Episode 26
The Standard: Redefining overcollateralized stablecoins

Our guest today is Joshua Scigala, co-founder of TheStandard.io, a DeFi stablecoin protocol backed by physical and digital assets.

In this episode, we discuss the evolution of stablecoins and where The Standard fits with its multi-collateral model. We'll also explore novel features like collateral swaps, the protocol's learnings following a recent exploit, and the roadmap ahead.



Hey everyone, this is Dawei from Exponential and you're listening to Degen Responsibly, a podcast where we invite protocol builders to showcase their innovations, how they work, as well as do a deep dive on risk. Exponential is an investment platform that makes it easy to discover, assess, and invest in DeFi yield opportunities. We want to help you understand the tradeoffs and opportunities so you can degen responsibly. In this episode, we're diving into the evolving world of stablecoins with Josh, co-founder of The Standard. The Standard is a stablecoin project that follows the collateralized debt model by allowing users to leverage their crypto assets to borrow fiat-pegged stablecoins such as the Euro and U.S. dollars. We discuss the mechanics behind how their Euro as stablecoin works and the roadmap ahead. Our conversation also takes a turn into the risks involved as we unravel the details behind their recent exploit. Alright, welcome to DJ Responsibly Josh, excited to have you on to talk about what you guys are building at The Standard. Yeah, I appreciate you jumping on. Hey, I appreciate you having me on, it's great. Yeah, it's exciting times to be in crypto right now, yeah, a lot. Oh for sure. You know, the thing is, a lot of people, you know, Bitcoin maxis specifically, and also ETH maxis, they're like, price doesn't matter, you know, one Bitcoin is one Bitcoin, one ETH is one ETH, and while, yeah, I like the sentiment, but at the end of the day, it's the price that makes VCs put up their, stick up their ears again and invest in projects, it makes the community get excited and support projects, it's the oil that starts to lubricate all of the excitement and get projects up and happening, and the bear markets are good because in one way, for an investor, you can start to see the projects that have lasted through the bear market, and they're the ones that have, you know, that I think have a bit of a green flag attached to them, because they've held through and they've managed to build through that process, and so it's always a good time to sort of feel throughout the wheat from the chaff, so to speak. Yeah, yeah, exactly, you know, build through the bear market, and then all that hard work kind of culminates during the bull market. Yeah. Yeah, so, you know, before we jump into Standard, I wanted to ask about your background, how you got started in crypto, and why build another stablecoin protocol? Yeah, that's great. So yeah, well, I was lucky enough to find Bitcoin really very early in 2010, late 2010, and I was already looking for a similar concept. I didn't know what I was looking for, but I knew, because I had a swap platform where people would swap clothes, and I was like, I don't want a token in between, but I, like, I don't want a credit, because otherwise I become the central bank, I want people to continue swapping, but swapping's like a terrible mechanism, deals always fall through because people don't like the other persons, and there's a whole marketplace. So anyway, I was looking, and I found what the cypherpunks were trying to build, and they hadn't solved the double spend problem, and so I eventually just gave up on the idea, and then Satoshi's white paper a few years later came across my table, and I was like, my God, those cypherpunk people, they actually solved this problem. So then I ended up losing a lot of money in Mt. Gox, the very first Bitcoin exchange out of Hong Kong, and when they collapsed, and from that point I got kind of obsessed about transparency in centralized exchanges, and so we built the Glassbooks protocol, and then launched a very niche centralized exchange called Voltoro in 2015, that allowed people to trade Bitcoin and physical gold, and have full transparency using the blockchain between, to show people in real time, so anyone could audit the books, meaning they could see how much gold is on, how much gold the creditors have, and how much Bitcoin the creditors have, and show the cold wallets for that, and you can show the BEO auditing certificates and insurance paperwork and stuff like that, and then in 2019 I started really being worried about the rise of algorithmic stablecoins, because I saw actually the rise of stablecoins as a whole as a really important part of the entire ecosystem, because running Voltoro showed me that people don't act like as much of a gold bug that I was. I love that you can store, have a store of value that's state independent, but the problem with gold is that nobody knows the unit to spend. I've even been to gold and silver conferences and tried to pay with silver coins, and it's just so confusing, and how do you give change, and then, oh, I can cut a bit off of this silver and maybe give you some of this. It's just a nightmare. So I realized that the same thing is actually with Bitcoin or Ethereum, is that people don't want to deal with 0.001 ETH, and then it's fluctuating like crazy. They want to just accept their local currency, whether it's US dollars or euros, or whatever currency they're in, and invoice in that, and then they can buy the speculative asset that they want with those assets. So I gave a talk at LaBitConf about that and about stablecoins in general, and Terra Luna's white paper just came out two years before its collapse, and I warned on stage about these algorithmic stablecoins, like this new Terra Luna. One of them, I didn't know it was going to be Terra Luna, but I knew one of them would get very, very big and then collapse, because they're fundamentally built with Ponzi mechanics, and I'd seen it before through what Dan Larimer had built from BitShares and stuff like that. So from that point, I went back to Berlin, where I was living, and put together some of the brightest minds that I had had to basically start building out a proper decentralized stablecoin protocol