Episode 6
Gearbox: Composable on-chain leverage

Our guest today is Jared Hedglin from Gearbox Protocol. Gearbox is building products to allow DeFi investors lever up their favorite pools and farms directly on-chain and boost total returns. They want to provide investors with greater capital efficiency and decentralized leverage capabilities.

In this conversation we explore, how Gearbox works, what makes them unique, and how this model is helping users in earn competitive rates on their assets. We also dive into how Gearbox explores the concept of on-chain leverage, the role of their community and some of the current limitations. 


Well let's get started. My name is Oscar. I run Product at Exponential and I'm your host of Degen Responsibly. This is a series hosted by Exponential DeFi where we're on a mission to bring rationality into the space and make the space more accessible to more types of investors. Today we have Jared from Gearbox as our featured guest. Welcome and great to have you here Jared. Thanks Oscar. Yeah excited to be here. I'm really looking forward to the conversation. Yeah thanks and also you're an avid listener of Degen Responsibly. I've seen your avatar in a few episodes as well. Yeah yeah I think you all are building a cool product and a cool community so I think one part of being in the Web3 space is making sure you're kind of sharing the love and getting other people's perspectives. So yeah thank you for all the work you've been doing in terms of growing this audience and platform. Awesome thanks thanks. All right so before we dive deep into Gearbox, how did you get started on DeFi? What was the beginning of your joining crypto slash DeFi? Yeah yeah that's always a fun question. So you know unlike a lot of people in crypto on crypto Twitter and in the Web3 communities I'm fully doxed not anonymous so can kind of go through the LinkedIn so to speak. Back in 20... well you know bought Bitcoin at the top in 2014, watched it go down to 200 bucks and as a kind of recent graduate it was like what the hell did I do with my money? Yes. You know obviously always wish I had more money so I could have bought more but that's the age-old tale. Then bought a little Ethereum around maybe five to ten dollars and again could not buy enough. But that started my interest in the crypto world. I was starting to understand this stuff back in 20... let's say 15-16. Then in 2016-17 I said you know I was fundraising at the time. I thought I wanted to be a doctor, didn't go to med school, was fundraising for soccer coaches. I played soccer my whole life. So I saw crypto, I saw people starting to trade you know back in the early days and I needed to fully dive into it. So I'm a Brooklyn guy born and raised in New York. Everything at least in the U.S. or most opportunities were west coast. Wasn't really willing to relocate and was fortunate to find a company called AlphaPoint that launched white label cryptocurrency exchanges. So you know it I ended up joining right in January 2018 right at the top yet again. Was an account manager there, was helping people spin up their own exchanges all over the world and it was awesome. I ended up leading a team there. Then there was a little bit of instability both in the market and with the product and I decided to move on to something a little quote-unquote more stable. However oxymoronic that may be and I moved over to Coinbase. I was on the institutional sales team at Coinbase you know doing some OTC trades for them. Then I moved over to BitGo where the Web3 journey starts. So I moved over to BitGo during COVID right as all of that started and pretty much in the midst of DeFi summer and I you know was up until two in the morning you know farming the food coins you know the yams, the spaghettis, the pastas and I said wow this is an entirely new way to build borrowing and lending markets and even though I could see immediately that a lot of them were just subsidized by inflationary tokens it was something new and something exciting and so you know I'm working this institutional job at BitGo. I ended up getting the opportunity to lead the integration with the MetaMask institutional team so you know BitGo is one of MetaMask institutional's partners so BitGo has these wallets that they custody private keys for as a qualified U.S. custodian and they were building an integration with MetaMask to allow institutions to actively deploy into DeFi and so as I started moving into that more formally in my institutional profession it got me super excited and I was fortunate to find out about Gearbox shortly after the DAO launch and I moved over full-time in about March 2022 so been here almost a full year now. Nice, nice. So you've gone around all parts of the market structure from the exchanges, the custodians, now in DeFi. Exciting journey. Thanks, it's been a wild one but I'm excited to be here for sure. Awesome and now let's move on to Gearbox. So specifically what problem does it solve and if you can give us like a succinct answer and then we can start