Michael Bentley, Euler: “We can’t just take the regulations from the old system and apply them to DeFi”

    19 Oct 2021
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    What is the proper pronunciation the name of the project?

     

    My belief is that the correct pronunciation is “Oiler”. Most people say “U-ler” when they say this. The name comes from a famous Swiss mathematician, and he did a lot of study on the compound interest rate formula. And from the compound interest rate formula, you can get to one of the most important mathematical constants, which is called E. That’s why we named our protocol after Euler, the mathematician. Obviously, compound is already taken with compound finance name. I think they probably got the best name, but we thought it’d be quite cool and ready to name a protocol after the mathematician that would look at the most important study done on the compound interest rate formula.

     

    What inspired the creation of the Euler project? Who and when it started?

     

    There were three co-founders of Euler. As myself, we have a guy called Dirk who has a background in network security and a guy called Jack who has background in fullstack and web development. I used to be an academic studying evolutionary biology, but I used to be more on the theory side of things. It’s a study, dynamical systems and game theory quite a lot. And I was interested in crypto for quite a long time, going back four or five years now, and I used to play around with hackathons and things, trying to code up a little DApps and whatnot in my spare time. Last year, I was introduced to Duncan Jack through a hackathon, I was participating in Oxford and we were particularly interested at that time and developments around DeFi and Compounds protocol in particular on Uniswap protocol. And the initial inspiration for Euler came from trying to smash those two things together and create a kind of Uniswap of lending where users could come along and activate their own lending markets like they can activate trading on Uniswap. And then one of the things I was interested in was Compound’s interest rate models, how you could allow the interest rate to be determined algorithmically without having to have some centralized intermediary in the middle. Saying while the interest rate should be like a central bank, bank manager or of setting the interest rate, could it be done autonomously? And Compound already had a model for this, but it seemed to rely on a lot of kind of governance interventions. I wanted to see if we could go beyond that and move the governance from the system and just use a different type of algorithm to set the interest rates. And I’d been interested in control theory, which is a bunch of math for some time, and thought I’d play around and see if we could use control theory to guard the interest rates. And so that’s really where I started was these two ideas came together and we thought we’d build this protocol, a kind of alpha version of this protocol for this hackathon. And then we went on to win the hackathon and people started to comment. What an interesting idea it was. We decided to go on from there and see if we could turn it into a fully-fledged project. I quit my job. Those guys quit those. And we with the rest of the story proceeds for the next year. For the last year, we’ve been now building out the post code.

     

    Did you see some interest through your project and someone who believed in your project except the founders from the very beginning?

     

    I think a couple of people were really influential in pushing us to actually go further than just a couple of the founders of ENCODE, which is a kind of global hackathon organizer and educational tool for crypto. They saw what we were building. They were running the hackathon, and we gave them a demo of some of the stuff we’ve been working on throughout the hackathon. And they said, this is how you should consider taking, doing this whole time rather than as a part time hackathon project. It was encode. I think that really became the motivation and pushed us to go serious with the project.

     

    You mentioned about some your activity in the project. Can you tell us more about your personal responsibilities in this project right now? What’s the area of your business you are covering right now?

     

    We have jockeys mainly responsible for that kind of web. Part of this, the doc does a lot of the smart contract development and security are my main technical wall is on mechanism design. I do a lot of kind of math and analysis for the project by also did a little bit of everything software. But I’m a kind of jack of all trades, master of None type role. I’ve done a little bit on the smart contracts myself. I’ve done a little bit on the front end and then I also take on more of the day to day tasks of running a kind of business. That means meeting lots of people like yourself, talking to people about Euler and reading up on the latest developments in DeFi and all that kind of stuff that comes with more of like a sale CEO type.

     

    What is the most difficult in your current job right now?

     

    I would say hiring people is very difficult because there’s lots of competition to hire good people and a lot of very good people are also deciding to start their own projects. Finding people that are really good and have very strong technical backgrounds that want to join your project. It’s really challenging, and it takes a lot of time to interview people and to get to know them and make sure they’re a good fit to join the team. I find that a really big challenge.

