Solana's NYC Hacker House

Figure: Wassie^[1] Note Taking on DeFi Panel Day 2

This week, we bring you a special edition of DeFi Digest, stemming from the investigative journalism on Solana’s NYC Hacker House by Fundstrat’s in-house wassie, yours truly. Out of the week-long event, I attended the DeFi panels across two days, where representatives of DeFi protocols discussed the most pertinent issues in DeFi today and ways forward.

For a deep dive into another trending vertical in the space, DAO tooling, check out this week’s issue of the Crypto Weekly.

The panelists represented early-stage projects offering innovative solutions to a myriad of challenges in the DeFi space. I attempt to give an overview of each of them below:

Pyth Network

Pyth Network is a Solana-based oracle network that supports a live stream of real-world financial and crypto market data. Through the network, crypto-adjacent companies such as exchanges, analytics platforms, and crypto-native projects can deliver data from nodes to smart contracts and vice versa.

Pyth boasts a coalition of 51 first-party data providers that contribute and stream data onto the Pyth Network, including heavyweights such as Alameda Research, Galaxy Digital, Jane Street, Jump Trading, and more. It is refreshing to see collaboration at this level in a conventionally hyper-competitive industry that is finance, denoting the gravity of the data availability.

This piece of infrastructure is crucial to DeFi as the space relies on high-fidelity, time-sensitive, and (at times) off-chain data but has no reliable way to access that data today. Pyth essentially grants DeFi access to a vast amount of financial services data in high-finance, enabling smart contracts to be designed more efficiently.

Orca

Orca is a DEX on Solana launched in February 2021. Priding itself as ‘the DEX for people, not programs,’ it leverages a unique model called the ‘Fair Price Indicator’ to offer competitively-priced and quick trading to users. The Fair Price Indicator depends on two factors to determine whether a price is ‘fair’:

• Price per token is within 1% of the rate quoted on Coingecko
• Price impact caused by the trade is less than 1%

If these conditions are not met, users will receive a warning in the UI. Nevertheless, they can choose to proceed if they have conviction in their reflexively increasing or low liquidity purchase.

The Orca pools use both the Constant Product (popularized by Uniswap) and Constant Sum AMM (popularized by Curve Finance) models for pricing. Inspired by Uni v3, Orca also offers concentrated liquidity provisioning through ‘Whirlpools,’ where users can increase the capital efficiency of their LP positions by taking on proportionately increased impermanent loss risk. 

Saber

Saber is a cross-chain AMM exchange built on Solana that primarily caters for pegged or similarly priced assets. These can include USD stablecoins (USDC, USDT, UST), bridged assets (renBTC, wBTC), and staking derivatives (stSOL, bSOL, mSOL).

Saber also combines Constant Product AMM (x * y = k) and Constant Sum AMMs (x + y = k) for pricing. The resulting formula is as below:

ℽ (X + Y) + XY = ℽ D + (D/2)², where

ℽ = dynamic weighting for each AMM type

When ℽ is large, the formula uses the constant sum AMM formula. Conversely, when ℽ is small, the resulting formula encompasses features of the constant product AMM. ℽ is dynamically decreasing as pools become out of balance so that there is always liquidity.

Currently, Saber has listed 101 different assets over ~20 pegged coins, with many of the asset derivatives originating from bridges. For context, bridges work by wrapping an asset (USDT) on the source chain and minting a bridge-wrapped version (USDTbs) on the destination chain.

While the wrapped versions theoretically are pegged to the value of the original asset, the result of the above is fragmented liquidity across chains (wBTC on Ethereum, wBTC on AVAX, etc), and even fragmented liquidity between the same type of asset (separate liquidity pools for wBTC and renBTC on Ethereum).

Some protocols, such as Stargate Finance, are attempting to change the bridging universe via live streaming of blockchain states, so I’m excited to see how the future plays out in this space.

Injective

Injective Protocol is a decentralized Layer-2 derivatives exchange protocol implemented on Tendermint using the Cosmos-SDK. Users on the Layer 2 can create derivatives markets, trade derivatives, stake on insurance pools, and validate the PoS network.