diving deep into how exactly the protocol works and all the cool user benefits you're adding onto it. Yeah, so Gearbox is a composable leverage protocol and it solves the issue of both capital efficiency and the ability to deploy spot leverage on-chain in a safe way. So I'll leave that as a succinct answer and we can continue digging in. Yep. Okay, so I think this can be broken down into two nice things. One is capital efficiency. So if I'm looking to leverage, why am I better off using Gearbox than maybe another tool? Sure, yeah. So and particularly with you know over collateralized lending protocols, this introduces a step due to a different type of an architecture that allows you to borrow up to 10x leverage immediately without necessarily needing to recursively borrow or do those loops as everyone's familiar with. So with you know and both Aave and Compound and other lending protocols are changing to v3 models that do allow for more efficiency but where this was born out of was you know with a recursive and looping borrowing protocol you have to over collateralize, you have to do some loops and you can probably safely borrow kind of 3x to 4x what you put into that protocol. With Gearbox you can put funds down as collateral as the borrower then funds are and you choose what pool you want to borrow from. Right now we have at least five pools but that is going to be ever increasing but you can say and the other interesting thing is you can choose your collateral type. So we have collateral types that are on the allowed list. The allowed list is kind of curated by the risk team as well as RiskDAO that we separately employ and they set all of the liquidation threshold values. So you can put USDC down and you can borrow 7x of that USDC and all of those funds, your collateral and the borrowed funds go into a credit account and that credit account is a smart contract wallet that only your address as the borrower can control. So it's an innovation, it's a different type of an architecture but it does allow for more capital efficiency in that immediate first time borrow. Alright so let's say from a looping perspective it's just more efficient to deploy leverage through Gearbox than doing all those manual loops on another lending market. Correct, yes. Then what you mentioned deploy leverage in a safe way is because you need to deploy a smart contract that holds both your collateral and also your leverage position. So in a way you're isolating that risk from your let's say from your main wallet and isolating it into a specific smart contract. Spot on and in addition to that not only are you isolating it in a smart contract wallet but our DAO developers and contributors have actually built in a feature called multi-call and the multi-call feature allows you to kind of compile multiple transactions all in a row. So again let's say you put that USDC down, you borrow it, you put it all into this credit account. Then you say I want to farm USDC on Curve and then take those Curve LP tokens and put them into Convex. That entire transaction or that entire string of transactions can be compressed into a single approval and transaction using this multi-call. So not only is it isolating that risk in terms of the wallet and the wallet's exposure, it's isolating some of those complexities whether it could be a front-end UI that gets hacked, whether it be a contract that gets spoofed, whatever that might be could potentially be done. This multi-call can avert some of those let's say crypto USUI dangers. Yeah, and maybe for the less technical audience, what a multi-call function does is essentially call multiple functions of the same smart contract at the same time. So for instance when you, let's say you use a zapper or a router to deploy liquidity on let's say Uniswap, let's say Uniswap, then the router can multi-call and take your assets, split them in the right ratio and deploy them on Uniswap. Of course this multi-call function depends on the smart contract, so in the case of Gearbox, you're doing multiple functions at the same time, so you're also saving on gas. Spot on. Nice, nice. All right, so we started with the problem, so capital efficiency and on-chain leverage. I think as we have seen over the last maybe eight months, using centralized exchanges also carry some inherent risks with centralization. And now with Gearbox, we have a way to lever up not only on a specific token, but you can lever up on specific forms or pools in DeFi. So you're taking all the great things of a centralized exchange, specifically leverage, and all the great things from DeFi, specifically the high yields of the decentralized immutable contracts, and you're combining them into one. Yeah, Oscar, I should try to hire you. You put that out super eloquently, thank you. Yeah, let's hear him. I'm not open to job opportunities at the moment. But yeah, okay, just wanted to summarize what we've been discussing. Now, let's say on Gearbox, you have two main types of users, as I understand. You have lenders and borrowers. Let's