Reigniting DeFi Growth On Moonbeam: In Conversation With PureStake, StellaSwap, and Moonwell
Midas Capital recently became a part of Moonbeam Ignite, a community-led initiative to drive DeFi growth in the Moonbeam ecosystem. To discuss more on the campaign, Dominik Hell — Lead Strategist at Midas Capital, sat down with Nate Hamilton, PureStake Director of Business Development, Aziz, Co-Founder of StellaSwap, and Luke Youngblood, Co-Founder of Moonwell.
Here are some highlights of the conversation.
Nate: Good Morning, everyone! Thank you for joining in. We are going to be talking about a variety of different things about the Moonbeam ecosystem focused on Ignite — a community-led program to restart DeFi activities on the Moonbeam ecosystem. Before we begin, it would be great if we could just hear from everybody once.
Luke: It’s great to be here, Nate. I’m Luke Youngblood, co-founder of Moonwell — a decentralized lending and borrowing protocol on Moonbeam and Moonriver. We offer a non-custodial way to connect suppliers of digital assets to borrowers of those assets. Super excited to be here today and talk about Moonbeam Ignite.
Aziz: Hey, everyone! I’m Aziz, one of the co-founders of Stellaswap, the leading DEX on Moonbeam. Stellaswap went live just a few hours after Moonbeam, and currently, we are an integrated DEX. This means that we have a standard AMM, a stable AMM, and an upcoming concentrated liquidity AMM called Pulsar. The main aim is to provide the most efficient trading environment for users so they can get low slippage and the most efficient trading on Moonbeam. I am really excited to build and work with a lot of teams in the ecosystem to create utility and composability for the growth of the ecosystem.
Dominik: Hey everybody, thanks for having me. I’m Dom — strategy lead at Midas Capital. We are an isolated lending and borrowing protocol, a money market similar to Moonwell. However, we are a little different as we run isolated pools instead of having one large pool of capital. We focus more on specialized use cases for money markets, and last week, we launched our first pool on Moonbeam, which is in cooperation with Lido. We are the first venue to collateralize the stDOT. We’re excited to join the ecosystem and bring further use cases on board.
Nate: Great! To begin with, I described Ignite as a community-led effort to restart the DeFi ecosystem on Moonbeam. Stellaswap and Moonwell were the first two to really put together proposals to the Moonbeam foundation for this. Can you tell us how everything came to fruition? How do you describe Ignite and why it’s important for the ecosystem? I’ll start with Aziz, and then maybe Luke can chip in since the two teams were collaborating on this.
Aziz: As the name of the name implies, the main aim is to spearhead the reignition of the Moonbeam Network. Therefore we had to come together to make this a collective and coordinated effort to bring about more eyeballs because that’s much more effective than us individually doing marketing. Therefore, we all came together to be under a unified banner, and we all agreed on Moonbeam Ignite. The objective of the initiative after the Level-3 grants are cleared is to spearhead the growth of the ecosystem.
Luke: Yes, Moonbeam Ignite is a campaign to help rebuild the base-level liquidity within the Moonbeam ecosystem. Those of us that have been in the DeFi space for some time realize how critical liquidity is to any ecosystem. Liquidity enables users to trade on DEXes such as StellaSwap with low slippage and low fees. It’s also what allows you to lend and borrow on Moonwell. Simply put, without liquidity, you can do very little in the ecosystem. So we realized that there was a need to rebuild the liquidity after the Nomad situation.
Therefore, the Moonbeam Foundation set up the interim grants process that Teriyaki Don from the Moonbeam community was really instrumental in drafting and proposing. Through this grants process, both StellaSwap and Moonwell applied for Level-3 grants, which were approved by the Foundation. They’ve allocated a total of 12 million GLMR tokens across the two platforms, which is around 8 million on StellaSwap and about 4 million on Moonwell. The idea here is to take this allocation and use it as liquidity incentives to entice liquidity providers to bring their liquidity to Moonbeam. The first grants are already in place on both Stellaswap and Moonwell and are designed to last for about 24 weeks or six months in total.