     

    Can you name their greatest success till now, your company and your personal achievement?

     

    We still haven’t launched our product, so we can’t back about too much, but I think building relationships with some of the awesome people at work in DeFi. It is a really big achievement that to get the acknowledgment that what we’re building is cool and worthwhile. And we are investing in someone like who invested in so many great projects over the past few years. That would probably be our biggest team achievement to date.

     

    Euler offers a number of interventions that are not being available in defined before. Tell us more about that.

     

    One of the biggest innovations is the ability for anybody to create their own lending market for a token on Etherium. Right now, most of the lending protocols restrict what people can lend and borrow, and Euler aims to go beyond that and allow a kind of permission less listing process for a lot of people to lend the borrower almost any tradable fungible token. Beyond that, we’ve got a ton of innovations and in different areas, and some of them really kind of technical in niche, but I think they’re important for how the protocol will operate. I’ve already mentioned the interest rate models that we worked on are backed by control theory, and they helped maximize capital efficiency on the protocol while is minimizing risks that lenders take on when depositing. We’ve developed a very innovative liquidation flow on Euler that helps keep value within the protocol and helps borrowers avoid losing too much value from the collateral when they get liquidated. Specifically, we’ve got a system that limits something called MEV, which I guess most of your readers won’t be familiar with. But MEVs the ability of minus to extract value from DeFi protocols, either through benefiting from what I call priority gas auctions. But people kind of bid up the gas price to extract, to take advantage of a liquidation opportunity, but also from being able to reorder transactions when they include transactions in a block. Euler has an innovative system that helps limit the extent to which miners can extract value, which is obviously beneficial both for the protocol and for the borrowers on the system. We have a bunch of other cool innovations like I could go on about this for quite a while, but I’ll tell you about a couple more. One is our protected collateral system that allows depositors to and borrowers specifically to deposit collateral, then come itself be let out on the protocol. Unless this particular innovation has three main benefits. One, it lowers the risks of borrowers because they avoid being at risk of holding a position or stuck in the position when they want to exit their borrower. If you let people borrow their collateral, then when a bond goes to repay, they may not actually be able to fully unwind their position. It helps reduce the risk for borrowers, but it also has two other main functions. One is which reduces the ability for people to short sell the deposited asset. So you might not, as a borrower, want to use something as collateral, but you might not want somebody out there short selling that the asset that you’ve deposited is possible. You can avoid it with this protects your classical function. And finally, for tokens that are governance tokens, things like MKR and Column, you can deposit these assets as collateral. But without having to worry about borrowers taking the run, using them to manipulate governance codes elsewhere in the DeFi ecosystem. There are three big advantages of that function. Beyond that, we’ve got cool innovations in terms of flash loans and liquidity checks. It means that sophisticated DeFi power users can access the protocol and take on leverage positions without paying any fees to do so. We also have a bunch of other risk optimization innovations that help isolate risks and isolate borrowers from one another. If a particular asset spikes in price or drops in price very quickly, the idea is that other pools on the protocol won’t be affected by that thought by that risk. The protocol is being designed from the bottom up, essentially to minimize systemic risks.

     

    How do you pick for your average project user?

     

    I think there are usually two types of who use, to be honest. On the one hand, we are building Euler for retail users who own a basket of different tokens that right now they can’t deposit anywhere that’s got any interest on these uses a fundamentally long the tokens that they hold, they’re excited about that potential. But right now, they can just only hold them in the wallet and do nothing with them. By expanding the number of markets that people can lend and borrow on, we provide opportunities for retail users to deposit into Euler and then possibly allow those tokens to earn interest over a longer period of time. On the flip side we’re also building Euler for a second kind of use, which is what we would call maybe a DeFi power user. I would tend to be individuals that are like to borrow assets, like to take on leveraged positions either long or short, different assets, and they will often use smart contracts to interact with the systems on Euler. And for these users we’ve got a number of optimizations in terms of mitigating their risk while also making things much, much cheaper to interact with in terms of gas and fees paid. The fearless flash loans particularly useful for these kind of thief people use this as well.