say on the borrower side, we've already briefly discussed, you're looking to lever up on great DeFi yields, like, I don't know, ETH, STEATH, and Curve. Now on the lending side, who might be better off lending to Gearbox borrowers? Yeah, and that's a problem that I am actively solving every day. The initial kind of hypothesis was around institutions and family offices and funds that don't necessarily want to actively manage a pool that are looking for passive yield without getting liquidated, right? Or not a pool, a position. So that still very much is a little bit of the hypothesis. But as we've seen the last eight months unfold, institutions have been slowly removing funds from the DeFi system, we've seen total TVL decrease. So right now, we have mainly had just a handful of whales and DeFi degens that are looking to continue to not only just improve the space and the kind of primitives that are out there, but that are convicted in Gearbox and the project that we're building. And there was a liquidity mining or there is liquidity mining going on for depositors. So you have that sort of passive looking to accumulate gear slash not looking to actively manage a position on the depositor side and then on you know the borrower side it doesn't actually just have to be yield farmers actually some of the most profitable users have actually we've kind of described them as opportunistic farmers and traders so because Gearbox is this two-sided lending market we have a couple of coins that are maybe higher utilization that have higher you know borrow rates or let's say wrapped Bitcoin which doesn't have a ton of pools that you can necessarily deploy to so the borrower rate on that is pretty low and you know you could kind of think of that as the the funding rate almost so we actually have one user that's been borrowing funds borrowing wrapped Bitcoin longing aetherium and so longing that aetherium pair and then potentially even farming that aetherium or farming it into staked aetherium so there's some really cool flexible things and that's where I add that capital efficiency on leverage because even if you're just trading options you know you can you can long the aetherium to Bitcoin pair but then what can you do with the those funds that you're sitting on and realistically most other options exchanges won't allow you to then farm that asset so that's where that you know composability and capital efficiency really hits another level yep so if you're let's say short Bitcoin and long aetherium from a traders perspective you might as well also farm aetherium through let's say yearner curve as you can do through Gearbox then only holding either the spot if with a borrowed position somewhere or as a lot of people also do you know a short position on a through a perpetuals contract and a long position on ETH through perpetuals you might as well just farm ETH through Gearbox then just hold the one-to-one asset exactly exactly and obviously that comes with risk right that comes with needing to actively manage a position and needing to make sure you're aware of all of the potential threats to that position whether that be chain-link oracles or whether that be you know your health factor and or your collateral type because one thing that we haven't really touched on is in that allowed list of assets that you can interact with and pools that you can interact with out of the credit account some interesting types of collateral can actually already be a curved LP position so if you take a curve LP position and use that as collateral you can borrow against it and then continue to deploy so it all depends on what you're using as collateral what you're borrowing and how you're deploying but it does it obviously becomes a little bit more complicated in terms of risk management and deploying that sort of a setup but it can be that much more rewarding where we've seen some of these top earners even though we've only been live a few months we've seen I think one or two accounts earned something like 10 to 11 percent by utilizing that kind of optimized trading and farming strategy yep yep so let's say this is this is not really a protocol for like DeFi newbies like you must have a good sense of one risk management you know you've been familiar with liquidations how those work and also with collateral types like let's say this is more more more on the advanced spectrum not necessarily full degen but more the advanced spectrum from our it's a risk management and financial expertise correct yeah I always think of it as the sort of degen prosumer slash institutional type of a product but I I think that should be the case with almost any leveraged instrument right that leverages a tricky thing then you add composability on top and you really need to know the risks in and out to to feel comfortable deploying and and you know one other thing that's that we've sort of done in our initial launch with v2 is that we've implemented what's called ninja mode which really just means that the only way that you can actually