that would be next generation. I really loved what Maker built with the CDP model, but I felt like it needed a lot of work to really bring some of the mechanics that Wall Street had built over the years and years and years, and bring them on chain to enable more flexibility within the collateralized debt position space. So really, the standard is more of a borrowing platform than a stablecoin protocol, but the side effect is a very, very solid stablecoin. Eventually, it's still in its launch phase, so obviously, it's going to be some volatility there, but the fundamental economic theory is back. this project and we can go into that. It's a bit of a long history, that's why I have hardly any hair left. The rollercoaster has been going for a while. No, I get it. You're definitely an OG. You've seen a couple of cycles. You've seen all the different innovations that have come and the ones that have succeeded and the ones that have failed. To your point, I think we saw in the last cycle that algorithmic stable coins are definitely not a sustainable model. I think that's mostly been debunked now. Even with FRAC, they're moving to 100% collateralization from their previous mechanism. Be curious, what are your thoughts on the current lay of the land of the stable coin market? What's changed since the previous cycle and where does Standard fit within that? Obviously, algorithms are out and people have seen that. It's amazing to see the market reject a... I would call it a technology because it's a technological build on an economic theory. Right now, the big problem is that everyone's still trusting the centralized stable coins. Like USDC and USDT even are still absolutely enormous. The problem with this is that there hasn't been a collapse yet on those, but the whole point of Satoshi inventing Bitcoin was that we could have a parallel mechanism that is state and bank independent, meaning that we could have a full separation of money and state. Obviously, money is going to flow like water, flows into every facet of society. If it is a good money, it will flow into every facet. You will always get crossover. You can never truly separate everything, but the issuance, you can definitely separate. The problem with USDC and Tether and all of these types of centralized stable coins is that we've gone full circle from, holy moly. Hang on, what? Banks can fractionally reserve their holdings legally and issue credit on collateral that they don't hold. They can have minuscule amounts of collateral, but continue printing debt. This seems a bit strange for a lot of people, specifically when it starts to go out of control. These banks start printing and printing and printing, and you get then inflation and all the way to hyperinflation, as we've seen many times in many countries. Everyone's feeling the pinch of inflation now, which is very, very interesting because a lot of people for years, specifically the gold bugs, have been warning of inflation. Everyone's like, yeah, yeah, whatever that means. I don't really understand. Yeah, the elderly will suffer. Yeah, yeah, whatever. Now, it's not just the elderly suffering, it's truly the young. When the young suffer, you know the elderly are suffering. When the young are like, man, I can't even pay my rent. I'm working my tush off and I can't even afford rent. Imagine elderly that have worked their whole life and they have to live on their savings because they cannot earn anymore. They're expended. They're finished. Their energy can't handle it. Plus, no one's going to hire them. We've gone from that scenario and money printing and all the stuff that Bitcoiners have highlighted to, hey, we've invented decentralized money. Yay, now we can have, instead of inflation, we can have deflation. Pretty extreme during the price discovery phase of Bitcoin and Ethereum. We're seeing it right now, the price going up and up and up because we're in this price discovery phase. We're like, how much is this technology worth? Then turning it full around to say, hey, let's price all of this in this coin that is controlled by banks having deposits against the value of the token that's flying around, meaning USDC. For those listeners that don't know, USDC is basically an ESC20 where the bank has $1 in the bank and they issue an ESC20 on the other side and they go, whenever you want this, you just send it to us and we'll replace it. They don't have to be in full reserve because the deposits are sitting in a bank. Even if there was an audit done, the audit wouldn't be able to handle the data and actually show clearly that they are in full reserve. Even if they could, they would be legally okay if they weren't. Trying to get away from those stable coins is really, really important because right now it's not an issue and people aren't really worried about it because they haven't seen a massive calamity yet. There's multiple calamities that could happen with a centralized stable coin. We could have another 2008 global financial crisis where the banks that we saw, Silicon Valley Bank and all these, and I'm surprised that all the money printing and they tried like crazy to keep the banking sector up during COVID because the amount of fear that was so big and people were forced not to work and all the rest of it and business loans going defaulting and stuff like that. I'm surprised that they managed to hold as many banks as they could up during that process, but they did that through money printing and now we're suffering the inflationary consequences of that. But we could have a banking crisis where the banks that are holding the deposits for the USDC or Tether or anything disappear. We saw that with the huge establishments during 2008 where Friday they were there, Monday they were bankrupt. Friday, you know, Lehman Brothers was one of the largest investment banks in the world. Monday they were gone. So what? How did that happen? So we could see that again, it's not an impossibility. There's a definite non-zero chance. And then the other thing is, because they've got these clawback abilities, they've got, which any real world asset does actually, they have the ability to freeze assets. We saw that during the Tumblr that was going on on Ethereum where they could just freeze assets. And so they're dangerous specifically