Taiga Protocol
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Taiga Protocol

Transcript of the podcast with Web3 Buzz

Full episode: https://www.web3buzz.xyz/1903904/9845719-the-one-with-terry-co-founder-of-taiga

Web3 Buzz :
Hi, Terry, welcome to Web3 buzz. And thank you for coming on to the show today.

Terry:
Hey, thanks for hosting! Glad to be here today.

Web3 Buzz :
Terry, can you introduce yourself to the audiences maybe go over your professional background and journey in crypto and what you were doing before founding Taiga and Tapio?

Terry:
Yeah, of course. My name is Terry. I’m the Co-founder of NUTS Finance. So a lot of you may not know, but Tapio and Taiga are actually one of the projects that we’ve built under the NUTS Finance development lab. I can talk a little bit about NUTS Finance first and then go directly into Tapio and Taiga.

We started NUTS Finance in early 2018. And at the time, our vision was to utilize the blockchain to enable an open financial ecosystem. This is still our vision, we’re pretty clear on the fact that this was going to be a multi-yield and multi-project approach. That’s why we set up this development, company, or DAO to carry out these initiatives.

One of the first projects that we actually built towards the end of 2018 was a middleware platform. It was a developer tooling solution, mainly geared towards developers. Because at the time, we thought that modularizing a lot of the financial concepts such as account payable, account receivable and putting them into a middleware would allow developers to issue financial Dapps much more conveniently, as well as security. So this was the first product that we launched.

And then the second product that we launched, was a BTC DeFi solution. This product basically enabled us to understand how to launch something to the crypto community, whereas the first one was more of a product that got our feet wet in building on top of Ethereum.

So both are super valuable, which lead us up to Tapio and Taiga that is a synthetic asset solution on Polkadot. So, this is kind of like the background story of how we sort of got started. We started out on Ethereum and building on Ethereum, and then we transitioned ourselves over to the Polkadot ecosystem.

As for my personal background and experience, I come from traditional finance. I was with a credit rating agency out of college. After that, I actually found my first startup, which was an FX brokerage. We sold the business in 2018. So early 2018, that was actually the opportunity that opened up crypto for me. Because at the time, a lot of our users asked for crypto trading pairs towards the end of 2017, early 2018. So that was led me down to the crypto rabbit hole. That’s my experience and what we’re building is.

Web3 Buzz :
Interesting. So you said that you started NUTS Finance, and several of those projects were on the Ethereum blockchain. And you moved to Polkadot in 2021. So this is a huge decision for the team from a technical strategy and business standpoint, can you explain the rationale behind it?

Terry:
Yeah, definitely. So, going back to sort of the vision of our development team or principles is number one, we’re chain agnostic. So we’re open to building products in different networks.

But obviously, there are certain parameters that would need to fulfill in order for us to commit the resources and actually build. There are a few reasons why we decided to shift our gears into Polkadot.

First, one of the parachain teams actually took a look into some of the stuff that we built in the past and said “Your solution could actually help solve a pretty major problem in the Polkadot ecosystems”. That was what started everything and that was the sort of this spark plug for us to explore into the ecosystem. And this was at the start of 2021.

Our journey actually started off with just talking directly to Web3 Foundation. Then we are as builders to understand the architecture, as well as the technical stack of Polkadot. Basically, it became more clear that Polkadot was actually a strong network. Not just from a technical perspective, but also from a builder community ecosystem standpoint. Because one of the things that we did was that we actually spoke with a few early parachain teams. One of them is Acala.

And during this process of interacting and collaborating with them, we actually saw the support and synergy between the two teams. So this is actually one of the factors where we decided to shift most of our resources to the Polkadot ecosystem. Because of the amount of positive support that we’re able to receive from the ecosystem itself. So this was something that I would say rarer to come by when building on on the Ethereum network. The Ethereum community is big and they may don’t have the necessary resources to cater to every single project.