open a credit account is if you get added to an allowed list of addresses that can open a credit account you can then claim a soulbound token which allows you access to open and close a single credit account in a kind of roundtrip use so so we've limited who can actually open these and it's not a you know it's not a massive barrier you just go to our discord you can find muggle sect who's one of our awesome contributors you can DM him and just submit your address and as long as you can actually borrow $100,000 and that's the other kind of initial gating factor then you can deploy but you are spot-on Oscar right now this is not a retail you know anybody can just come in and use composable leverage we are intentionally kind of curating this to a somewhat sophisticated audience audience yeah that that seems to make sense but if you can explain a little bit more of the motivation behind that like why would you let's say gate access at least in the beginning for for a more sophisticated audience this is because you want avoid people getting wrecked unnecessarily is this just the natural target audience like more sophisticated traders define investors yeah so it comes with a number of different things and one thing that I think this protocol in this community in particular prides itself on is security and risk so you know I already shared we the Dow has its own kind of risk committee then we employ a risk Dow and just to kind of go slightly tangential you know we did a raise earlier this year earlier in 2022 and by far the most money that the Dow has spent has been on audits so there's been six high high quality audits from you know chain security consensus mixed bytes I'm sure I'm missing a few there but the community really cares about risk and security so the ninja mode was implemented because one if there were any major bugs that you know the audits and the immunified bug bounty didn't catch then we would be able to potentially associate a user with an address even though you can submit it completely anonymously we would at least say okay this is the person that DM you know me to then potentially exploit this situation right the other reason around the kind of financial limits was due to liquidation thresholds and the ability to make sure that if there were to be any liquidated positions that they would be able to be liquidated in whole and keep bad debt out of the project to start now you know we've seen other borrowing and lending protocols have bad debt as long as it's usually kind of under 1% they operate fine and that's somewhat expected but yeah we didn't necessarily want to see any bad debt with the initial rollout of v2 so so I do envision a future where ninja mode is fully removed and anybody can use this fully permissionlessly or without I mean it's pretty much permissionless you know you can have an anonymous account and just put your add your address in the forum but with a little less friction friction yes thank you and then I would also imagine that that liquidation amount slowly reduces as well so it's it's all based off of efficiencies if the protocol were to ever deploy on another chain where gas is cheaper and blocks happen faster than you know that might also help with how quickly liquidations are carried through with but yeah just protection you user protection is is I think a priority one other thing I'd like to just touch on similarly is those liquidations that we've seen so you know we've launched five or sorry like three four months ago now but we've only seen five liquidations happen in gearbox and that's awesome to me right like I I really respect you know that GMX is of the world or the games of the world where you have an open market and people are trading and getting liquidated and that is you know kind of fueling these passive LP rewards which is cool and innovative and new unlike that gearbox hopes to not have users liquidated and churn quite regularly and and maybe this is is me projecting my own hopes versus just the kind of overall Dow ethos but yes I think it's so much more valuable to have a position that you can say yes I'm either kind of actively trading this or I'm I'm passively leverage farming this and I can concretely say you know I'm taking 5x leverage I won't get liquidated unless XYZ happens and I can leave this position open for you know a two-year period without needing to close the account so so that's again maybe ambitious goals of how I see things in the future but you know I also do think with all of these controls with very serious risk optimization and liquidation threshold setting and and kind of max leverage allowed is what's led to a pretty healthy liquidation environment in my opinion right right so to recap mainly the motivation for gating the the access to gearbox is one you want to ensure that borrowers can can meet this 100k minimum threshold so that liquidations can occur efficiently and and that avoids you know the protocol accruing bet that's in the medium term yeah yeah and also stopping any sort of bad actor from