for CDPs as well. We saw that with Maker when USDC froze a whole bunch of assets around the mixer that got frozen. Basically what happened was a whole lot of people were using USDC as collateral. So not only did it affect USDC's price when it slightly saw a deep peg, it also affected Maker who was using, who allowed it as a collateral type. So yeah, there's big problems with centralized stable coins. And it could also happen where once governments are ready to roll out CDPs, that they nationalize a USDC or something like that, or they just outright ban it. And so, yeah, I mean, I think there's probably too much money in USDC just to outright ban it straight away. They might have start a wind-up. process. But nevertheless, it's a risk and it's an existential risk because USDC is fundamentally used in all of DeFi as the counter asset to most things nowadays. And so it's really important that we as a community start to support projects like the Standard, like Liquidity, like Maker, projects that are building collateralized stable coins, I think are really important. Yeah, for sure. I think to your point, we did get like a, I think, a semi-preview of what could potentially happen to DeFi last year when Silicon Valley Bank went under. Now it's one of the banks that had held reserves for Circle and saw like a brief de-peg there and things could have got a lot worse just given how ingrained USDC is within DeFi. Yeah. Imagine if that cascaded, if it was Silicon Valley and then Deutsche and then if we saw a domino happening, then whoa, that could really... And then we're not what Satoshi birthed. We're not a separation. Gold was the same. It was always like, oh, you see these movies where the whole stock market's crashing and everyone's just piling into gold because... And then you see these people screaming like, just sell. And then people are like, what am I buying with it? Gold. And they're like, sir, gold is already at like crazy heights. And it's like, yeah, you think that's crazy heights? You wait until five o'clock this afternoon. This will be cheap. Buy the stuff now. Because gold is that separation, that exit door, that safe haven. And that was the hope that Bitcoin would be, except Bitcoin isn't really heavy. It's divisible. It's ultimately rare. All the good things that we don't need to go on about. But yeah, imagine that cascade happening. That would be terrifying. One issue with some of the more decentralized stablecoins is, the way I think about it is, the stablecoin trilemma triangle where you have decentralization and stability and capital efficiency on each of the three points. And I think what the fiat stablecoins do well is they're a lot more efficient. It's not over collateralized and there's plenty of liquidity in the markets. I think some of the issues we've seen with like liquidity is just they're not able to scale as much. And there'd be two design to improve on that. But what would you say to that critique in terms of these type of coins not being able to scale to the mass market? I think it's a long road. It's a very, very difficult thing to launch a stablecoin protocol. For instance, the standard is 0% interest, similar to liquidity, and 110% collateral. The problem I saw with liquidity is that they have this redemption mechanism. And what that means for the listeners is that you can have a loan out and the peg of LUSD, which is a stablecoin, if the LUSD drops, they allow anybody to basically buy LUSD with other people's collateral and pay off their debts cheaply. And that causes buying pressure for the LUSD, which is great, brings it back up the peg. But people get their loans liquidated pretty much effectively at way below 110% collateral. It happened to me with quite a lot of value, actually. And it really annoyed me because it states everywhere 110% collateral, 110% collateral, and this tiny little star. But it could be randomly at any collateral level. You could be at 200% collateral and your loan could be liquidated by some random bot because our peg slipped. So it's a very, very difficult thing to launch because we found that when we launched the standard originally in late November 2023, we were like, okay, we just focus so much on the technology. And then when we launched, people were like, oh, cool, I can borrow and I can sell. And there was no real use cases for the standard yet. So obviously, we only had so much liquidity, and then they just ate through that liquidity. And then it was all gone. Can we try to get more liquidity? Very, very difficult. We need to build incentives. So to build one of these protocols, you really need to have all of these incentives, like you said, with the trilemma. But I think it's almost a quad lemma because there's so many aspects of launching one of these things. There's also the liquidity side and the use case side of having a stable coin. Yeah. You guys are, you follow the CDP model, where you deposit assets and then you're able to mint. Right now, your only stable coin is EUROS, which is a EURO stable coin, and you have USDS and the plan, which would be a US dollar stable coin. I'm curious, why the EUROS stable coin? Yeah, the original idea was looking at that sort of blue sky model of entrepreneurship. There were so many USD stable coins already, and we thought, well, let's go with the EURO for now, just because it's smaller and we can try to figure out what the market needs over there. I think it was a mistake because I think it's too early. What I think with these stable coins is that we're still in a speculatory phase. And so no matter how big, because the EURO market is close to the size of the American market, there's so much liquidity out there and so many people using EUROS. But the problem is, whenever anybody gets into crypto, and I'm pretty sure your audience would agree here, as soon as you get into crypto, you're like, oh, wow, what is this thing? And you start to learn about money and you buy your first bit of Bitcoin or Ethereum. And what do you do? You look on YouTube and you're like, oh, well, how do you use this? And you find traders and they're like, oh, and you think, oh, I can buy low and sell high. And then you look at traders and you think, maybe I can do that. And they're all pricing it in USD. So everywhere you see