In short, we are receiving the amount of attention as well as support from the right group of people in the Polkadot ecosystem. Ultimately, it comes down to number one is we are chain agnostic. Number two is the amount of support the ecosystem is able to provide. And number three is superior, or it’s something that we foresee coming out in the long run.

Web3 Buzz :
That totally makes sense. Can you explain the vision and value proposition of Taiga and Tapio?

Terry:
Let me maybe dial back a little bit. Tapeo is the synthetic asset protocol on Polkadot, and then Taiga is the sister project on Kusama.

The problem that we see in Polkadot or Kusama ecosystem is that there are many different versions of an asset given the fact that it’s a parachain setting. We’re already seeing that play out. So for example, for DOT asset class, there are different versions. There’s DOT, LDOT, crowdloan DOT and then Acala introduced like liquid crowdloan DOT as well. This is already four versions, a pretty similar situation with the KSM asset as well.

What the potential problems that are going to cause is definitely liquidity silos. Meaning that some of the DOT liquidity that’s part in like staking application or crowdloan application cannot be freely flown to the application level and cannot be unleashed to other parachains. So that kind of holds back the economic scale of the projects that are building on top of the different parachains. This was the problem that we sort of identified and hypothesized early in the year.

At the time, we think Tapio, and Taiga can help solve this through a synthetic asset solution. Meaning that, from a user’s point of view, whether you are holding a liquid staking DOT or a liquid crowdloan DOT or just DOT in itself, you can use those as underlying to mint a synthetic DOT. So, in our case is going to be called tapDOT.

The first benefit of having tapDOT is that it unleashes the liquidity, which is currently sort of locked up in the underlying use cases.

And the second benefit is that not only does it unleash the liquidity, but you can also retain the existing sort of guild or rewards that you would normally get from a user’s point of view. So you’re not sacrificing the yield and rewards for use cases.

The third benefit is that with a sort of standardized version of synthetic DOT, applications that are on parachains would only need to support one single standard. They don’t need to necessarily support all the standards. Our solution is solving the liquidity silos and fragmentation issue. And a similar situation on the Taiga side.

Web3 Buzz :
That’s a clear answer. Yeah. And just wondering, what is your rough estimate of the total addressable market or the market size that you’re looking at this opportunity?

Terry:
That’s a good question. I don’t think I have a specific number for you. But what I can share with you is with the Taiga and Tapio project, the target users that we are looking to serve are a couple.

First, it is definitely parachains themselves. Because we are not a parachain, we are a protocol. One of our objectives or metrics is to integrate into different parachains, which would have a need to solve for the liquidity side of issues.

The second group of users that we are targeting are traders. So trader in the sense of people that needs to exchange between different versions of DOT or KSM. For example, if somebody is holding lcDOT, and they need to exchange it for DOT, they could basically utilize our stable swap engine.

The synthetic solution that we are introducing at the core is actually powered by a stable swap engine. Meaning that there are pools of uniform assets that share a similar value. Whether that is DOT, lcDOT, liquidity staking DOT, these assets share similar value. They’re stored in this in this pool. But what that allows is to empower traders to have a much more efficient and low slippage, better trading experience between assets that share a similar value pack.

And then the third group actually is projects. As I mentioned, one of the things that having a synthetic asset solution helps is that parachains for the application would only need to support a single standard of liquidity. So gathering that not being fragmented, but at the same time, what we’re introducing is a liquidity renting mechanism.

And for this feature, we’re hoping to do is that we understand there’s a lot of mercenary liquidity that flows from project to project because of the mining rewards given out from projects. However, this liquidity is pretty much temporary or transitory.

From a project point of view, it’s actually quite expensive or inefficient for them to bootstrap liquidity from the start. They needed to have a pool, like LP pool between two projects native token. The rental liquidity feature that we’re providing here is that for users holding synthetics like tapDOT. If they don’t have a need to send it to other parachains, or they don’t have a need to further collateralize it to borrow stablecoin against it.

What they can do is they can contribute that synthetic liquidity back into a common pool. And this common pool ultimately can be rented out to project teams that need the liquidity. This is a mechanism that also brings together the tokenomics for Tapio as well as Taiga.

