 I'm Julian from swivel finance. I'm technically the CEO, but I do a lot over there And today we're generally going to be talking about eth2 and the way that we can really use defy products to kind of amplify both the Securities of the ecosystem generally as well as just the attractiveness of what we can offer in defy itself So to start really what is block space, right? Block space is generally just a reservation of some computation space on the Ethereum network for specifically the mutation of state Right, so generally speaking when you try to submit a transaction It's going to require a certain amount of computation and you then must reserve a certain amount of block space of course to Transfer those funds or whatever you're doing Also generally speaking, right? This is supplied by validators in eth2 supplied by miners traditionally and the demand really then just comes From purely user transactions or arbitrage or whatever it might be right so yeah going towards demand You see that generally speaking it actually is insanely volatile, right? It's very difficult to predict demand there are a number of just confounding factors that continue to screw up any sort of models people have made and Really at the end of the day This volatility is fueled by mutually extractable opportunities, right whenever there is volatility in the market itself There's liquidation opportunities arbitrage opportunities, etc. Whenever there are NF2 drops like that massive one up to 450 gas for an entire day It just screws things up for really how people must price and create instruments around the eth2 market on the other side, right? We see that supply is kind of weird, right? You have an increasing number of validators And this will continue to increase it really hasn't started to plateau in my opinion yet But on the other side of that right the actual block space within a given block is actually static So you really look at this and kind of have to think of it in two ways, right? And and when it comes to The factors of block space, right? You have to look at a number of things that will impact the yields of the validators and how that really Makes the product attractive to them, right? You kind of have to make things financially incentivize So then the question comes right when you're looking at block space and these supply and demand factors How can you actually properly price these right to start? Obviously everyone knows of base rewards Most people actually don't know that this kind of it does shift depending on how much demand there is within a short period Right, so if a block is full there's more rewards than the next block and essentially they just try to to move around on this direction But on the other side of this right what most people are most familiar with is Just purely the fees that you pay right if you want to get a transaction through in a reasonable amount of time You have to pay a fee and I mean the important factor is really that this has been very clearly an Increasingly impactful mechanism over the past few years right you cannot really look at purely any of these base rewards or other factors alone You have to really get abstract with your thinking so on the other side of that right you can also disincentivize negative activity and this really just introduces more risks for validators than Really people recognize at this point in time, right? There's an entire row of of blocks that were entirely completely destroyed in the past and Realistically you end up having to to sorry. I actually did the wrong slide next one You end up getting slashed and and a validator ended up getting slashed. I think on about 20 slots in a row So it's pretty horrible. This happens and there are real risks there that users must kind of accept really at the end of The day as well okay on the demand side or rather the the the APY that you can earn in the yield We're seeing increasing amounts of this not coming from the traditional mem pool tips and etc But large blocks that are proposed by off-chain relays primarily flash bots, right in a row here, right? You have about 20 or no, I think that's about 10 within about a hundred transactions I know actually that's only about 20 blocks And really these transactions allow people to do a lot and particularly right as a validator It's themselves you can begin to actually extract these opportunities from others Interestingly, we haven't seen a lot of malicious validators do this yet, but that also does present a risk, right? And the final factor right when you talk about pricing block space has to be dilution Generally speaking again, I said that this isn't plateauing It's very consistent because there's a certain amount of validators that can actually be introduced per day and at the end of the day We've seen that over the past year Regardless of increases of yield based on you know MVV in the ETH to merge Validated yields have actually just been diluted by 50% if this continues, right? We will see yields crunch, but you need to introduce more incentives for this to continue Right, you need to ensure that the the network is secure and you do that by continuing to introduce incentives for these parties So at the end of the day really what is the massive risk whether there's going to be demand and that and for pretty much every Factor other than slashing demand is just a function for it, right? So then when you actually try to apply this you get this massive formula where effectively you have the base fees the fees themselves MVV and tips and as well with dilution all really kind of dependent on on demand As well as these time factors, right? If you know that six months from now there's going to be a 5% yield Well, you can actually predict things pretty accurately However, if this is going to be massively volatile over that time period You need to actually do some pretty complicated stuff in there, right? So the question becomes why? Right, there's