is priced in USD, no matter what you do. So eventually, no matter what country you're in, if you're in India, if you're in America, if you're in Europe, it doesn't matter. People have their portfolios in USD because that's the reference point that they're seeing online. And so that's the takeaway that we've learned is that we're still in this speculatory phase. Now, I think what will happen is we'll shift out of that speculatory phase into a functionality and usability eventually, because it is annoying. If you're a freelancer online, it's fantastic to invoice in crypto, specifically in stable coins. But when you invoice in Bitcoin or Ethereum, your accountant or your bookkeeping, all of that side of the business becomes infinitely more complex because you have to take into consideration capital gains and losses through your token fluctuating. So, oh wow, I can do these stable coins, but you're still open to capital gains and all these different fluctuations if you're dealing with the forex markets, meaning you're living in India but you're invoicing in U.S. dollars or you're living in Europe and you're invoicing in U.S. dollars, you still need to convert that to euros or to Indian rupees or to whatever currency you're in. So, yeah, a long story, I tend to do these long rambles, but I feel that we launched with euro because we wanted to, there wasn't that much competition in that space, but I think I can't wait to launch the USDS because we're still in that speculatory phase is what I think. Yeah. Yeah, it's interesting, like to your point, euro is such a big market, but when you look on chain, there's not that many euro stable coins out there. I think the ones that come to mind, Circle has like a euro C stable coin, and then Ingle is the other one with EG euro. I think it's the largest decentralized euro stable coin. Yeah. And we've just paired with Ingle over on Ramses Dex and offering some really nice rewards and doing all the whole DeFi bribing stuff over on Ramses to launch some deeper liquidity for the euro. And it's funny because we initially launched euro over on Camelot and had liquidity sitting there as against usdc.e, bridged usdc. And our community found it very difficult to keep the V3 pools pegged because there was so much more complexity with the Forex exchange rate. Now, like, hang on, which side is the one that is being quoted? And for noobs that aren't hardcore DGENs, it was kind of difficult. So our community was struggling. So now, just pairing it with euro to euro has made it a lot easier because our target is one. And so it's less calculation involved. And so, yeah, that's why we've relaunched now after the audit that we've just been through. Yeah. Okay. Nice. Yeah. There's always a little bit of impermanent loss you have to kind of manage when dealing with assets that trade at slightly different values. Yeah. And that's so true. Even that small amount of impermanent loss through the Forex markets, for sure. So I know you guys offer collateral options across five assets currently. Yeah. I think you see Arbitrum, LINK, and PaxG. I think the first three make sense. They're blue chip assets. I think you're on Arbitrum Network. So that does make sense to me. I was curious more about what was the thought process into including LINK and PaxG, which is also, to be fair, I think that's also a centralized stablecoin. It is. It is. It's a gold real world asset token. Okay. So maybe I'll just go back a bit on how we're different in terms of multi-collateral. So most CDPs allow some different assets, but one per vault. So on Maker, for instance, you can choose a vault to say, let's do a USTC vault or something like that, and you place that in and mint the die from that, but you're sort of locked in that. Or ETH vault, and we just lock up ETH. Liquidity is just ETH, whereas we really wanted to focus on, well, people have a whole portfolio and they've all got value. Why can't we just borrow against all of those assets at once? So we architected our vault system to say, it's just one stablecoin output, and you can put multiple collaterals in. So you can upload some Wrapped Bitcoin, some ETH, some LINK, or some R, into that vault, and it sums up the entire balance of everything, the sum of all of those assets. And you can borrow against the value of the sum of all of those assets. And then, let's say you think LINK has got some big news coming up or something like that, I want to buy some LINK. I'm not locked into, because I've borrowed against my collateral, I'm not locked into it. I can still take some of the Bitcoin and convert it over to LINK within our architecture. So it allows the flexibility for people to keep trading. It's almost more like an abstraction wallet. It's a wallet that you control, your private keys control this vault, but you can hold a whole portfolio of assets and then trade between those assets, even though you've borrowed against them at 0% interest. And the trading fees that are pulled from that are dropped down into the liquidation pools currently, so that people can start to earn. And this is also the big problem that I see a lot of CDPs have, specifically if they're doing 0% interest, is that they have no income stream. And the great way with how we've architected ours is that there is an income stream, because people always want to trade. If the market's tanking, they want to stop themselves from getting liquidated, they can maybe jump into Pax Gold or something like that. And you mentioned centralized stablecoins. The reason why we like something like a tokenized gold is that gold can be very easily audited and structured so that you can be sure that they're not in fractional reserve. Of course, there's a non-zero chance that they're not, but gold has been around for 5,000 years. There's 5,000 years of scams in the gold industry. So if you have a very strong player, there are very good mechanisms that have been figured out over the years and years and years on how to make sure that they're not in fractional reserve. You can get really good auditing paperwork and all the rest of it, and insurance. And if they are found to be in fractional reserve, the insurance that is in that contract will pay for that. So if the market is tanking and you've got these assets locked into the