While it may not end up being exactly 24 weeks because it started on StellaSwap first, and we need to build the base liquidity on the DEXes prior to launching the new markets on Moonwell. We can talk about why this mechanic exists, but the rewards have been pretty generous on StellaSwap in multiple farms for new assets, and it has been encouraging to see some liquidity build-up. Obviously, the market has been extremely volatile over the last week, and liquidity is scarce in all of the ecosystems. But despite that, you know, we’ve seen some encouraging signs in Moonbeam Ignite already.
Nate: Good to hear this. Dom, as you mentioned about your collaboration with Lido, can you give more details on that? They have been building in the ecosystem for a while, and I think it’s great you are jumping into this as well.
Dominik: Since we are talking about an ecosystem, which is also a biological term, it requires certain keynote species to flourish. For the most part, as we said, AMMs and general-purpose money markets build the base layer of DeFi, which is where Midas Capital comes in. Midas builds specialized use cases. We are very dependent on having the base layers available.
The Lido collaboration is obviously very exciting. We allow collateralization of their LP token with xcDOT, and they have some good rewards on that as well. This obviously deepens the liquidity, and gives DOT additional utilization in a DeFi context. That’s something that we have a pretty strong thesis on that Moonbeam is going to become a bridgehead chain, an EVM chain connecting a non-EVM chain. Obviously, there are a ton of use cases out there in the whole ecosystem that we are hoping to build upon and work with other exciting projects such as Moonwell and Stellaswap.
Nate: I see all three protocols being very complimentary, which is great. Obviously, you mentioned that Moonwell and Midas might act as a base layer, and people will look at you and say they are both money markets. But it is clear that both teams are doing it in a very different way, and I think that Midas potentially allows for different assets that might not be able to be listed in Moonwell, at least earlier on. Since it essentially silos the assets, it doesn’t actually have to impact other potential assets if there are issues.
I do think there’s a huge symbiotic relationship between all three protocols. Obviously, the market being the market for nearly 10 months, Luke, why do it now? What are we trying to achieve with Ignite? You talked in brief about that, and I would like to circle back to that.
Luke: Yes, as I said, it’s all about building up this base level of liquidity. I am really excited about Midas launching isolated lending markets and supporting stDOT as a collateral asset. This is an example that a rising tide lifts all boats. If you think of liquidity as water and all these DeFi protocols are boats, as the water rises these boats are rising with the liquidity. It is great to have more than one money market and more than one DEX in the ecosystem because they will specialize in different areas. Even though there might be some liquidity fragmentation, it will be very short-term.
Having multiple money markets gives traders and other DeFi participants the opportunity to arbitrage between them. For example, with multiple money markets, people can do interest rate arbitrage. Users can borrow DOT against their stDOT, which allows them to get more leverage, so more liquidity enters into the ecosystem. I look at this as a 1+1=3 scenario, where the more we enable this base level of liquidity, the more new DeFi protocols can be built on top of it.
Because if you really think about it, these DeFi protocols can interact and interoperate with each other. Smart contracts can be built on top of other smart contracts like money legos. I believe the key is building this base level of liquidity. As for why now — Moonbeam had just launched before the Terra LUNA collapse, and we are in a low liquidity bear market in crypto.
But the bear market is not going to last forever, and hopefully in early 2023 we’ll start to build our way back out of it. Maybe next year or the year after, we will have a new bull market again. The protocols that are building through the bear market and the others in the Moonbeam ecosystem are going to enable us to have more success next year as we will have an infrastructure in place. By then, we will have decent liquidity and capital efficiency across these protocols. This can also be the catalyst for the next bull market.
Nate: Yes, I completely agree. I believe Moonbeam recently put out a statement that there was no direct impact from FTX and Alameda. They weren’t part of this ecosystem, and I even believe in the broader Polkadot ecosystem, there wasn’t much exposure. It might not be right to say lucky, but at the same time, it was a huge event, and a lot of people were impacted, and we were relatively lucky to avoid this.
