Cryptonews Podcast host Matt Zahab sat down for an exclusive interview with Sunil Srivatsa, the founder and CEO of Storm Labs, the creators of the Cove Protocol, the first onchain portfolio manager.
Srivatsa discussed the rise of DeFi and yield farming, the need for another automation layer, and how it led to the creation of Cove.
He talked about smaller traders bleeding money to more informed traders, explained why we’re closer to mass adoption, and provided two key trading practices.
The Rise of DeFi
Srivatsa remarked that he first heard about Bitcoin in 2011, which piqued his interest. In 2015, Ethereum drew his attention, and he realized that there is technology there that can be used as a tool for capital formation.
He finally bought ETH in 2017 and started participating in various communities, getting his first taste of what was possible in the ecosystem.
2020 rolled around, and “the seeds that would become DeFi were getting planted.” The emerging products grabbed Srivatsa’s attention, particularly the projects that allowed various yield opportunities and enabled earning good returns.
This is how Srivatsa got heavily involved with the Yearn ecosystem when it first launched, actively farming, creating the original governance proposal process, serving on the multisig, etc.
Let’s take a step back:
ERC-4626, the original tokenized vault standard, has become the de facto standard for atomic yield products in DeFi. It currently manages over $8 billion in TVL.
— Cove (@cove_fi) July 11, 2024
“But I always felt there was a layer of automation that was missing on top of that,” he noted.
“This was such a big pain point for me. Why am I spending so much time monitoring all these different positions? I just want to earn the most money in a responsible fashion. Why isn’t there a DeFi protocol where I can tell it how I want my money to be managed? And it will just go and do that for me autonomously.”
This is how he created Cove.
The team has already launched a product called Boosties, a liquid locker and staking platform for Yearn.
And “looking at a late Q3, early Q4, hopefully [we’ll be] dropping the main protocol,” the CEO said.
Boosties includes a $dYFI Redeemer public good.
Anyone can now opt-in to automatically redeem $dYFI for $YFI without holding $ETH.
Coming soon. pic.twitter.com/OMcRyoPczD
— Cove (@cove_fi) April 9, 2024
Sharks Circling Around Sitting Ducks: Loss vs Rebalancing
Cove is the first on-chain portfolio manager, Srivatsa said.
While many people are familiar with traditional automated market makers (AMMs) like Uniswap or Curve, the problem is that these are not good for passive liquidity providers, he argued.
They are basically algorithms on-chain, while there are better-informed people utilizing real-time pricing data and other information to make better trades.
“What it basically means is you’re a sitting duck, and you have all these sharks in the water that are just circling and trying to take your money,” Srivatsa opined.
Andreessen Horowitz calls this loss versus rebalancing (LVR): quantifying the amount of value lost by providing money to AMMs versus just holding, rebalancing, and trading manually.
Therefore, Cove aims to build a portfolio manager that doesn’t suffer from LVR and offers benefits.
We’re thrilled to announce @stormlabs_xyz has completed a $3MM pre-seed fundraise led by @ElectricCapital with @Accomplices @robotventures @daedalus_angels and more to build @cove_fi and the future of onchain portfolio management!
Say goodbye to loss-versus-rebalancing (LVR). pic.twitter.com/TF3Stm72cX
— Cove (@cove_fi) April 9, 2024
The team created an off-chain solver that nets out all the trades between people who are providing liquidity in the protocol.
It is customizable, so users can express any position they want.
In the long term, the team wants to open the platform up and make it permissionless for people to deploy their own strategies.
In other words, “what if you took something like Vanguard or BlackRock and built that as a crypto-native protocol?”
All that money these massive firms hold “could be going to the people who are actually holding the ETFs,” Srivatsa argued.
“I don’t think anybody has really taken a stab at what happens if you try to disintermediate that and build a protocol where you can put more money into the hands of the people who are actually holding the equity. And so that’s what we’re trying to solve.”
The two most popular mechanisms for onchain trading are AMMs and Dutch auctions. Both leak MEV to arbitrageurs.
For AMMs, this is now well understood as loss vs rebalancing (LVR).
What about Dutch auctions?
New paper with @danrobinson
pic.twitter.com/g2alfiCGfz
— ciamac moallemi (@ciamac) May 31, 2024
Adoption Pieces Coming Together
People want “nice, slick mobile apps and experiences where you click a button, things just work, and all the complexities of dealing with a hardware wallet” stay in the background, Srivatsa argued.
Notably, over the last 6-12 months, we’re starting to see all the pieces necessary to build a seamless experience for people to come into the space, he said.
We see progressive web apps, embedded wallets, and much shorter onboarding times.
These are only some of the exciting evolutions in the space, the CEO noted.
Deposit native assets, Yearn vault, or Yearn gauge tokens.
This update removes the need for jumping between different dApps, making your investment process more seamless.
— Cove (@cove_fi) June 10, 2024
H2 2024 Best Trading Practices: Two Major Recommendations
When it comes to trading, Srivatsa shared “two big recommendations” with the Cryptonews Podcast audience.
The first: use an aggregator to actually execute the trade. “Or even better is an aggregator of aggregators,” such as DeFiLlama’s LlamaSwap.
The second: protect yourself from maximal extractable value (MEV) and from getting less money than you were expecting to receive due to nefarious acts by others.
“And so the biggest thing you can do for that is to set up MetaMask or whatever wallet you’re using to use a private RPC endpoint,” Srivatsa stated.
These provide users with their own unique URL to send transactions to the public mempool, giving each person a direct connection to a node provider.
When Cove’s solver cannot match a trade, routing trades through @CoWSwap still protects users from MEV, slippage, and price impact.
This novel approach allows users’ portfolios to experience seamless and cost effective rebalances.
— Cove (@cove_fi) February 15, 2024
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That’s not all.
In this interview, Srivatsa also discussed:
- the biggest current and incoming: restaking, tokenization, the need for infrastructure, modularity, and the multi-chain future;
- current global DeFi landscape: how it evolved over the last year and ongoing challenges;
- Cove’s partnership with risk management firm Gauntlet;
- the future of AI-powered investments;
- stories from his days at Uber: when a company name becomes a verb, the sky is the limit;
- Uber hot take: Travis Kalanick was “a great CEO.”
You can watch the full podcast episode here.
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About Sunil Srivatsa
Sunil Srivatsa is the founder and CEO of Storm Labs, the creators of the Cove Protocol, the first on-chain portfolio manager.
Previously, Srivatsa founded Saddle, an open-source StableSwap with $2.2 billion in volume.
He was also a senior software engineer at Uber, working on infrastructure security, self-driving cars in the Advanced Technologies Group (ATG), and real-time analytics.
Before Uber, Srivatsa was an early member of Square’s data engineering team. He is also a founding partner at eGirl Capital.
The post Sunil Srivatsa, CEO of Cove Protocol, on People Losing Money to Better-Informed Traders, Approaching Mass Adoption, and Key Trading Practices | Ep. 354 appeared first on Cryptonews.