coming in and and just wiping something out but yeah both of those combined plus a bunch of random things that I added on there no that makes sense and in fact the 100k minimum you know that that's you know quite a high friction for for about for yeah let's say majority of DeFi users yeah yeah and I'll comprise the majority of the volume in DeFi but it's the majority of addresses right right and realistically that in a safe way it really only means putting 25k down and being able to borrow at 5x leverage which you know 5x in most of these pools is enough to be profitable and also enough to make sure you have a secure health factor but you know asterisks this is not financial advice NFA yeah but yeah 25k is a substantial amount it's not a game-changer it's not stopping any institution from entering but it also does limit kind of random retail users that might be interested in this solution for now yeah and what's interesting is that other protocols that are launching their leverage vaults are also using this gated approach I don't know if they they took inspiration from Gearbox it does make sense when you phrase it like that you know you want to avoid bad debts and also if there is actors just you know wiping clean the protocol at the start yeah yeah and you know in addition to the centralized lending issues we've seen in the past year we've also seen a fair amount of governance attacks and you know whether it be bridge attacks or a number of different vulnerabilities so having that initial gated access I don't think you know I don't think that's necessarily a bad thing and although it might slow momentum in terms of the full launch it's I am a little cautious of trying to run full speed when you know in all things considered the DeFi world is still so young and still so nascent and these primitives are being built that it's fine walking before everybody tries to start running. Yep, yep, makes sense. Now let's switch gears a little bit to the risk side. What we haven't talked about is the pulls that you, let's say allow list on Gearbox as leverageable. Who decides what's the process to list a new pool on Gearbox? Yeah, yeah. And, you know, take what I say with an asterisk. I did try to get one of our, you know, actually an OG Gearbox contributor who's on the risk team to join. Unfortunately, he wasn't able to. So, you know, take everything I'm saying with a grain of salt. But realistically, Gearbox can move to be a permissionless protocol in terms of adding new coins. But the risk, as I shared, is very top of mind. So if you are looking to add a new protocol to deploy to, that might be, you know, someone says, I want to now be able to, let's say, LP on Uniswap v2 for now. Right now, that is something that we don't support, even though you can trade through Uniswap, through Gearbox. So that would need an adapter to be built, that adapter would need to be audited, and then approved kind of by the risk team in terms of what pool is being investigated. Now, unlike new protocol to be added, or new pools to be added, if there is simply a new coin that people are interested in, that is a little bit more straightforward. So once a coin gets added to the allow list, not only can it be traded into or out of using the credit account, it can also be used as collateral. So the internal risk team, you know, in quote unquote internal, it's all DAO contributors, would evaluate a number of different metrics for this token or coin that's being considered. Then RiskDAO would run a report and have a conversation around the depth of liquidity and what other thresholds we would be able to set. And then that coin would go to a vote in terms of a discussion and a vote in terms of the community. Then if it's passed, it would get added in sort of a technical multi-sig, you know, signing ceremony. Separately, you know, those we're talking about adding new coins that you can interact with, there is also a process for adding a new pool of an asset that you can borrow. And we're actually seeing this happen right now with Frex. So it's actually already been discussed and voted to be approved. So it was really just the community coming together, having a discussion, propose it, vote it, and see how it goes through. So we are in the process of spinning up that Frex pool. I believe there in the future could be, you know, like a liquidity or an LUSD pool. So, you know, someone could potentially borrow that to short it and then farm another stable in another stable pool. But those are, that's the sort of kind of risk process of two sets of evaluations from the Gearbox risk team, from the RiskDAO team. And then depending if it's a protocol, depending if it's a new pool, potentially an adapter might need to be built. Right, right. So you have this DAO contributors, and also, I guess, RiskDAO assessing all these things from token liquidity, the quality of a potential collateral if that asset is also being enabled as collateral, also at the protocol level. So if I understand correctly, even though you have an isolated smart