all this math. There's all this honestly is crap involved in trying to do this Why actually create products that can can do it and at the end of the day It's really because you can create validator experiences that honestly exceed anything that is available today So getting into really how you do this, right? What are block space capital markets? At their core block space capital markets allow users to take the future yield that they might generate on some amount of block space that they can commit and sell that to other people to reserve today Whether that's in direct reservations like Eden Network Whether that's through peer-to-peer transactions directly like alchemy or whether that's through larger validator pools and everything like Lido And etc through the stack of swivel And on our end, I think that some something is very important to note, right? We split up the components into yield tokens and principal tokens, so if you took a deposit on Lido and you instead immediately gave it to us We would take that deposit we would split it into those two components the yield tokens representing the yield that would actually be generated and the principal tokens representing your actual deposit itself and Allow you to actually trade those right so the most common use case there is then well I want to trade away my yield tokens that future yield to somebody else and the result really is that as a staker You then are completely insulated from any slashing risks any dilution risks any volatility and on the other side The party is effectively leveraging massively on the rate, right? You can either hedge your costs if you are a validator yourself You can hedge variability or I mean at this point in time Rate the gas prices literally on a regular basis down to two You could speculate that it will increase over the next year, right? These are very very important dynamics that are standard honestly in almost any commodity But for some reason right now they aren't really an ETH But then okay, there are multiple designs to do something like this and The question really becomes what can we do with these designs, right? You have a base layer of staking to then and continue to increase the capabilities of your validators And in doing so increase the safety of your network and The question then comes in okay, what are the things you are looking for and really at the end of the day? It's composability you have the ability with these sorts of Matureable instruments that are designed to bound around block space to create composable instruments that are continuously Rehypothecated the first examples being just composable principal tokens, right? I mentioned that this mechanism creates principal tokens that are redeemable one for one This is extremely important because this is a mechanism that is shared by about 10 protocols This then introduced the ability for hyper composability across a number of different yield generation sources Ensuring that there is liquidity for these markets, and they can continue to be built upon So let's say they can be really then looking back at the two different models, okay? Well, how can you continue to build on top of them? Alchemia is a very popular project that is working in this direction They take individual validators, and they ensure that those validators can find counterparties to purchase effectively those yield tokens These these agreements are again individual validators, and they all have unique maturities Which effectively means that they are completely non-fungible. They cannot be Rehypothecated generally and you cannot really trade them on secondary markets the upside being of Alchemia I don't want to just crap on them You know you can address this market of individual validators, and there are a lot of bespoke validators out there However, right if you want to build a more composable product You can combine these sorts of things with Lido with rocket pool and instead of having an agreement that goes directly from Validator to a contract buyer you route that liquidity through a third-party validator that is composable like Lido like rocket pool and then through them you actually create this contract and And by doing that right you then start to have the ability to create more and more interesting instruments The first example. This is a friend of my protocols They they let people take those principal tokens and borrow against them at extremely high LTVs around 90 to 95 percent In context that represents the ability to leverage on the stake deal way for way more than anyone really ever would It allows you to continue to hedge in many directions and at the end of the day It continues to provide utility to these stake yield products that allow you to make more composable interesting things This is probably my most exciting slide or one I like most There are really a ton of advantages native to D5 for fixed maturity instruments that are not replicatable in traditional finance primarily the ability to like I've said rehypothecate atomically and In the context of these maturing instruments a principal token Let's say you have in this case a hundred thousand principal tokens maturing on December 31st And then potentially be used as collateral to underwrite options Right in this case again, you take that principal token You know it's maturing on December 31st and you would find a counterparty that would accept that Knowing that they would also have that face value at December 31st as well Again, this is a completely unique Market for D5 right try going to a bank with your bonds or with your T bills that you've bought this year at 4% Right that everyone's bragging about and asking them if you can underwrite some puts or anything with it right you will find that they will laugh you up the door and It's like it's just kind of a joke to them Again, I think this is probably one of the more exciting things going on right now The ability to