chavis

growth & brand strategy @indexcoop · member @safaryclub · advisor @lotusfi_

[chavis @chavis_]

https://t.co/ZPjCvqruxp

[chavis @chavis_]

You might imagine capital moved up the stack after rsETH. It mostly didn’t

Not synthetics like sUSDe, not fixed-yield on Pendle, not tokenized treasuries like BUIDL

sUSDS is the closest thing to a counter example. Capital migrated as close to the issuer as it could

[chavis @chavis_]

The most interesting thing about the fallout from the rsETH exploit is where the capital fleeing Aave didn't go.

During the event, