap. And what's cool about this is that it allows you to get an access to permission-less savings account, that is USD nominated, which is amazing in the sense that especially if the local currency is fluctuating a lot and there's risk of inflation and you don't have the accessibility of higher yields, kind of like stable higher but somewhat secure yields compared to what you might have invested and so forth. It's very magical. And when you send those aTokens to someone else, they continue to increase in balance. So that could be even like super awesome, kind of like payment currency. Like usually people are used to the dollars they decrease in value because of the inflation. And now you have actually like a currency that increases in value. That's like super cool.

Bobby Ong (12:38):
So it's still 100 aTokens, but the balance on the front end is appearing as something that is higher of value, including the interest component.

Stani Kulechov (12:46):
Exactly. Not just front end but in the actual Ethereum ledger. So you basically send them to your Metamask, for example, and you will see the balance increase. So that's pretty cool.

Bobby Ong (12:58):
Interesting how you can make the balance increase on the contract itself.

Stani Kulechov (13:02):
Yea. It's interesting because it's kind of like a calling a balance of functions in a way that it calls the, checks the smart contract of the interest rates and the mappings of the interest rate for the token holders. And then streams the balance, like it's just like, I think every token should be the sign like this, if there's a possibility.

Bobby Ong (13:23):
I find it's fascinating because we have another token that has the value changes every day, which is like the rebase tokens, like Ampleforth. Every day like number of tokens that you have, it changes and hacks a little bit, the get balanced function and then it changes. I think yours is slightly different. You don't use this method, but like I'm seeing different ways of putting in the value of token on chain, I suppose.

Stani Kulechov (13:43):
Yeah. I mean, if you think about like Ethereum or like blockchain, it's this kind of like a ledger, so it's basically accounting books and then you could actually change or apply those accounting books the way you actually want to. Like currently how we do it is that we have, let's say we've used in the DeFi space or in general, like that we fixed some value, supply value and so forth. But the thing is that you could actually change those values. Like if you go into a mindset where Ethereum is a database and basically you can change the database and make it work for you kind of like put away the limitations and this like a mindset of like, there's this one particular token standard, ERC20. And like, you should not do anything else. Like you should be able to, you know, but that's the thing kind of like people are a bit slightly afraid to innovate because like, you're always cautious when you build smart contracts with standards and everything.

Stani Kulechov (14:40):
But the thing is like, there's so much to do in interest innovation and it's also quite cool because now for example, Yearn they are applying the same methodology and I've seen a couple of other projects and it starts to kick in and we're happy because when we introduced aTokens, I think a lot of people from the kind of like old DeFi community were a bit skeptical because somehow it's kind of new then and we focused on the end user, which is to us like more important. And what comes to Ampleforth, I think they deserve like credit in the sense that they did it quite brave manner in terms of the rebasing. The rebasing is, is kind of like might be a big surprise for people who don't understand like what it is. And I've seen a lot of, kind of like anger even, like when it happens, but that's a good example. Rebase doesn't need to be tied on, let's say one specific like value. Like let's say 1 USD, it could be something more meaningful, you know, and the thing it's all about innovation, this is kind of like token models.

Bobby Ong (15:40):
Yeah. We are seeing a lot of tokens being released these days with all these rebase function. Token rebased over gold price. The one I saw a few days ago, was based on Tesla stock price, all kinds of funny things these days.

Bobby Ong (15:50):
Let's talk about an interest rates on Aave, right? So I think Aave is one of the interesting platforms out there, especially for borrowers, there is, most platforms have variable interest rates, but you guys have a stable interest rates as well. So I guess my question is how is the interest rates set on Aave for the variable and how do you guys implement stable interest rates for borrowers? I guess my next question is, do you guys have plans for stable interest rates for lenders as well?

Stani Kulechov (16:18):
Hmm, that's a nice one. So in terms of variable, that's quite neat because it's adjusted by the supply and demand. So the utilization ratio, but what dictates those utilization ratios is practically the interest rate formula that our governance can vote. We have done previously ourself the work, but now that we have the token migration from Lend to Aave and we activate the governance module, that's basically up to the token holders to kind of like tweak and so forth. So that's the kind of like basis there. And usually you want to tweak because it's a money market, there's always more reserves. You want to tweak in a way instead of formula, that actually is very affordable when there is low utilization. So that kind of like the more lower rates for the kind of like borrowers we have, the more utilization we will see in DeFi because you can, you can borrow quite cheap capital, but once the utilization grows, they should be this kind of like a measure where the rates are going a bit steeper up to ensure that there's enough reserve mitigate the risk of the protocol, the systemic risk.

Stani Kulechov (17:23):
And in terms of like the stable rate, stable rate is basically a reference of the variable rating in terms of that it's based in the utilization. As long as the pool is not completely utilized, so it's below 95% and the interest rate is not higher than 25%, we can offer a stable rate that you get. So when you come to Aave, you deposit and then you borrow, let's say, when you fix that particular market stable rate and the next person who comes after you, he might have the different stable rate because the market offers a different rate. So that is how we can actually do it. And what's interesting in our upcoming version two, we're actually tokenizing the debt position. So now we have the aTokens tokenized. Now we're tokenizing the variable borrow, and also the stable borrow tokens, which is amazing because to swap the rate, you just need to swap these tokens in between. And I'm pretty eager to see like how it will be used in the ecosystem.

Bobby Ong (18:28):
So it would be like the interest rate swaps between the stable and variable rates, right?

Stani Kulechov (18:32):
I think so. Yes.

Bobby Ong (18:34):
And what about the idea about fixed interest rate for lenders? Are you guys looking into it as well?

Stani Kulechov (18:40):
Yeah. I mean, currently it's something that we are excited about and we have few models. I think we have done quite a lot of iterations on that than the fixed deposit rates. We're trying to more focus on like what kind of user wants the fixed deposit rate because once we map this particular field and this kind of like a user demographic, we kind of understand like how we need to price it in terms of like the formula. And like, then there's more options for the governance to decide which it should be because it's not that simple as we think about it, like I used to think myself and I proved a bit being wrong in the sense that you can just look at the variable rate, how it goes, and then you just find a fixed deposit rate, which is sustainable for the system. But actually we have to look also the, like what kind of users are taking it, where they would use it and in the same way as we did with aTokens. We started to think with the kind of like user first approach, like how would this helps and how they will utilize and the same thing is for this fixed deposit rates. We're looking into it. And this is something we want to introduce in the version two, at some point.

Bobby Ong (19:53):
I think it's interesting. I believe the same for Aave, like every single coin, they have their own curve for setting the interest rate, right? My question is, why do you guys have different, and this is the same for Compound, why do you guys set different formula, different curves for each different coin? Like, can't we just set like the same interest rate curve for all coins?

Stani Kulechov (20:15):
Yeah, I guess like, for us, what's interesting is it depends on the supply and demand. And let's say if there is high demand, then the rates has to... That so called second slope of the steep curve has to come earlier because of the fact that you also need to have all of the currencies in reserve to collateralize the system. So it's all about systemic risk end of the day. Like you want to price according the supply and demand and to encourage consumption but also you need to mind the systemic risk. And that is why, for example, some assets are used more as a collateral, for example, the LEND token, Link and ETH. Well ETH is also borrowed quite a lot. So those sense, the rates has to come a bit higher once the utilization starts to kick in and on the stable coins, they're more used as actually borrow currencies. So they have more lighter kind of like steepness when the utilization increases because they pose less systemic risks. So we have this kind of risk framework that our actuary, in-house actuary's applying and based on that we will apply the different kinds of methods. And then the future, which is quite soon is that the governance will apply. So I think there will be other entities also making this conflict risk assessment and proposals. That's kind of the fascinating period.

Bobby Ong (21:41):
So, yeah. Talking about governance, right? Like I believe recently you guys introduced the Genesis Governance that has been put in place and then you guys are transitioning from Lend to Aave and I think recently you guys also launched a version two of Aave, maybe tell us a little bit more about some of the changes that has happened recently with respect to the governance. What's the plan? And when do you plan to transition to Aave completely?

Stani Kulechov (22:05):
Yeah. So the Genesis Governance, the idea is that we activate a vote where we can actually migrate the Lend token into Aave token and the signalling of the vote already was done. And it basically, I think it had the completely four votes. And the idea of the actual main vote is that there's going to be actual smart contract execution code. So payload. So once the vote is done and the execution time period starts, it automatically starts to execute, of course, by calling a function and so forth. But the interesting part is that when the execution starts, it means that the migration contract activates and also this so-called safety module activates. So once our token holders have migrated from Lend to Aave, they can stake their tokens into this safety module. And the safety module is basically a part of our so-called Aavenomics.

Stani Kulechov (23:01):
We [inaudible] like token economics in the sense that we are using our token economics as a way to provide safety for the protocol. So if you think about it, the Aave token holders, they're making governance decisions, most of the decisions are always risk based. So what will be the new assets added into Aave, the collateral factor ratios, I mean, loan to value ratios and so forth, they're assets. And why don't, making this risk decisions, they also are transferring the risk themselves, which in practice means that if there's a short fall event, so if something happens in the system, these stakers bonds, it gets slashed and auctioned, not completely but 30% of their deposits could be slashed and auctioned to cover the deficit. And if that doesn't cover, then there's the passively, where the passive token holders are taking their risk by this protocol recovery function with the main thing. Kind of similar thing as the MakerDAO system.

Stani Kulechov (23:58):
So our token economics is more towards actually providing safety for the protocol. So we do reward liquidity providers. That's in the plan. But the idea is once they get the reward, we incentivize, we don't lock anyone, but we incentivize them to take into the safety module to be aligned with the token holders to provide safety for the protocol. And I think this is the key thing, because once you have a governance that is aligned to safetiness and they provide the kind of insurance for the depositers, it's easier to get more mainstream adoption or even institutional adoption.

Bobby Ong (24:36):
So I believe like in your previous tokenomics for the Lend token, I believe it's sort of like there is the difference between the borrowing and lending rate and then Aave sort of profits based on these differences in the borrowing and lending, and then based on the profits, you burn the Lend token, right? Whereas in the new Aave tokenomics, will there still be this burning element? And then I guess there will be some sort of a staking pool, where users can stake and then earn an interest on the it as well and then mainly be used as a governance, I suppose?

Stani Kulechov (25:06):
Yeah. So the burning function, that is something that in the current proposal is deprecated. But it also, it means that any time the Aave governance can come and propose again, the burning functionality. I personally think the burning doesn't have that big of effect in terms of like what it tries to usually achieve. I personally would use those bonds in something else. Like if you asked me what I would like to do now, I would just want to incentivize builders and developers and anyone who is building things kind of like, and incentivizing them directly with reserves compared to burning a token. Because the idea of the burning of the token is to decrease the supply. So you kind of want to keep the token somehow circulation healthy to some extent, but I think what's important for the ecosystem is just building things. And if you get incentives for people to build, that will be a game changer, like on a larger scale. And this is actually a bigger question of monetary policies because normally money is printed by debt, let's say by central banks. But imagine if money is created in a way where people are building things, when you build hospitals, you build bridges, you build things and then you get the money into the society and communities that will be like something quite interesting.

Bobby Ong (26:31):
And do you see like the need to follow somewhat like the YFI model, where there's like the withdrawal fee and the gas fee 0.5, 5% fee, which goes to the, to reward the token holders, where there's a lot of revenue that's captured by the protocol and is given to the token holders. Do you see that sort of important to reward token holders, for Aave token holders?