account, it is not a free pass to interact with everything in DeFi. And all of the things that you can do from borrowing, trading, and leveraging has to be approved by the DAO. Correct, correct. And you can kind of view it as a nascent prime brokerage. If you're using Robinhood and you have a, you KYC and you get approved for a Robinhood account, they don't let you just trade on any exchange in the world, right? They have behind the scenes, the New York Stock Exchange and maybe the NASDAQ and maybe the Toronto Stock Exchange and where you can execute trades in the background. But they obfuscate that complexity, right? They keep that away from you. And that's sort of what Gearbox is doing is having a community that's curating what is deemably safe to interact with on leverage, what is deemably safe to use as collateral and be liquidated in real time if there were to be some sort of cascading liquidation event and all of these are being evaluated. So there was discussion maybe six months ago to add new different types of long tail assets as collateral. And frankly, there just wasn't that much interest in the community. Now that if we see another bull run, we might start seeing sentiment change and we might start seeing people say, yeah, we want more long tail assets to either be able to trade into or to use as collateral. And then that is the kind of beauty of a DAO is then that's up to the community to decide and up to the fully transparent risk teams to say, this is how much liquidity is in the market. If someone were to open a position this large, then it can or can't be liquidated. So obviously Chainlink oracles and other oracles are always being considered price feeds are paramount. But yeah, sorry, I keep going on some long tangents. Yeah, I think that for the table, what is also relevant for the audience to know is that the fact that a protocol uses Chainlink doesn't make it safe necessarily. You could be using Chainlink to get the price of a long tail assets, let's call Dogecoin, a random Dogecoin and has a Chainlink price feed and that's perfectly fine. You have the value of the asset in real time. The problem is when you accept it as collateral and that borrowed position is flagged for liquidation, there might not be enough liquidity for the protocol, well, for the liquidator to repay that debt. And so the protocol ends up eating all the unpaid debts, also known as bath debts, because nobody will ever repay. And so just the fact that the protocol uses Chainlink is not a guarantee of safety. All of these things from token liquidity, how concentrated is the holder base have to be considered. And I'm sure that the RESTDAO and other DAO contributors are looking at all of these metrics to say, this is safe to list as collateral. That's exactly it, that's exactly it. Right now, you guys are playing it quite safe with only DAO, USDC, ETH, RAPT, Bitcoin and LIDO, LIDO Steep as collateral, which is probably as safe as you can get. Touching on the fringes of the more degen derivatives. Yeah, but I would add, if there are communities that are strongly convicted, that they want to be able to deposit this to earn a passive rate in terms of just actively adding it or I'm sorry, actively depositing into this type of a passive pool, or communities that want to have an asset and pool there so that they can borrow it and then deploy it on leverage, we're open to those conversations. And that's exactly what happened with FRAX. So FRAX, again, it's moving and it should be added, but I think that sort of core conservative set of coins was what was really available right as we launched our V2. Then the DAO developers and engineers have been kind of focusing on fine tuning V2 and making sure it's stable and improving the experience. And then, now we're at the point where we're starting to start exploring what could be next. Also, Oscar, I did want to add one thing around your chain link feed point, which was end of the day, you're spot on just because a coin has a chain link feed doesn't mean it's safe to use. And frankly, that is what unfortunately was what led to the first two liquidations in the V2 launch was the staked Ethereum price feed updated slower than the Ethereum price feed. So although the two were trading in tandem on centralized exchanges, there was a price discrepancy that happened, I believe it was upon the FTX news. So the FTX news happened, Ethereum dumped, wrapped staked Ethereum dumped, but the price feeds took longer to update. And a user that basically took out max leverage was liquidated because their margins were too fine. Now, I'd also add that since the developers have seen these price feeds and made an addition and a change where they take multiple different factors of both the kind of Ethereum and staked Ethereum as well as the USD equivalent and kind of calculate that over a moving average is the way I understand it. So constantly improving and modifying and making sure the user experience is good, but yeah, just because there's a chain link feed doesn't necessarily