standard smart vault, you can trade into something like Pax Gold and not get liquidated. We all know there's not that much diversification when Bitcoin or Ethereum is in the red, then the whole market's bleeding. And if it's in the green, the whole market's flourishing. Of course, there's the odd one out and stuff in those, but you have to be pretty lucky. And so we wanted to have some real world assets, and that's why Pax G is in there. But unfortunately, Pax doesn't have any liquidity on Arbitrum. we're moving away from PAX Gold and the other part of the whole centralization of real world assets being part of the CDP protocol is that how do you decentralize centralized assets? Well, you get as many as possible. So we're really focusing on, because I've been in the gold industry for so long with Valtoro and the whole tokenization process, we're advising a lot of different companies on how to tokenize gold properly. And there's a whole bunch of things that real world asset people are doing wrong, like massively wrong, and no one's talking about them. And so we're trying to fix that by advising them to do it properly. But yeah, that's how you decentralize. So if you have hundreds of gold vaults around the world tokenizing their gold, then if one of them fails, it's not a big deal because you're not focusing everything on one player. And price starts to signal problems with a certain player. Because let's say you have gold in Hong Kong, you have gold vault in Turkey, a gold vault in UK, gold vault in New York, maybe you start to see a price in the Hong Kong exchanges lowering. And people are like, oh, maybe the political situation is changing. Or maybe it starts to go lower in Turkey, the price. So people are like, oh, maybe they're going to nationalize all gold or whatever it is. And you can start to get warning signs about a certain political situation or whatever with these real world assets by looking at the price. If you just have one single massive big gold token like PAX Gold, I can totally understand that that's a centralization factor problem. From what I understand, it kind of sounds like it's almost like Aave lending market with their GHO stable coin where you can borrow against your collateral, a basket of collateral. Is that like a similar way that you think about it? Yeah. Very similar, except in Aave you have a lender on the other side lending. And so they have to charge interest because how do you attract the lender with that interest? By having the user borrow from themselves and mint the debt at 0%, it means that it's more capital efficient, basically. The big thing is that chicken egg problem of what do you do? How do you get people not borrowing and then just wanting to sell it? And this is the problem that we're solving right now by building these liquidation pools and stuff like that. And the liquidation pools don't only liquidate vaults and drop them out onto people staking there for 9.1% under market value. Meaning they get to buy those assets at around 10% under market value, but also all the fees collected. So yeah, it's 0% interest, but there's a minting fee when you first mint the debt and there's also swapping fees. So we attract people in with 0%, they lock their assets up and then they want to take advantage of the market. We add a 1% fee to any trading that happens and those fees get dropped onto people staking in these liquidation pools. So yeah, this is the side of the mechanism that allows for an income at a use case, first use case. When you're as big as Aave, you can launch it and the use case sort of becomes very quickly. Whereas when you're bootstrapping, you really need that solid use case first. And as more and more debt gets minted, some people just start to want to pay back their debt. And then the second use case comes online where people say, oh, I want to take my collateral out. I might buy some UOS and pay back my debt. By the way, another function that we didn't mention yet of the standard, which isn't used that much yet, but I think it's an interesting one, is that every smart vault that is launched mints what's called a dynamic NFT, similar to what Uniswap has. But this one pulls data from the blockchain. So the NFT is basically a key for that vault. So it displays how much collateral you have and how much debt is taken out against it in the SVG file, in the image file. And so you can see at any time how much collateral and how much debt is in there. And if I send that NFT to you, now you control the debt and the collateral. So it's a way to sell a CDP and to maybe even in the future package CDPs together, similar to what caused the 2008 financial crisis, except no one could see through all the vast amounts of chopping and changing these mortgage-backed securities into CDPs and rated by some dodgy rating agencies. Rather, we use NFTs and you can run some software and see exactly how much value is locked up and how much interest is being paid. Obviously we're an interest-free protocol, but maybe in the future people can voluntarily program interest. We don't know what is going. But it's kind of a very early building block to, I think, more financial products coming down the line in the future, is having the ability to sell debt instantly. And it was very useful actually for me because I had a whole bunch of test vaults when we were building this thing. And the seed phrase I thought could have been compromised because I thought, maybe this camera got the seed phrase or whatever. So I wanted to move. And if anyone's ever been in a situation, specifically in DeFi, some of your users might have been in a situation where you feel like, oh, I think one of my seed phrases might have been compromised. I need to move all my stuff. And if you've got stuff fully degen, like collateral here, some LP there, it's hard work to have to claw back everything. You have to pay back, specifically in CDPs, you have to pay back your debts, maybe at a loss because it's down, the collateral's down. You have to remove the collateral and then redo the loan. With the standard, you just pick all your NFTs and send it to the new seed and all your debt and collateral just goes in one transaction. On OpenSea, I was just like, pop, pop, pop, pop, pop, pop, send it to there. And all of the CDPs