Stani Kulechov (26:52):
Absolutely. I think where protocols are going, and this has been our thesis as well. This thesis or this kind of idea in, let's say more of a Silicon Valley mindset, where you go to the market, you raise funds few first years to do monetize. You just collect market share. This very, very linear model of actually building businesses and kind of like networks and I kind of like, I don't like it because like it's a copy paste thing, whereas I think each and every business should apply whatever is best for them and protocols aren't businesses, but there's something even bigger. So the kind of like effects are even bigger. And I think, uh, what we are very shy and has been very shy in the DeFi space is to actually collect fees. And fees are important because fees is kind of like a positive tax to actually reward stakeholders or reward something to be built, you know?

Stani Kulechov (27:47):
And I think that's the kind of like a key component. The next era of the whole DeFi metric is actually like how much fees are generated and not just generate it, but how they are used. So what I think is important is not to reward token holders without the aim of actually thinking like what is trying to be achieved because you want to grow the ecosystem, right? So you want actually some of the fees to go back into the ecosystem and new things being built. And that's something we are looking at Aave to achieve. But at the end of the day, it's all about the governance. They can decide with the fees. And we, as a team, we want to build the protocol and submit new ideas but we want to also to get others to build, we would love to have a team, for example, from Malaysia, Philippines, and Singapore, and just building things on Aave, like this will be like a holy grail to us.

Bobby Ong (28:42):
Let's talk about building things, right? So you would like developers to build on Aave, let's, if you have the the chance, I mean, to incentivize or to see like the craziest ideas build on top of Aave, what are some of the ideas that you see developers building on top of Aave that has not been built yet? So I guess this is like a call for ideas section from Stani to developers out there.

Stani Kulechov (29:01):
Yeah. Oh, that's awesome. Because I think I'm very interested in credit delegation. So credit delegation means when you deposit into the Aave protocol to earn yield on stable coins. People who are not exercising their credit line, they could actually delegate it to someone else they can trust or to a smart project that borrow and without a collateral. So it's kind of like a big value proposition in the sense that the smart contract, that exercises the credit line, so who are you delegating to. If it's, if you know and it's documented what that smart project can and can't do, it allows this kind of like a credit exercise without any collateral. Yearn, YLink for example, is based on credit delegation and they're currently consuming one million USD worth, USDC, that they're drawing with credit delegation from Aave and using that in the ecosystem to actually farm different tokens and generate profits for their wallets, which is amazing.

Stani Kulechov (29:59):
We've seen on a project that is called Fair Launch Capital and they're using credit delegation to fund projects. And there's like so many things you could do with credit delegation. I just don't think we have even explored much of things yet. I mean, one interesting idea is, for example, you could, even, if you think about this rebase thing, you could actually do this kind of interesting thing where, if you look at YAM, which is the most fascinating part about YAM is not the rebase, but when rebase, positive rebase happens, they use part of the rebased tokens to mint the tokens, to buy treasury, right? So they are buying treasury. Imagine in parallel when they're buying treasury and day one, they actually get credit delegation for a certain amount and they buy the treasury on spot and on every positive rebase, what happens is that they repay the loan a bit. How cool is that?

Bobby Ong (31:01):
And this credit delegation is already live on Aave, I believe, right? I read this somewhere.

Stani Kulechov (31:06):
Yep. Yep. So we have the connotation. It's easy to do. There's great delegation, wallet proxies that we did together with actually Andre from Yearn. And what happens is that, you interact with this proxy to create a great delegation wallet and then anyone can actually delegate their credit line. And then to that borrower address, I mean, there will be a borrower that can actually draw the credit line and use it everywhere. This is actually a good idea for ETH online hackathon as well too, if you look at it.

Bobby Ong (31:35):
And then, I guess the question on this is the risk, right? So if you're delegating collateral to someone, I mean, someone's borrowing without any collateral. How do you prevent these guys from running away with your money?

Stani Kulechov (31:45):
Yeah. So when you do it on smart contract level, you want to eliminate any potential credit risk or to the extent that you understand what's the credit risk. In the yALink vault, it's pretty simple. That is known the strategy, the vault structure and the strategy is immutable so that, you know, that the only thing that wallet can do is draw a credit line of farm tokens and sell the tokens and return some borrowed interest and give profits to the end user. So that is no, you can't do much anything else besides that. And the funds are callable. So you can create things that are just basically removes the need of trust and that's how it should be done. And for example, in the YAM case, if you have similar situation where every rebase is repaying a partially the loan, there is some risk because if positive rebates doesn't happen, you can't prepay unless you come up with something more clever.