But ultimately, the third user group that we’re looking to help serve is project teams. Because we understand that every project wants to provide their traders or their users the best possible experience and ample liquidity without forking up tons of their own projects token, they can actually rent it from our synthetic liquidity pool.

So these are basically the three main target user groups. But then going back to your questions in terms of numbers, it’s difficult for me to give you an accurate number, right now, in terms of how many users we’re looking to solve. But what I can say is, whether you’re a project team, a trader, or a parachain that is building in the Polkadot or Kusama ecosystem, you are within our radar of target audience.

Web3 Buzz :
That’s very interesting. That’s definitely a huge user base. If taiUSD consists of, for example, three underlying assets, USDT, USDC, and let’s say kUSD, do I need to hold all the three assets to mint taiUSD?

Terry:
No, you can contribute either one of the assets to the stablecoin pool, and then you would be able to get taiUSD in return. So you don’t need all three compositions to mint. It’s basically a stable swap mechanism. However, the difference between this stable swap mechanism versus the popular curves is that what gets produced is a synthetic asset, versus an LP token.

Web3 Buzz :
But my exposure is still to the other assets as well, right? For example, if the constituent assets are three versions of BTC or something, although I provided liquidity only for one version, I still have exposure to the other two as well.

Terry:
Good.

Web3 Buzz :
Got it. And how was the price of the synthetic derived? I was just wondering, for example, one of the stablecoin is 0.9, the second one is like 1.1, and the other one is 1. So how is the overall asset of maybe tie USD derived? And how’s it stable?

Terry:
Yeah, we actually took inspiration from Curve for stable swap algorithm. However, one thing that we’ve actually changed is the amplification coefficient.

We have expanded the range so that for assets that share a similar value peg, there’s a wider range for these assets to trade alongside each other. This is one of the mechanisms that we ran models to backtest.

In terms of like determining the price is basically according to the stable swap formula as well. One of the best ways to answer this question is that we’re actually currently live on the testnet for Mandala. So users can go into Mandala testnet and try to mint taiKSM using KSM and LKSM. The ratio is actually displayed directly on the dApp for users who wish to understand the mechanisms.

Web3 Buzz :
Let’s say I staked KSM through collateral liquid staking and got the LKSM. Now I take the LKSM paired with the original KSM to provide liquidity to Taiga, stable asset pools.

Now, I’m trying to understand or maybe you can explain to the listeners what are the benefits of doing this. I am also able to collateralize LKSM to get kUSD stablecoin. So can you explain what is different by putting my LKSM in the Taiga pools instead?

Terry:
The first one is holding or using the taiKSM, there are TAI rewards that get distributed to users.

The second two is, as I mentioned, for users that they don’t have a need to collateralize taiKSM. What they can do is they can contribute back into the common pool that gets rented out to project teams that need taiKSM liquidity. Through this process, once the liquidity gets rented out to the project teams, there will be trading fees collected on those rented out taiKSM liquidity.

So that gets back to the users that are contributing taiKSM. This is an additional way for taiKSM holders to get additional yield from the liquidity rental mechanism.

There are two main benefits of holding the synthetics. One that as we’re continuing to build is to find more use cases for taiKSM. One of the reasons why we are building on top of Acala or Karura is because they’ve got the DeFi primitives built out already. So it makes sense for us to deploy in their stack and integrate with their financial applications directly.

As we sort of foresee how the Polkadot environment or the Kusama environment is going to play out, there would be application specific chains, that get built out whether it’s GameFi chain or a privacy chain. So those would actually have a need for standardized liquidity to move across. So that’s where also holding like taiKSM could be beneficial down the ropes.

Web3 Buzz :
In the perspective of rewards, you’re saying that the liquidity provider gets a portion of the trading fee on the stable swaps and they also get the taiKSM synthetic asset instead of an LP token. And holding the taiKSM also generates rewards in additional trading fees.