mean it's safe. Yeah, that makes a lot of sense. And also, it becomes a question of, do you price wrapped Steve at ETH? So it's always one point something or do you price it at the US dollar level? All those interesting, nitty gritty questions that users might not necessarily think about, but really impact the user experience, especially when you're considering leverage. Right. You leverage on ETH, so you're mostly concerned about the Steve to ETH price relationship and necessarily their dollar values independently. Right. Awesome. I think the last set of questions I had was about the token. So you have the gear token right now, how can a gear holder use that in the protocol or somewhere else? Yeah, well, right now, the only real utility is governance and that's how it was launched. So just to kind of give a quick history, launched in December, 2021 as a DAO, the community had the ability to do what was called credit account mining. So all of these credit accounts that users and borrowers are utilizing to deploy assets are reusable, but they were mined by the community, sent up a huge spike in gas prices back in December, it was around Christmas, 2021, had a lot of talk going around it, but it didn't necessarily, and one misconception is that people say, oh, I mined a credit account, can I now use it? No, you mined it for the DAO, right? So you spent money to spin up this smart contract wallet, now the DAO kind of owns it, but those users received, I believe, a hundred thousand gear tokens for doing that. So immediately something like 5,000 distributed users or DAO members, whatever you want to call them, that had the tokens, then in around December of this year, around Christmas this year, there was a token launch model that was called 0xCIDR, and it was called CIDR because it was seeded liquidity, and it was out of an idea that Banteg had, I think a couple of years back, where it was a novel contract, again, audited, I believe by Chain Security, that allowed you to deposit single-sided liquidity. So you could say I was a Gearbox credit account miner, I am depositing these to this contract, then that lasted for about three days, a minimum needed to be met, which was, then on the other side, there was ability to deposit Ethereum. People deposited Ethereum and it actually maxed out the top level of that limit within a few hours. And then the contract was able to create a curve pool based off of the different amounts of liquidity that were in and all users that deposited then received a 50-50, you know, LP token split of the gear and Ethereum that was in that pool. So total, totally novel launch that hasn't happened before. It was a really cool way for, you know, holders to kind of sell their gear at the market price that was finding itself. It didn't require us to do a Gnosis auction that some people say, which I do think the Gnosis auction is a really cool way to sell initial tokens, but then it does potentially cannibalize the actual interest in buying of the tokens as that market is launched. So it was awesome. But right now the community is just discussing the best ways to build the token economic model and best ways to have additional utility for the gear token. And that's actively being discussed in our forums right now. So if there's anybody who has interesting ideas or is building something new and cool, we're open to that conversation. Yeah, that's an interesting launch model. I hadn't heard about it. So it's very similar to an IPO where, you know, you have a fixed number of tokens and then people are essentially depositing ETH to find a price in a gear to ETH exchange ratio. Yep. Yeah, that's exactly it. And obviously there were upper and lower limits for both, but that's exactly how it played out. Awesome. So we have about three minutes left in our specific time. I want to open up the mic for the audience to ask any questions. Or so you, Jared, if you have any questions about exponential. I'll pause and see if there's any community question or listener questions. No worries if there are no questions. I know I've just kind of been yabbering. Oh, let's go. Meb and Dawi, can you hear us again after reconnecting? Hey, I can hear you guys, I think. Can you hear me? Yep, we can hear you too. Hello, Jared. Thank you so much for the time. This was great. And I'm super excited about the future of Gearbox. I just wanted to clarify one point about like when we add the FRAX, for example, or any other asset like this as a collateral, what's the worst that can happen if, let's say, FRAX, which can be DAI as well, like ends up being $0.30 on the dollar overnight. What are the effects on some of the liquidity providers and so on? How does it work? Yeah, it's a really good question. So it kind of depends on the series and sequence of events that that would play out in. And the interesting thing about Gearbox is that it's very modular. So in the future, we could actually have a set of pools that says, I have a FRAX pool that users can borrow from and FRAX is also a collateral asset, but