Stani Kulechov (32:43):
So, so these vaults will definitely give more higher yield for the depositers of Aave. But at the same time, we need to understand that there needs to be due diligence in the contracts that people are creating. And one easy way, you could actually delegate credit to a centralized traditional financial institution. So you could delegate your credit to a OTC Lending Desk, make an agreement with Open Law. And there was, the very first grade delegation what's actually done like this. So Diversifi, which is a London-based decentralized trading venue, they borrowed for their WBTC and with this credit delegation, they close the agreement with the open law. They used to open law to actually even deploy the actual vault. So that was super cool. So there's ways to do a lot of things. And yeah, that's one of the things I'm super excited and I want to do for awhile because the potential is so huge.

Bobby Ong (33:39):
Cool! And recently, a few weeks ago, we saw a news that Aave received an Electronic Money Institution (EMI) license from the UK's Financial Conduct Authority (FCA). So congratulations on this. I guess my question is what's the implication and what can you guys do with this license right now, now that you have it?

Stani Kulechov (33:56):
Yeah, it's actually quite flexible license in the sense that we can generate payments accounts. We can issue dedicated payments accounts with so-called European IBAN numbers on each user. We can do currency conversions from one FIAT currency to another, from one currency to cryptocurrency, to a stable coin. We can in principle issue stable coins. We can tokenize things, put anything as in form of electronic money. We can do remittance. There's, the scope is very, very extensive. Our idea was actually more of taking that license in a sense that, we open more the gateway into the centralized networks in the future. So our goal is to make it more easier for normies to participate in DeFi and bootstrap a bit. Whether it's going to be a longterm support, that's really is still open question, but at least for the next few years, that would, that should help a lot to get new people in DeFi.

Bobby Ong (34:54):
So a lot of this on and off ramp thing for the normies to come into DeFi, yeah?

Stani Kulechov (34:59):
Yeah, exactly.

Bobby Ong (35:00):
Okay. I guess we kind of reached towards the end of the podcast. One last question before we end, are there any interesting upcoming news that we can sort of expect from Aave in the coming few months?

Stani Kulechov (35:11):
Yeah. We are actually building the version two. It's actually now audited by five different auditors at the moment and we expect it to be released in the, quite soon. I can't give any data or information on the actual finality but it will be very feature rich because you can actually, natively swap your collateral positions, you can swap your debt, you swap your interest rates. You can actually trade with your collateral and you can close your loan with a collateral. So it's a pretty awesome functionality.

Bobby Ong (35:43):
Awesome, man. Thanks a lot. I think you educated all of us here at CoinGecko on Aave. We learned definitely a lot of things. You guys are one of the strongest builders in the space, definitely pushing the DeFi space. So, and I just wanna say thank you very much for taking the time to join us here at the CoinGecko podcast.

Stani Kulechov (35:56):
Yeah. Thank you so much for having me. I really love what you guys are doing at CoinGecko.

Bobby Ong (36:06):
All right, that wraps up the show. Thank you for listening to the CoinGecko podcast with Bobby. If you like our show and want to know more, check out podcasts.coingecko.com or please leave us a review on iTunes. If you have any feedback, do drop us an email at hello@coingecko.com. Join us for more next week. See ya.

Disclaimer (36:25):
This podcast is provided as part of the overall information on cryptocurrency contained on our website is where your general information only and does not howsoever constitute any endorsement, financial or investment advice nor any solicitation or offer of securities or other financial instruments, coin gecko, and the podcast presenter makes no warranties implied or express of any kind in relation to this podcast, including without limitation the accuracy and updatedness of its content. All opinions and recommendations there in the podcast are based on the personal opinion of the presenter. Please conduct your own research and procure professional advice. Should you at your own risk, decide to howsoever invest or trade in relation to the content contained in the podcast.