Attacks and Bounce Backs Make the Crypto Ecosystem Smarter and Stronger: Unhashed #29

For the 29th part of Unhashed, I reached out to Sunil Srivatsa, the founder and CEO of the Etheruem-based decentralized automated market maker Saddle.Finance. In this interview, Sunil sheds light on various aspects of the crypto ecosystem and its growing security.

Welcome to Unhashed. Please share with us what got you started in the crypto space and how you started with Saddle.Finance.

One of my friends first mentioned Bitcoin to me in 2011. Ethereum and the DAO in 2016 caught my interest again as a cool way to coordinate capital. In 2017, I finally purchased some Bitcoin and Ethereum and started participating in various communities, and by 2020 I was a heavy contributor at Yearn (still on the multisig!).

I originally connected with the Keep community and Thesis* through being an active tBTC staker and community member. Curve later released their code under a very restrictive license, and we saw an opportunity to build and share an open-source StableSwap implementation, and thus Saddle was born! Our mission is to build DeFi right– open-source, collaboratively; as a true lego block that any builder can use.

Dynamic innovation, a key trait of both crypto and DeFi markets, is pushing the envelope at a breakneck pace. What are your thoughts on this trait being a contributor to the infamous volatility in the market? Also, please share a few words on the role of sustainable innovation.

The pace at which innovation happens in crypto definitely contributes to its infamous volatility. The adversarial environment of decentralized finance coupled with innovations like flash loans (which lower the capital barrier of entry to performing exploits) forces protocols to be well designed and resilient.

You may have heard, but Saddle was recently hacked for some millions. This was difficult but we got through it and emerged stronger as a team and community, while doubling down on our security and auditing. Even with the bear market, our TVL, engineering velocity, and community engagement is increasing again. This is what I call resilience in DeFi, and it’s one of the reasons why crypto/DeFi is growing exponentially. The frequency of attacks and bouncebacks really make the whole ecosystem smarter and stronger, while simultaneously weeding out weaker protocols and recycling talent.

ESG (Environmental, social, and corporate governance) and sustainable investments are becoming more popular and I expect that to be a consideration for more protocols (e.g. Solana was carbon neutral for 2021 and Algorand announced it will be carbon negative for life).

Users are hesitant to provide liquidity on AMMs due to the risk of impermanent loss which is growing in frequency. How do you think this issue can be mitigated without the need for a trust-based custodian?

StableSwap automated market maker pools are trustless and only include pegged value crypto assets. This means users can earn trading fees and incentives with minimal impermanent loss.

Liquidity providers on Saddle (which focuses entirely on pegged value assets) therefore have very little risk on impermanent loss, and are able to earn competitive APRs on their investments, like our D4 pool (consisting of FRAX, FEI, LUSD, and alUSD) which has one of the highest yields for stablecoins (over 40%!).

With staking and community governance going hand-in-hand at Saddle Finance, how do you plan to weed out short-term profit seekers and ensure sustainable price actions?

The vote escrowed token and gauge model for incentives has historically done a good job of weeding out those with a shorter time preference due to its 4-year locking mechanism. In addition to this, the community recently passed SIP-24: “Update SDL allocations for veSDL gauges and Ondo’s Liquidity-as-a-Service pool” which reduced SDL incentive and liquidity allocations given current market conditions and events.

With SDL transfers being enabled with the launch of veSDL (per SIP-8: "SIP-8: SDL Unlock, Tokenomics, and Liquidity"), we expect most SDL holders to lock and vote escrow their tokens to align themselves with the longer term success of the protocol.

Essentially with veSDL, long-term stakers will be rewarded with enhanced governance powers, while short-term profit seekers will have little to no voting power.

Combined with a robust feature roadmap and more utility for SDL tokens– which you can see in SIP-8, it includes partnering/integration with Tokemak for more liquidity/incentives, Olympus Pro for bonding and protocol-controlled value, and Rari Capital / Fuse’s borrowing against LP tokens and leveraged yield farming, and airdrops/fees from protocols forking/building on Saddle– we’re making the choice easier and easier for profit seekers to want to buy/hodl/leverage SDL as a part of their strategy, and eventually participate in governance.

From an infrastructure point of view, we still are predominantly in an era of fragmented liquidity and non-interacting blockchains. What do you think about this status quo and the efforts being made to redefine it?

Some people believe that web3 will reach mass adoption by teaching our parents and grandparents how to use a hardware wallet and browser extension to interact with dApps. I believe that we’ll have the slick apps that people know and love today but that are powered by web3 under the hood, without sacrificing any user experience. The space is moving towards this seamlessness today but is not quite there yet.

At Saddle, we’re strategically moving toward support for major blockchains (most recently Evmos, in partnership with key players such as Diffusion Finance), and periodically assessing cross-chain opportunities (ex. PoolTogether v4 which supports deposits across multiple networks into a single pool) in order to limit fragmented liquidity.

Transitioning Saddle Finance into a DAO seems to be the long-term goal for you. What are some of the actionable steps that are being taken to facilitate this transition? Currently, how can the community engage and contribute to the protocol?

Our community recently passed SIP-23: “Delos HQ Elections - Round 2”, the role of the Delos HQ multisig members is to enable the community to earn SDL while contributing to the longevity of the Saddle Protocol. The multisig has a total budget of 1M SDL to designate to a community grant program. These funds can be used for funding syndicates, bounties, and ongoing payments to core contributors. Delos HQ is the pioneer community “syndicate” (i.e. subDAO with grant+multisig) with the focus of growing and nurturing the Saddle community.

We’re also in the process of developing a robust pipeline for community members (whom we call “bandits”) to progressively deepen their involvement with the Saddle DAO and rewarding them along the way with $SDL grants (alla Delos HQ; here’s an example of senior community members supporting and cultivating new community members). Community members essentially “level up” from bandits to ambassadors (“stallions”) and core contributors (“wranglers”).

Over time, we hope to reward contributing members of the Saddle DAO with bigger bags, more consequential roles, and eventually forming their own subDAO / syndicates to further grow the community. It’s a fun and virtuous cycle.Folks who are interested in getting involved should check out the Saddle Ambassador Program, post on the Discourse forum, and join the Discord!

With regards to the crypto market; from speculative interest to utility-driven pursuits, what are the key factors that you think are required for this transition to materialize?

Answer: I believe as the space matures, fundamentals will become more important than narrative - Token Terminal is a great way to visualize a lot of this data.

Protocols that deliver novel value (instead of just copy pasting the same dApp from one network to another) are the foundation of this transition. In Saddle’s case, we’ve made StableSwap– a DeFi primitive that every ecosystem needs– open-source and accessible. The original Curve implementation is on a restrictive license (and in Vyper); now there’s an open-source implementation (and in Solidity). We’ve helped enable additional novel, utility-driven protocols, such as Hop Protocol and Synapse, which are both strong cross-chain bridges.

The more builders that focus on fundamentals (i.e. delivering novel value), the sooner we’ll make this transition.

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Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.