Terry:
Yes, correct.

Web3 Buzz :
Got it. And you mentioned something very interesting about renting liquidity to project teams, I’m just trying to contrast that to this new concept and that is called protocol own liquidity in DeFi 2.0. I think the value proposition that I’m understanding is both of them and trying to solve the mercenary liquidity issues. What would you say about that?

Terry:
So I think it’s two different models. One is pretty much like debtbased. And then the other one is through a rent model. Depending on the economics of the project, I wouldn’t say like, all the projects are a fit for that the debt model.

When designing the tokenomics for Tapio as well as Taiga, what we ultimately are looking to address is to find as many use cases as possible, or for the synthetic asset. So it’s actually more suitable for us to use the rental model rather than the debt approach.

I would say, if both models applied correctly, they would address the mercenary like liquidity problem. We’re actually seeing some successful use cases under both models. So for us, on the Polkadot or Kusama ecosystem, right now, there is a protocol that offers a similar approach. Because, you know, applications are still going out, and there aren’t as many protocol specific teams.

So that’s why we see that having this rental liquidity pool or common liquidity could help us bootstrap that uses case for the synthetic as well. I believe it to be a mainstay use case for each ecosystem. It is similar to how decentralized exchanges are are a mainstay in every ecosystem.

Web3 Buzz :
So, in the future when Taiga or Tapio is integrated with other parachains, there are so many different types of DOT. All of these will be supported, is that correct?

Terry:
That’s the goal. Yes.

Web3 Buzz :
Great. And what other assets are you planning to bring in the future?

Terry:
The roadmap currently on the Kusama side is the first asset - taiKSM. It’s going to be followed by stablecoin. And we are evaluating whether there’s going to be enough BTC liquidity that gets built through to the Kusama ecosystem.

So that’s sort of the roadmap for Taiga in terms of synthetics that we’re going to be rolling out. And on the Polkadot side, the first asset that we will be launching to present that asset would be tapDOT followed by tapUSD. And then looking at potentially tapBTC.

On the BTC side, we feel like there should be more liquidity flowing through to the Polkadot versus Kusama, but that’s something that we still have the evaluate. So that’s sort of the roadmap.

Web3 Buzz :
Great, which protocols do you think are solving a similar problem?

Terry:
So I would say it’s a mix of a few projects or well-known projects that are trying to unleash liquidity. One of them is I would say like Lido, because ultimately what they’re doing is unleashing liquidity for the state assets.

And then for curve, obviously, they’re solving for the swap issue. The swap between assets that share a similar value peg.

And then around the mercenary liquidity issue, Olympus, as well as the Tokemak project, are solving for mercenary liquidity. So it’s a hybrid. I would say the core features of those three probably encompass what we’re trying to do here at Taiga and Tapio.

Web3 Buzz :
Yes. The difference of Taiga and Tapio is that it encompasses a lot of these use cases into one protocol. And it also focuses a lot more on the Polkadot ecosystem.

Terry:
That’s correct.

Web3 Buzz :
I think one of the hot topics right now is the Curve liquidity wars, right? Because you said your protocol can also be used to rent liquidity. And one of the ways to do that is to stake the TAI token. So do you expect something like this to happen on your platform as well? Because I see some kind of demand for TAI open in that way.

Terry:
Potentially, yes. What Curve protocol has done really well is designing the tokenomics for the CRV token, introducing the veCRV that’s something that obviously can be locked up a bit of liquidity and how the veCRV can actually be used to dictate how rewards are being paid out.

For us, we will be introducing a similar sort of voting or gauge mechanism with TAI token as well. However, how it actually would play out really depends on how many protocols get built in the ecosystem.

If we’re the only ones that are working around in this space, then the situation would less likely resemble what’s currently happening on the Ethereum side of things. We are anticipating something similar, where we would need to introduce like veTAI or veTAP as a form of our tokenomics.

Web3 Buzz :
That’s very interesting. So you’re also planning those kinds of variations as what you’re saying?

Terry:
Yes. It’s not necessary to foster these liquidity wars. But from a tokenomics standpoint, having users lock up the tokens so that they can participate in governance.

We feel there’s a lot of value to that, and then also locking up the tokens, and then giving them the rights to make decisions around what project gets listed and qualified to rent liquidity from the common pool.

That is also something that the v tokens can help facilitate. What I’m saying is that we designed this not because we want to blow up like or foster wars, but as an actual use case of features of our protocol.

Web3 Buzz :
Yeah. Makes sense. I think one of the reasons why it is attractive, besides tokenomics is the high yield that it generates on the stablecoin. And I think that is achieved by providing the liquidity in protocols like Aave and Compound to earn additional interest or additional yield. So do you see any potential such strategies to be implemented here as well? For Tapio and Taiga?

Terry:
If I’m understanding correctly, are you asking if there’s a lending protocol on Polkadot or Kusama, users contribute liquidity to get the LP token. And whether we support the LP token as a constituent to mint the synthetic?

Web3 Buzz :
I guess that is also one way, but the other thing I was thinking about was whatever liquidity has been provided into the pools can be further used, instead of just sitting idle? Maybe that liquidity can be used in lending protocols to generate additional interest?

Terry:
Absolutely. These are the key metrics that we are working towards to find use cases for synthetics. I think it comes down to a partnership BD as well as how much liquidity is locked up in the existing pool for synthetic. That gets determines whether it’s widely adopted.

But as I mentioned, one of the first things that we decided to do was to build on top of Acala as well as Karura is because they have a DeFi primitive built out. They have an existing user base where we could leverage. The users as well as the existing liquidity help us bootstrap so that we can sort of present the synthetic to other parachains as well as other applications and show them this is something that already works.

And if there are ways for us to get additional yield on the synthetic that would even be a stronger use case for holding the synthetic asset.

Web3 Buzz :
Awesome. What are your primary growth metrics by which you’re evaluating success? One you said is TVL. And the other I assume is trading volumes because you have a stable swap. And do you have any other metrics? Do you have any targets in mind for this year of where you want to be?

Terry:
Everything that we’re doing right now is that we are actually gauging the activities in the sort of Polkadot/Kusama ecosystem. For Polkadot obviously, it’s still relatively early. But for Kusama, we’re actually already seeing numbers.

As of right now, I don’t have like numbers to share in terms of protocol revenues, or in terms of TVL. But according to the economic scale between Polkadot and Kusama, a scale of a magnitude of 10 times, is what we’re expecting. For example, if the taiKSM gets minted with Taiga is in the 100 million range, we would expect in the billion range for tapDOT. So, that is sort of like the framework that we are modeling our metrics or growth.

And besides just TVL and protocol fees, one thing that is also very interesting should be how the utilization rate of the liquidity. How well the liquidity that gets contributed to the pool is being utilized, and how that is being measured is obviously through swap scenarios. So whether users are looking to swap in between different versions of KSM, or different versions of DOT. That’s also a metric because Curve is also utilizing that as an indicator of how efficient or how popular a particular pool is. But this liquidity utilization rate also corresponds to how much liquidity there is.

For us, what we’re trying to do is we don’t want to have a pool that’s in the 100 million dollar range, but then only turns over 1% to 2% on a trading volume basis. These are the different frameworks that we have in mind. Before we can actually just say we want to hit certain numbers on TVL, or we want to hit certain numbers of protocol revenue.

Web3 Buzz :
Totally makes sense. And can you explain the governance tokens utility?

Terry:
So there are a few of them. The first one is used to vote. It’s used to decide on the different parameters settings, like fee, the swap fee, what type of assets should we roll out next, as well as what type of projects can be listed to potentially benefit from the rental liquidity mechanism.

The second utility of TAI is a buyback mechanism, where a portion of the protocol fees that get generated are used to purchase TAI on the open market. These TAI tokens are contributed back into the community treasury, which is used to incentivize existing TAI stakers. So This is a way where we can actually continuously provide incentives for people who are staking without depleting our own tokens. We can leverage sort of the existing protocol revenues to make it self sustaining.