Due to the Tendermint integration, Injective currently powers bridging from Ethereum, Cosmos, Terra, Osmosis, and Chihuahua Layer 1s. Users who bridge from these networks can trade spot and perpetual futures on the derivatives markets completely gas-free. These markets are created by different communities, such as Lunatics Exchange and INJ Dojo Exchange.

By creating a separate protocol layer for trading, Injective revamps the traditional DEX model to create a protocol that is easy to use for both novice and advanced traders alike.

Manta

Manta is a privacy-focused ecosystem implemented on Polkadot and Kusama. Using the XCM protocol, it communicates with other Layer-1 chains that adhere to the Substrate framework and connect to the Polkadot Parachain. It plans to offer two networks:

• Manta Network: Manta’s main network on the Polkadot parachain
• Calamari Network: Manta’s canary network running on the Kusama Parachain
• Dolphin: Testnet run independently of Calamari and Manta

Mantra’s first products are due to launch soon. MantaPay, a token-agnostic private payment service using zkSNARK, is currently live on Testnet. MantaSwap (privacy AMM-based DEX powered by zkSNARK) and MantaPlatform (programmable privacy-preserving dApps) are also being prototyped.

Voltz

Voltz is a non-custodial AMM for Interest Rate Swaps (IRS), allowing users to trade interest rates with leverage. It uses proprietary Concentrated Liquidity Virtual AMM (vAMM) for price discovery, unlocking capital efficiency of up to 3000x relative to competitors.

Users can convert variable-rate assets into fixed-rate products and trade variable rates with leverage on the Voltz platform. DAOs can also leverage Voltz to hedge a variable liability to improve visibility on future fund flows.

Liquidity providers power the trading of fixed and variable interest rates. LPs can generate more fees with less capital using concentrated liquidity within tick ranges. The model also negates impermanent loss since LPs only deposit in a single-sided pool. Instead, LPs assume funding rate risk when price trades out of the LP range.

Umee

Umee is a Layer-1 blockchain built on the Cosmos SDK that prioritizes open finance innovation, including Multi-chain Staking, Interchain Leverage, and Cross-Chain Interest Rates. As a base layer blockchain, it offers a simple way for DeFi users to stake, lend, and borrow across 30+  other blockchains.

Umee was created to address pressing issues in DeFi, namely detached yields, concentrated systemic risks, and isolated capital. Umee plans to break the inherent silos between blockchains by utilizing bridging solutions towards interconnecting blockchains and encouraging better capital efficiency.

In the long run, Umee strives to be the cross-chain DeFi hub, connecting various ecosystems and novel financial products built on top. Umee will incorporate tools such as Layer-2 scaling solutions, side-chain architectures, tools from the roll-ups ecosystem, and alternative base layer protocols for connecting between blockchain networks.

Aztec Network

Aztec Network is a privacy-focused Layer-2 built on Ethereum. It leverages a zkSNARK-based technology called PLONK, or “Permutations over Lagrange-bases for Oecumenical Noninteractive arguments of Knowledge,” created by founder Zac Williamson. Zk.money was Aztec’s first consumer-facing private payments protocol, enabling users to shield and privately send DAI, ETH, and renBTC to one another.

In December, Aztec Network launched Aztec Connect, the first private bridge for Ethereum DeFi. Boasting up to 100x gas savings with fully private transactions by default, Aztec Connect allows private assets to be bridged to Ethereum Mainnet for a Defi interaction and return to Aztec, all in the same transaction.

Essentially, Aztec enables full privacy for users with no liquidity fragmentation, saving them up to 100x in gas. For developers, implementation is straightforward in the form of a 50 – 100 line bridge contract.

Bottom Line

After interacting with different DeFi protocols in front of a screen over the past year, I find it easy to forget that behind each innovative DeFi primitive lies teams passionate about pushing the next frontier in DeFi. The Solana NYC Hacker House was a great reminder of the collaboration and modular building happening not only on Solana, but in the DeFi space across all major chains. It showcased some emerging DeFi projects that share a few themes: privacy, cross-chain interoperability, and derivative DEX models.

^[1] Wassies are memetic creatures on Crypto Twitter that have an average lifespan of 40 days but can live longer if kept in the fridge