Aziz, do you want to touch on how the money legos between StellaSwap and Moonwell interact? I believe Luke touched on it briefly, but it would be great for our viewers to understand how everything builds on top of each other.
Aziz: Before that, I would like to touch upon something else. Even though we are in a bear market, the analytics on our current farms and the baseline equity on Moonbeam are looking extremely promising. If you look at it, TVL has gone down across the board because prices have gone down. But if you look at the general inflows or outflows, there’s actually a net inflow of an average of 10% in this bear market on native asset pools. Therefore, more native assets, such as DOT, are coming to Moonbeam and getting staked here, which is a great thing in this bear market. This is also highlighting the role of Moonbeam in the Polkadot ecosystem as a gateway to Polkadot.
Now going back to your question on composability. As a DEX and a lending protocol, Moonwell is the base-level primitive on the basis of which money legos and use cases of other protocols can be built. For example, an exciting use case would be MAI Finance accepting our LP, which is on Beefy. Therefore, users can stake these LPs on StellaSwap, which can then be used to collect MAI stablecoin, which can then be staked again on the MAI farm on StellaSwap. After this, Moonwell can potentially open up an MAI market.
This is the kind of interoperability or composability that can be used to create the next level of DeFi use cases. Therefore, not only can users stake, trade, lend, and borrow, but users can truly harness the potential of DeFi, which is not available in traditional banks. You cannot compose a fixed deposit once you lock your money in a fixed deposit account. But in DeFi, you can build layers of products to maximize your positions or even have a greater diversity of risk management which is extremely important.
And I believe that’s where Midas comes in! With isolated markets, you can long/short on the basis of the StellaSwap LPs you can put in. Right now, we are talking to so many protocols which are potentially using our LPs to build, for example, Beefy. They just submitted a proposal in which we helped them as well. Even though there are a lot of negative sentiments in the market, this is where we all come together, and you can see the positivity of each of the teams working together to create value for the ecosystem.
Luke: I would like to add a little bit to this on the interoperability side. It’s really exciting how developers can use these money legos. For example, on Moonwell any developer that’s building a project in the ecosystem can basically integrate with our mTokens, which are our collateral tokens, and offer an interest-bearing yield to users of their protocol. If you’re building a metaverse NFT game, users can stake their assets, and you can hold these assets in a staking contract and earn no yield. However, you can also use the collateral by integrating with the mToken, and now all users playing the game can earn a yield on their staked assets.
What’s exciting is that any protocol can do that and earn yield on their protocol deposits. Another feature that is extremely powerful is that newer protocols like DAM Finance and Prime Protocol can actually build their products on top of the collateral tokens [mTokens]. This way, users get access to an additional form of yield, the borrowing yield from the collateral token. I think it’s exciting to see how you can stack these money legos on top of each other, and it definitely provides benefits to users of other projects in the ecosystem.
Nate: This is all really exciting. Heading over to Dom, you mentioned that you see Moonbeam as a port. So, are you talking to other parachain teams to see what other markets can be tapped?
Dominik: Obviously, the reason why we picked this Lido pool to launch first is that we’re fairly bullish on the concept of isolated markets within the primitive of liquid-staked derivatives. This is because, for Moonwell, for example, it is not easy to onboard them when they’re still small because it would be too much risk to the general pool. So, we can help build up that liquidity and that utilization first, and then at some point, you’ll probably also see stDOT on Moonwell. We can help raise the liquidity and utilization of these assets in the ecosystem in a risk-minimized way by just only allowing them to collateralize within certain parameters.
Also, there’s a huge amount of potential parachains that all have tokens that can be staked. So, the amount of potential liquid stake derivatives that are out there that could pour into the Moonbeam ecosystem within the next year is exceptional. All such tokens have inherent yield mechanisms and can be utilized in DeFi.