The third utility of TAI token is obviously to bootstrap initial usage. So this is as your earlier question, the usage is to reward synthetic asset holders as well as users.

Web3 Buzz :
In crypto, the community is very critical, right? So there are two things that are critical here for you. I think one is the community and the other one is the ecosystem of projects. Right? So what is your strategy to foster a great community and an ecosystem around you?

Terry:
Yeah, bootstrapping a community is something that we spent a lot of time designing. And also, going back to one of the strategic decisions that we made, when we started building was to build a protocol versus building a parachain.

So the benefit is that building on our protocols, you’re actually able to leverage a lot of the existing pairchain communities. So in our case, it was able to leverage off of Karura existing community for Taiga. That as a first step, and step two is from that community, how do we identify product champions as well as the power users. So this is something that we are experimenting with now.

Because we’re actually running an airdrop incentive program where we will require the community members to perform some small tasks. Users that have used the Karura DeFi applications previously would be benefited because of their previous participation.

From here, we can potentially find the product champions as well as the power users where we can spread this type of strategy across different parachains. So, this is sort of like our framework to bootstrap, as well as build out the community, initially.

Web3 Buzz :
Did you have any partnerships and pipelines or any established ones currently?

Terry:
Yeah, definitely. So I’m not sure if I could share on this podcast, but integrating into Acala as well as Karura was the first step in reaching out to the Polkadot/Kusama ecosystem. But we’re also talking to other parachain teams, because our solution is substrate pallet.

So the parachain teams that would be most suitable for us to work with initially. So these are the people that we’re talking to. I don’t want to drop any names yet, but it’s definitely something that we’re working towards.

Web3 Buzz :
Sure. So what are your next immediate and milestones that have been planned? And maybe if you can share what is on your roadmap for the next quarter to six months?

Terry:
Yeah, we’ll be wrapping up the community event in a couple of days. And then shortly after that, we will be launching on the Karura mainnet, because right now it’s still on the testnet. So once that is done, we will be going through a liquidity migration period where we migrate the existing LKSM and KSM liquidity from Karura onto Taiga. So these are immediate milestones that are in the pipeline.

From three to six months, definitely launching on Polkadot as well. That’s the Acala integration, as well as we’re trying to integrate into another parachain within three to six months. We’re actually going through the initial documentation around integration with the other parachains. And then there’s just one more initiative that we are currently exploring.

We are exploring the idea of integrating with the assets that get bridged over from Wormhole. So this is also something that’s in the pipeline, and there’s something I could share because the Wormhole has made it pretty explicit that they’re looking into the Polkadot ecosystem. But for us, we would serve as sort of the window to onboard that liquidity across.

Web3 Buzz :
Those are some exciting initiatives. Thanks, Terry for coming on the show, I really enjoyed this conversation and I’m sure how the audience got a lot of insight from this.

Terry:
Thank you so much for hosting. And, look forward to coming back and sharing more updates and developments with you guys.

About Web3 Buzz

Web3 Buzz is a podcast where we discuss products, communities and careers in web3. Listen to awesome people from web3 walk us through the cool stuff that they’re building and how they’re disrupting products and communities with innovation and inclusivity.

Website | Twitter | Spotify | Youtube

About Tapio & Taiga

Tapio is a synthetic asset protocol enabling efficient liquidity for uniform assets on Polkadot. It is designed to mitigate liquidity silos by synthesizing different formats of assets into a highly usable synthetic asset in the Polkadot ecosystem. Taiga is an experimental protocol on Kusama and the sister project of Tapio.

Tapio officially started in early 2021 when we received the Web3 Foundation Open Grant and the inaugural Acala Ecosystem Grant. Our team is composed of engineers, financiers, security experts and serial entrepreneurs based in Canada, China and the U.S.

Website | Twitter | Discord | Telegram | Github | Gitbook | Wiki | dApp

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