just appeared in the new wallet, just went, pop, pop, pop, pop. It was really nice. It was a nice way to control collateral on debt. Yeah. That's super cool. I was actually trying to think of a reason why someone would want to sell or trade an NFT with their collateralized debt, but yeah, as a degen myself, having your assets spread across multiple chains, staked in different protocols, it can definitely be a nightmare trying to get out of it if you think your wallet's been compromised. What do you use to keep track of everything? Yeah, like the bank, Rabi. I think those are pretty good in terms of tracking everything. Yeah. Yeah, yeah, yeah. Yeah, Deepak, it's really nice, actually. Yeah, I really like that as well. Because it is, it's so easy to lose track. You think, oh, yeah, I remember this. I mean, there's a fair bit of money here. And then a month later, you're totally forgotten about that you have a position in some crazy, weird thing over here. Yeah. Yeah, there's just so much going on. Cool. So I think you also, you have plans to launch the USD stablecoin as well. Is that going to be, so if someone creates a vault and deposits collateral, they have the option to mint either EUROS or USDS or both? Yeah, yep, that's right. So basically, you log into the interface, you've got create EUROS vault or create a USDS vault. And when you click create USDS vault, it creates a vault and start collateralizing that vault with a whole bunch of different assets. And then you can mint the EUROS, the USDS. That's coming very soon. I think probably sooner than later. One of the things we do want to develop maybe beforehand was trying to figure out the rollout plan now, because a lot of it, when you're bootstrapping is a balancing act of not growing too fast, because that can risk a deep egg and not growing too slow. So we're currently going for one of the Arbitrum grants, which will help to incentivize the liquidation pools so that people have a use case. And that'll give us time to develop the next thing. And the next thing we want to develop is a voluntary redemption type concept where users, rather than random people being able to redeem your vault if there's a deep egg, rather, it would be that the borrower can take advantage of the deep egg. So people will be able to check a mark against when they've borrowed EUROS and say, if EUROS deep eggs to the downside, then sell some of my collateral for that and pay off my debt at a discount. So people can take advantage of their own vault being paid off at a discount and their debt being paid off at a discount rather than somebody else getting those rewards or getting that difference, someone who's built a bot. So this is one thing where we're focused on. Plus it's voluntary, so you don't have to do it. So you can still stick with the absolute 110% collateralization. Yeah. So I think that one's an important one because it'll really help with the stability of the protocol. If there is deep egg automatic, we have... Because right now we're hoping that people will notice if the EUROS is slightly under a EURO and go and buy some to pay off their debt. But yeah, you're relying on humans rather than people just writing some... Rather than the vault themselves using... And we're part of the Chainlink build program and they're really helping us out with a lot of the cool tech that they've built, like Chainlink automations and stuff like that. Nice. I wanted to dive a little bit into the liquidation pool that you mentioned. How does that differ from, say, liquidity stability pool? Yeah. So I can't really talk the liquidity stability pool that much, but basically the concept was that we... And we might be changing this because of the efficiency in the contract, but basically people stake TST and EUROS in the liquidation pool. And whenever there's a liquidation, it just dumps the whole vault onto that pool and spreads it out across the pool. If I take it back a bit, the whole premise is... The important thing is with the stablecoin is that there's always more collateral locked in the system than there is stablecoins in circulation. And so when there's a debt that falls below collateral, we want to take EUROS off of the market. So we need somebody to pay it off. And by staking it into these liquidation pools, basically the EUROS gets used to buy... Let's say it's $1,100 worth of assets, they'll buy it for $1,000. And so it sounds like a 10% discount, but it's actually 9.1% as a percentage. So yeah, they buy it at 9.1% discount and hey, presto, the EUROS get burnt in that process and the user gets dropped a whole bunch of assets down on them, or the people staking in that pool. It might be the similar mechanism that liquidity's got, I'm not sure, but we're actually looking to change it because there's a lot of looping involved in the calculations and smart contracts are like a Nokia smartphone, computational-wise. So it's a dumb phone, I should say, like one of the old Nokias. So smart contracts shouldn't have too much computation and this has too much computation. So we're looking at re-jigging that a bit and we're still figuring out the optimal way to deal with liquidations. But nevertheless, it will always drop fees. Those staking accounts will also drop down minting fees as well as the swapping and trading fees down onto those users. Yeah, that current mechanism is pretty similar to how a liquidity stability pool operates, where LUSD holders deposit and then that pool is used to liquidate any vaults that are under collateralized. Yeah. I think the difference that you mentioned is you also have to stake the TST token, I believe. Could you go a little bit into what is the TST token, what's the utility there and what's the tokenomics? Yep, sure. So the TST token's the standard token and it's fundamentally a governance token, but it's also a discount token. So you stake the TST with EUROS in these liquidation pools. And if you have a thousand EUROS and a thousand TST, then you will use a thousand of the EUROS to buy back liquidated vaults and to buy back the fees and all these things that are dropped onto that pool. You use all that EUROS to liquidate things. If you have, let's say, a thousand EUROS and only a hundred TST, then it'll only ever use a hundred of the EUROS. The TST