     

    And on which stage is the project you are currently at? What part of the road map you are on now?

     

    We’re very, very close to launching our first iteration of the protocol. We’ve been building for almost a year now and we’re hoping to launch on a testnet, a private testnet initially, then a public testnet and not for everybody. And then I would hope I’ve got my fingers crossed that we’ll be able to launch a mine in late October or early November even. Part of the reason for the delays is that we’re undergoing audits with smart contract auditors, and we’re waiting for those to complete and get a clean bill of health before we can go live.

     

    How much investment has the projects received already and who are the investors?

     

    We had closed a seed round last year that raised $800 000. And earlier this year we closed the savings and raised $8 million.

     

    Can you describe some of your investors?

     

    We have a couple of VC firms that have led those rounds. Our seed round was led by alumnus Scrap. And our series A round was led by Paradigm. So both of these both of this VC are sort of crypto native who have been investing heavily in crypto for many years now and have been lots of projects that we really like and respect. And so it’s been great to work with them because if they can give us advice on not just how to kind of run a regular starter, but also lots of crypto specific advice and advice that’s relevant to working in our industry, especially working with Paradigm, we also get access to very technical people who also work with smart contracts and with mechanism design and things. It’s been great to work with those VCs. Beyond that, we’ve got other VCs that have helped us along the way. And also we’re lucky to have a large group of investors, most of whom come from, though also crypto native, and these have been helping advise on that from a number of different angles. Some of them advising on the mechanism design on UI and UX stuff for the for the DApp itself on marketing and how we take our product to market and that kind of thing.

     

    How is your brand awareness growing? What steps are you taking on this direction?

     

    Euler has been very focused on building the protocol itself, not rushing to try to take something to market that doesn’t yet exist. So right up until now, we haven’t really focused on building a brand. We’ve been really focused on building the technical protocol itself and all the technical components out. But the building a brand is very important was longer term, and as we approach our launch date, you’ll start to see a lot more a brand building from Euler. We’re looking to grow in this area by building out a marketing team and helping people out that will understand how they can use Euler and take advantage of the many features that it provides them.

     

    Do you have exact plans of brand promoting in the next future, is it just a part of the development plan? What is the vision of that?

     

    I think in crypto, building a community is very important, if you build a community, you can get lots of brand awareness generated a grassroots level. Our focus is going to be on decentralizing the protocol of building a community of stakeholders that really have invested interest in Euler doing well in the future. And we hope that community will help bring brand awareness and help communicate the benefits of Euler to people. I think we’ll probably work with all sorts of different types of creative folks who can help us generate that community in terms of building tutorial videos and writing blog posts about how it works and explaining some of its core features.

     

    Are you considering a potential partner in your project? If so, how do you envision your partnership?

     

    I think one of the most important things for any default protocol is integrating into other DeFi protocols, integrating into the ecosystem. People called DeFi protocols money Legos and we want to make sure there are particular Lego block is compatible with as many of the DeFi Lego blocks as possible and integrate as widely as we possibly can. Obviously, to do that, we need to go live and launch protocol. And we’ve been talking tentatively to a number of other project teams for many months now, and we’re excited to be able to launch and hopefully get those integrations up and running as soon as possible. Many DeFi protocols benefit most when they can benefit from network effects, most when they can integrate well into the protocol. It’s really important for us to build those partnerships and we’re open to partnering with everyone and anyone.

     

    Some say that the crypto industry needs to find ways to comply with regulators, since an open confrontation could make life much more difficult for major market players. What do you think about that statement?

     

    Regulations are important in finance issues, can help protect retail investors. But in terms of whose responsibility is to comply regulators around the world also need to recognize that the blockchain industry and DeFi in particular, is a very different and new technology that requires new regulatory systems to make it work. I don’t think we can just necessarily take the regulations from the old system and apply them without modifications to the new way of working that we’ve got in DeFi. There needs to be some cooperation on both sides in the recognition of the important differences between traditional finance and decentralized finance.