There’s also an interesting potential where even all three protocols could work together. For example, if we have a pool that allows for the collateralization of StellaSwap LP tokens. However, if liquidity doesn’t get utilized in the pool because there’s nobody borrowing, what we can do is by utilizing the ERC-4626 strategies we have, we can basically give that liquidity that is not utilized and deposit it into Moonwell. Moonwell will then be our base level of yield.
If you want to look at it this way, the yield on Moonwell is kind of the lowest common denominator of yield that you definitely can earn on that specific asset. In some cases, it might make more sense to deposit it into Midas because there’s a higher yield for a more specific use case. Moreover, as Luke already said, there’s potentially an arbitrage here because if the deposit interest in Midas is higher, then it might make sense to use some collateral to borrow these assets and take advantage of this arbitrage opportunity.
In case such a pool is created, it would benefit all three protocols because Moonwell gets more utilization, and StellaSwap and Midas get collateralization of assets and usage. I believe you said correctly that there are too many competitive protocols and ecosystems, but if you organize everything correctly, everyone can benefit together.
Nate: Yes! Ultimately this ecosystem is still too small to be super competitive, and it will be better for everyone to collaborate together rather than fight each other. This kind of leads into, what you think about the current state of DeFi, and which aspects are you most bullish or bearish on?
Luke: I’ll go first. There are some things that are great about Polkadot, but there are things that are challenging as well. One thing that is great about Polkadot is its great potential around liquid staking tokens, as Dominik mentioned. Many of these parachains are going to have staked tokens, and we already have DOT and KSM from the relay chains, as well as GLMR. The potential of offering liquid staking derivatives for all of those in an EVM-compatible environment, such as Moonbeam, is pretty awesome because developers can come and build on top of them. Developers can have access to the entire smart contracts library of solidity contracts that are well-tested and battle-hardened. Developers can then compose new and deeper protocols with all the liquidity from these liquid staking derivatives. I believe Moonbeam is going to be a huge beneficiary of this trend over the next 12–18 months, as all of these liquid staking derivatives launch on it.
What’s challenging is in regards to some of the on-ramps and off-ramps and certain wallets. For example, native Tether did come to Polkadot, but it’s really challenging to get Tether over to Moonbeam as you have to hop through the relay chain to Statemine, or you have to hop through Statemine to the relay chain and then back to Moonbeam, which is a painful user experience. I believe Parity and the Polkadot ecosystem in general, need to invest heavily in improving the wallet infrastructure and the on-ramps and off-ramps. Native USDC is coming to Polkadot soon, and again it’s going to have similar challenges. While having native Tether and USDC are extremely positive, we need to make the user experience of getting the tokens into a wallet such as Metamask good for people. This is something I believe that Polkadot does struggle with.
For example, Metamask has 20 million monthly active users, and Phantom, the largest wallet on Solana, has 2 million monthly active users. On Polkadot, however, I’m not sure what the monthly active users are, but it’s a fraction of that. Even newer wallets such as Talisman and Subwallet do not have the numbers that these larger wallets have. It should be easier for users to move their funds, and we need to meet the users where they are. If we can get that, I think we’ll have a strong chance of success for DeFi on Polkadot.
Nate: I would agree. But I think that the market being in the position it is in gives Moonbeam a chance to get everything in place. For other parachains as well, they can start working on figuring out XCM (Cross-Consensus Message Format) and how they can connect to Moonbeam. But now, I have seen a pretty good uptake in XCM integrations into Moonbeam. Aziz, StellaSwap is usually the first stop for teams. Have you noticed teams are getting ready to start doing more with StellaSwap and pick up that activity?
Aziz: Yes, definitely! A lot of parachains are working with us, such as Oak Network and Watr. We communicated with Watr earlier, and they’re looking to create a marketplace for tokenized assets on commodities or green carbon credit. This is a very interesting use case, and they have come to Moonbeam and, therefore, to StellaSwap to explore how they can get started. I think the beauty of XCM right in Polkadot is its unique value proposition that, once harnessed, could result in a lot of synergies and value add within the ecosystem and move on to the vision of cross-chain contracts.