attracts, there's two fees currently that are generated. One is the minting fee, which is taken as EUROS. So when someone mints, they deposit collateral and they mint a loan, they mint a 2% extra EUROS and that gets dropped onto TST stakers in that pool, just as an old school staking yield. And then what happens is that EUROS is automatically basically sitting there ready to buy up liquidated assets and it's also ready to buy up any fees generated through swapping. So currently what happens is the fees that get dropped down from swapping are treated the same way as a liquidated vault. They're sold, they're liquidated, so they're sold to stakers for euros at that discount. But we're finding the more we're scaling this, the more we're realizing that we need to re-look at this concept. So right now that's the case and as we look at how to scale this out further, the next version will be that those fees will just drop wholeheartedly. They won't need to be bought. So the trading fees will just be dropped onto euro stakers. So we're still in flux, we've just relaunched after a bit of a, we had a compromise of an exploit in December where a user managed to pull out their collateral without paying off their debt and I can go into how that happened if you want. Yeah, I think that'd be great to provide some more context here. So what happened, we just launched the ability to trade locked assets. So initially when we launched, you couldn't trade the assets yet, you could just, it was more of the MVP model. So people could lock up a whole bunch of different assets and borrow against them. Then we launched the trading of those assets and because PAX Gold didn't have any liquidity on Arbitrum, some clever user realized that they could create the pool. So they went on to Uniswap, we use Arbitrum Uniswap as the way to trade and so they went onto Arbitrum Uniswap, created a pool with PAX Gold and wrapped Bitcoin where one gram of PAX Gold, one mic PAX Gold was equal to 10 wrapped Bitcoin as a pool. And then they went and deposited 10 Bitcoin into the standard, 10 wrapped Bitcoin, borrowed everything they could, sold all of that, so stripped us of our liquidity in the liquidity in the LP and then did the swap. So basically took the wrapped Bitcoin and swapped it to PAX Gold. Our contracts went, oh, where do I do that? Oh, here on Arbitrum Uniswap. Oh, that's what it's worth. And so I always say it's like a sort of Indiana Jones trick where they sort of swap the thing, the weights were the same. So they managed to basically under collateralize really quickly by swapping that out. So we instantly saw that and it was amazing actually. It was a very stressful time because like, holy moly, what just happened? And we had to figure out what happened first and then patch it before anyone else copied it. And then it was amazing because Chainlink jumped on the phone really quickly, Arbitrum off-chain labs from Arbitrum jumped on the phone really quickly with us. Some auditors jumped on the line and we started discussing really quickly on how to deal with this. The advice that we got specifically from Cypher and the big auditing firm was that, hey, you guys should message the attacker because most attackers are actually white hats with a black hat on because maybe they've been hurt in the past, like they found some big vulnerability and then they get like a, I don't know, some sort of copy bonus card or something, some sort of gift card for their, oh, you found a million dollar hack here, have a Starbucks gift voucher or something, and they just get pissed off. So the next time, oh, next time I find something, I'm just going to take it. So the advice was to appeal to the white hat under the black hat and write a message. So we wrote a message on Chainlink to the attacking address. They did see that. The next day they returned a lot of the UROS that they'd minted and it wasn't everything and they did keep some of it, but at least we don't have all this UROS floating around that could slowly be sold off. It was back and yeah, it was a really interesting time because it allowed us to really explore transparency. I come from the centralized exchange space where we built Voltoreo, which was a Bitcoin physical gold order book marketplace, and because it's centralized, our security protocol was basically secrecy. Everything was secret, everything was compartmentalized, so nobody knew exactly how all the bids fit together to stop any attacks and it worked really well because we launched in 2015, never had a hack. And so my mentality was, it was very hard to switch from this centralized security model to a decentralized, open, free and open source model, but it was really nice because it was that balance, right? You don't want to let it be so transparent that everybody knows how to do it and then copycats it. So you have to wait until it was all patched, but it was a really great experience going through the whole transparent, being open, having calls daily with the community. This is what's happening, this is how we're dealing with it. And the community was really thankful and in fact, it showed on our TVL that it barely slipped. It slipped on the day and then it just kept on going up a little bit and then over, because that happened mid-December, we patched it and then we decided to basically stop any sort of promotion or anything until we get the code fully audited in case there's something else that we've missed. And yeah, since, so December, January, we did a full code audit where 250 white plus white hacks basically tried to attack us for a month and that was like a competitive audit. And then that was wrapped up in late February and any of the bits that they found, we ended up patching and retesting. And now about a week ago, we relaunched everything and launched the liquidity back on Ramses, launched the new vaults with all the patches of everything that was found. So there wasn't that much found on NXS, which is great. It was just, it was really good to have that experience and make sure, and actually some of the funny things that happened during the audit was finding efficiency gains rather than any other vulnerabilities. It was more like, hey, have you thought about structuring the data like this so that it's more efficient and more gas efficient