     

    How do think, how in future it will deconstruct the relations between the banks and their crypto industry? Because now it’s all that crypto industry just moving the banks from their normal position. Is it possible to cooperate for the banks and crypto or it will be just war till the end?

     

    I’m not sure they’ll be all that war. I think the banks will probably want to invest in decentralized finance themselves and participate at some point. That’s the way I see things going rather than All-Out War. I think the two systems often offer very different benefits and have different use cases for users. Not everybody requires a decentralized finance system for everyday finance. If you’re going to spend money in the supermarket, it might make more sense to stick with the bank. But there are millions of people around the world that live in countries where decentralized finance is incredibly important for the for the benefits it brings in terms of freedom and liberty, but also the opportunities that DeFi brings in terms of just being interconnected with everything. You can move from very different types of markets seamlessly in DeFi in a way that you just can’t do in traditional finance. I think in those areas, you’ll see banks start to invest and innovate themselves and maybe try to join DeFi and in other areas, I still think there’s probably a strong use case for using a traditional bank.

     

    The Gulf region has a highly developed business with a strong money flow, but it’s yet to take full advantage of DeFi capabilities. Do you have plans for this region and do you see the potential of further development of the crypto industry in the Gulf countries?

     

    We don’t have a specific plan for the Gulf countries as opposed to any other particular region. We haven’t yet launched the protocol. And when we do, I think our big plan really is to get out there and take the product to market by explaining to people how Euler works and the benefit it can bring to users. We’ll be recruiting a team of local ambassadors that will help extoll the virtues of Euler to different regions. Certainly part of the recruitment process will be looking at places like the Gulf and seeing if there are local people there who have a particular interest in Euler and DeFi lending protocols and seeing if they want to help us bring Euler out of those places. I think beyond that as well, we’ll be taking Euler on conferences and things to go to meet the important people in those places and see if we can introduce them to Euler first hand in person and deliver materials for conferences and such like.

     

    That’s very interesting. Who would do you consider as your main market competitor and who can you see yourself working together with?

     

    I think DeFi’s is at the stage where there’s probably too early to really think too much about major competitors and especially in the lending space where there are a number of different lending protocols at the moment, which offer valuable services, but they all have their own kind of specific use case. I would like to think that in terms of overlap, what probably most similar to compound by offering different features from those protocols. If we think about the competition in that sense, that there probably ought to be, I guess.

     

    Where do you see your company for the next five years?

     

    Well, there’s the company, and then there’s the protocol and the protocol I hope in the next five years we will the protocols have taken fully decentralized. I think things like Maker and now things like Compound have done a fantastic job of forming a protocol and inevitably having things start with a more centralized sort of soft structure and then slowly developing over time in a fully-fledged decentralized platform. I’d like to see Euler move down that road. In terms of the company I think we’ll have to see. DeFi is moving very, very quickly and we have ambitions to develop other protocols as well and bring more innovations to the space. So watch this space.

     

    It’s very honorable to be the pioneer of the new era and actually you are the pioneer of the new era. And probably in 20 or 30 years it will be dramatically different environment. And let’s imagine what can you say to your grandkids at the end of this long road? How can you describe for them this period of your life and your feelings about what is going on now around you?

     

    I would say it’s been exhausting and exhilarating at the same time, like all of innovative systems tend to be. I worked extremely hard and I meet incredible people all the time and get introduced to new ideas almost on a daily basis. And it’s frightening sometimes how fast things move in the space, and it feels difficult to keep up with all the innovations taking place. I get asked about what I think about other people’s protocols all the time and half the time I’ve never even heard of the protocols just because it’s hard to balance getting your head down and really focusing on building something yourself, but also paying attention to what’s going on elsewhere in the space. It’s been a very exciting journey, but it’s also been very tiring. My wife and I also had a baby and in lockdown and we’ve been in the pandemic and we’ve moved house and I’ve followed the staff up. It’s been a crazy time for the past few years, that’s for sure. I wouldn’t have it any other way.

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