There are a lot of synergies across other parachains, and they’re also interested in exploring use cases outside of the parachains. We also believe that focusing outside Polkadot is also important to attract capital inflows. This is why we are working with Axelar Squid to launch cross-chain swaps, which are going to be launched within the next two weeks. Users will be able to do one-click swaps across chains. At this point in time, we’re at the forefront of leveraging these technologies and accumulating all things to work together.
Nate: Yes, this is really great. I think Dominik, you already touched on it that it will be pretty impactful for other parachains to be able to create a Midas pool on Moonbeam to get that liquidity depth. I think you have been starting to get connected to the XCM teams as well. In the next couple of months, will we be seeing some XCM pools?
Dominik: Yes, we are building a lot and getting liquidity on parachains and then integrating them. However, it all takes time. What I’ve learned from being in this space for a little while now is that nothing can beat experience. Theoretical knowledge is always one thing, but then you start doing the thing that you think you understood, but it comes with ten things you don’t understand. I believe there’s a Dunning–Kruger effect, and the entire Polkadot ecosystem is going through it. This is because they have built great tech, no questions asked, but until very recently, there wasn’t too much usage of that tech.
There’s a huge learning curve that’s happening right now within the ecosystem of people actually utilizing all these different technologies that are great. I think through that experience, we’d see new stuff happening within the next 6–12 months. We hope we can get as many parachain teams onboarded to Moonbeam and have Midas pools with them. I am excited about the future as there’s such a wide variety of different chains with different use cases.
Nate: I agree with you, and I believe this year has shown how long it actually takes to build an ecosystem. I am a huge believer in the DOT ecosystem, even though it can be frustrating sometimes. We want things to move faster; however, it takes a while. So why don’t we end on positive stuff? Heading into 2023, what are you excited about, and what are some of the things you are building that you would want people to know about?
Dominik: For us at Midas, in the Moonbeam ecosystem, we will be onboarding new pools and finding new ways to utilize our technology. We are also working strongly on the ERC-4626 standard, and we want to take it further. We’re diverting a bunch of our time on vault developments to make things easier for the user to take part in these complex money legos that we talked about earlier. Moreover, we are also working on our multi-chain approach. We are helping connect the Moonbeam ecosystem to the other ecosystems, and we find many interesting use cases there.
Luke: I am extremely excited about what we’ve launched in the last couple of months as a community. We’ve launched full on-chain governance, and now we have an extremely solid governance forum where people can discuss governance proposals. We’ve also just recently launched Moonwell.js, which is a JavaScript library that developers can use to integrate into our project easily. We’ve also launched a TypeScript tool that helps the community deploy new markets. Anyone can deploy a Moonwell market contract and create a governance proposal to add support for it. I am also excited to see how other projects start to build on top of Moonwell and new projects coming to Moonbeam.
Aziz: Right now, we have established a good infrastructure by creating our own native bridge using Wormhole’s backend portal bridge to make life easier for users. Right now, we are also focused on working with teams such as Midas to increase the composability of our underlying LPs and explore more use cases in DeFi. We are also excited about launching our concentrated liquidity AMM — Pulsar. Right now, we are actually working with a few active liquidity managers, such as Gamma and Beefy, the latter of which is also in the grants proposal. We are really excited to build and work with other teams and connect with new projects joining the ecosystem.
Nate: Thank you, everyone, for joining in. It’s always good to learn how teams are bringing everyone together. Feel free to reach out to any of us to ask questions or get involved in the ecosystem.
About Midas Capital
Midas Capital is bringing isolated and customizable money markets to EVM-compatible blockchains. Enabling users, DAOs, and protocols to create customized and isolated pools for lending and borrowing any asset, Midas is building a cross-chain ecosystem that democratizes money markets. Pool creators have the flexibility to modify pool parameters (interest rate curves, oracles, collateral factors, pool fee, etc.) according to their risk appetite. With isolated pools, Midas offers stellar features for large-scale institutions, protocols, and traditional investors.