take these assets that really are only traditionally used in one way and to combine them into these these Structured products that allow you to utilize them further in this case specifically you have the ability to lend a stake yield Right, you're capturing the base yield the MEV the tips You're capturing it just everything from EIP 559 when 500 if that was happening You're capturing a lending yield on another protocol and then in addition to all that you can capture in options yield and going further down that rabbit hole Right. Here's another protocol. That is another friend of ours where they effectively create expirable futures products It's honestly kind of complicated how they do it, right? But the bottom line is they they use fixed rate markets that themselves can be backed by ETH consensus to create these expirable futures And in context it's actually very interesting because the most common use case of expirable futures is hedging options So at the end of the day you actually are already seeing this this symbiotic ecosystem where users are able to hedge Regular just trading markets in both directions while getting additional yield and all of these list liquidity is then routed through the base ETH consensus layer that's that's the big conclusion I'm trying to push right is that at the end of the day Composability is the king thing or the largest thing that you can do to ensure that the ETH consensus is secure and Beyond that ensure that users are continuously attracted towards these products, right? I think that we have an extreme opportunity to at this point capture The attraction of people that really at the end of the day are more oriented to Treadfy The big statement that is always said is that you need to create a user experience that is ten times better to onboard them from one platform to another and Really only these DeFi unique products will be able to do that So yeah, that's really the point at the end of the day every derivative instrument in DeFi Every really pretty much everything other than perps will be being routed through ETH 2 And at the end of the day as well. This will all be being routed through these fixed-rate instruments I'm I'm Julian. I'm the founder of swivel finance So feel free to reach out follow me and or join our discord at Discord.gg slash swivel file just swivel Yeah, that's it any questions right in the right in the beginning you were talking about Validator supplying block space. Yeah But the block space remains constant throughout like you said, so would they I mean So how do you define as I'm supplying it as opposed to like them constraining it or selling it the end of the day? While the block space from the demand point of view is static The suppliers are still competing to be the one that actually provides it if that makes sense, right? So when looking at pricing this future yield It'd be ideal to just have exact metrics for block space directly in a given block But you really have to be looking at heuristics, right gas price and all these things and you know in context It's just about you know a kind of trying to get anything you can to just derive the the base block space Right or like something that you should try to price and sell your yield at so you mentioned block space and Those markets, how does the fungibility of blocks block space make pricing harder? It's extremely difficult to honestly create any markets without fungibility honestly We were looking at creating swivel initially with a sort of non fungible agreement similar to alchemy But when you start to do this you silo off liquidity and users are no longer able to compare Kind of what one other person would do for it, right at the end of the day Most pricing is actually rather subjective and you need contextual markets in order to price things, right? I Talk about this a lot more in reference to just the fixed rate space in general It's extremely important to ensure that maturities themselves are fungible for even these sorts of these sorts of similar activities the distinction that you you've noticed which is that for these kind of like splitting and like Rehypothecating future staking yields Kind of requires going through, you know central ish validator of some kind generally speaking Is there any way around that like is there a world in which we can create? Fungible claims to like individual home stakers a I need to hope that honestly alchemy is working further in this direction It's more difficult than one would think I'm sure right because you actually then have to actually you have to create the infrastructure between a Validator client and some DAP and honestly, I don't think anyone is doing that whatsoever yet Really it's going to be a difficult problem for them to solve I think they can you know create more fungible markets is kind of the way I'd put it by by forcing people to use a certain maturity And only trading within that right But at the at the end of the day, I think it's more of a technical problem than than a market design one probably With the return profile and the volatility of the split out Yield aspect of it not just mirror aetherium anyway It would yes, that's the point and when you if you split away your aetherium You're not it's not going to do anything what you need to do is find a counterparty to buy the yield token They split away yield that you're going to be earning over some future date, right? And that's why again, it's very important to try to create these markets that are fungible and liquid Otherwise, it's it becomes increasingly difficult to actually find these counterparties and then as well Right if you don't have a secondary market for anyone to sell anything on it's impossible, right? So you really need it really answering your question You just you're selling you're selling those yield tokens to another counterparty and that person is going to be the beneficiary of Whatever eat the staking and etc. Yeah