those can only be deployed to XYZ pools without any sort of cross-collateral use. But in this current situation, you might say, you know, I have FRAX as a collateral type that I am a borrower and I'm using as collateral and I'm actually borrowing, you know, wrapped Bitcoin against it and then selling that wrapped Bitcoin into FRAX or into a different stable and deploying it. And so the assets that are used as collateral can fully affect every single pool right now. And again, there could be modular pools in the future that say, OK, this is only used for XYZ terms and cases, but it's fully dependent on how those funds are deployed. But if let's realistically say FRAX was a dollar and then it went down to 30 cents immediately and coins couldn't be liquidated, then there would be bad debt in the protocol and the LPs would need to be made whole. Now, there is an internal mechanism for insurance to basically provide a fallback option in case there is any bad debt, but then it would be somewhat contagious to the system. So that is why the liquidation thresholds and Chainlink oracles and all of the security that we've been discussing is so paramount and important. Great, thank you. Yeah, no, this is like, that's why these are questions that are very important for governors to think about. And yeah, I think the idea of having that modular chambers helps a lot in terms of like putting risk into almost like places that you know this is risky and you can choose not to have exposure to FRAX collateral, for example, or whatever it is that you don't want to have. Right. Yeah, no, I totally agree. And I think kind of tranching that risk is going to be really important as we continue to mature and move forward. But at the risk of fragmenting liquidity, and that's an issue that we've seen in crypto for so long. And even when I joined crypto at AlphaPoint, the fragmentation of small little regional exchanges all over the world was so real where there wasn't a full book at all times or depth of liquidity. So trying to combat both at the same time is exactly what we're trying to do. Thank you. Thank you. Hey, Jared. Can you guys hear me? Yep, we can hear you. Cool. Yeah, I just had a follow up question on the bad debt. Could you just go a little more in detail on how the protocol manages that debt? Is there like a reserve for each pool? Or is there Is there like a reserve for each pool? Or is there one sort of overall treasury that manages bad debt for the entire protocol? That's a great question. So I and I'm not the risk and debt expert, unfortunately, but my understanding is that if there were to be bad debt, it would be kind of dealt with in two ways. One is this sort of insurance that I've alluded to, that basically has diesel tokens and D tokens are, you know, the certificate of deposit, they're the A tokens, the C tokens in this situation. And so these D tokens are earning interest, the protocol will own a certain amount of these, and those could be paid back to, to offset some of the bad debt. If that is not enough to offset that bad debt, then the my understanding is it would go to a DAO vote and the DAO treasury would decide if gear tokens were to be sold. If some of the fundraise were to be sold, it would fully depend on the situation. But right now, there's zero bad debt. And I don't think we've kind of been forced to go through the exact mechanisms. But again, I'm small, smooth brain, beady, happy to get you another answer that way. And, you know, bring you in front of some other experts there. Gotcha. Yeah, that was helpful. Thank you. Absolutely. So Oscar, I guess the last question for me is how else can we be valuable to Exponential? I know, you've done some of your own strategies, like would you ever want an exponential address to be whitelisted for Leverage Ninja? Or how can we keep building this space together? Yeah, I think that'd be an interesting thing to discuss. Let's definitely chat offline about it. I think it aligns with sort of the target customers that we are pursuing. So yeah, let's chat offline with the rest of the team, see how we can make that possible. That sounds good. Nice. Well, it seems we don't have any further questions. We also have a pull up, as always. So if you download the pull up app on poap.xyz, you can enter the secret word, which today is DeFi underscore Leverage. DeFi underscore Leverage. You can get proof of attendance of this digital responsibly with Gearbox. Jareth, thanks a lot for your time. Let's keep chatting offline. We're connected on Discord. So yeah, thanks a lot for taking time this morning to talk to us. Absolutely, Oscar. Thanks for hosting. GM, everybody. If you have questions about Gearbox, don't hesitate to DM me. I'm open to DMs. Join our Discord. Follow the Gearbox intern account. There's some really cool insights there. And if you know any whales that are not looking to be liquidated, I would love to talk to them about LP-ing. Thanks so much, guys. Awesome. Thank you. Have a good rest of your day. You too. Take care. Bye. Bye.