and stuff? So that was really good. But yeah, that's the deep dive on the exploit that happened and why sort of our TVL was growing really quickly. We were like the third fastest protocol in Arbitrum for like three weeks in a row, four weeks in a row. And then suddenly the exploit happened and everything sort of stood still for the last two months as we patched and focused on that. And now we're back into letting people know what's going on. we've built. What was really nice is the feedback from the community and going through that. And nobody lost money in that apart from some protocol controlled value because of the liquidity in LP. But generally speaking, it wasn't like people got their vaults hacked or anything like that. It was just that one person managed to withdraw their collateral without paying back their debt. And that was super scary. You guys relaunched now, you fully audited. What's the roadmap ahead for the standard and your stablecoins? What's your plans to apply more usage for it across DeFi? The rollout is basically incentivizing the liquidation pools a lot. Incentivizing LP on Ramses with the votes and bribing and all the degen stuff to attract liquidity between AG, Euro and Euro S. Yeah. And if anyone's out there with VRAM wanting to vote for us, please do really help us out. And yeah, as deeper liquidity comes along on a development front, we want to start developing more things like alarms and stuff like that. We're also developing a similar to liquidity front end, white label front end with a type of referral system so that anybody can spawn a front end to the standard smart contracts and allow 0% borrowing and then take some of the minting fee as an income stream. And that way we sort of also decentralize out the front ends rather than us being the only one. So we become more of an implementation that people can be inspired by and we'll put in all the latest and greatest features that people spawn. So that's in the works. Like I said, the automatic redemption for your own vaults would be really cool to focus on as well. And launching the USDS is also really important. So those four or five things are really key right now to focus on. Really cool stuff. Before we wrap up, just curious, I want to get your thoughts on like, we've seen a lot of new innovations recently. One of them is Athena with their USD stable coin currently offering 60% APY. There's been a lot of comparisons out there in the community of this to UST Luna. Yeah, just curious about your thoughts there on what the sustainability of that project is. Any thoughts? Yeah. I mean, I can't specifically talk about that project. I don't know everything about it. I've been so focused on the standard, but what I can say is some general rules. And the general rules, if you don't know where the API is coming from or the APY, if you don't know where it's coming from, then you are the APR. Then you're the yield. And so it's always important to go, okay, 60% sounds nice. B, is there massive inflation because of that? So it's actually not 60% because the amount of inflation that's getting dropped will destroy any value that that 60% is. Okay, cool. Okay. I understand that now. Or is there some sort of Ponzi mechanic playing in the backend where that you're not seeing? I'm not saying there is with these guys. I'm just saying that 60% seems pretty high. And while it does attract people, you need to understand specifically where that yield is coming from. Where is that yield coming from? Is it from just the governance token? And it might be, and that's great, but you got to know that if it's just from the governance token, then you'll see an inflationary pressure down on that. Yeah. So I always look for how are they achieving this? So for instance, we're achieving a return by having trading fees. And as more and more TVL gets locked in, there's going to be more and more trading. And so the more and more trading, the more rewards, more people get attracted, the more people lock up and try to get more rewards and the more that's locked up. So there's a kind of a loop there that allows for real yield, meaning people can do things in the system to generate a yield. That might be the case with USDCE, but yeah, they're the flags I would definitely look out for is figure out where the yield's coming from. Is it sustainable? It might also just be a subsidy. It might be like they're just doing that as a promotion where they're subsidizing that yield with a whole bunch of VC money or something like that. That's fair enough too. But the problem is when that runs out, you might see a DPEG because then people pull their money. They go, oh, the massive 60% yield stopped now. Oh, look, there's the next bright, shiny thing. I might just take my money and go over there. And being DGENs, that's definitely known and understood. So by people having an unsustainable yield, while it's very attractive and you can make money from that yield, I'm not saying you can't, but be aware that large yields generally stop somewhere because you just can't keep going unsustainably unless there is a dodgy mechanic or mechanism in there. Great advice. I think the saying is when you don't know where the yield comes from, you're usually the yield. Exactly. That's the one. Well, this has been a great discussion on the standard, what you guys are building and the stable point landscape. For users who want to learn more about it, where can they find you guys? Yeah, just head over to thestandard.io. You can also follow me on Twitter at Jay Shigella. That's Josh Shigella, my name. And yeah, follow The Standard on X as well. And we just keep posting stuff there. Also got a YouTube channel where we drop stuff. And yeah, I definitely would love some feedback from the more hardcore DGNs out there because we're just a bunch of technologists that are looking for solutions to have true exit doors from the fiat system. And so us focusing so hard on technology, we definitely rely on great feedback from the community. Say, hey, if you thought of this or that, and then we'll implement that. We're pretty open to feedback. So yeah, come and join the community on Discord as well. And yeah, talk to us. This show was brought to you by Exponential. 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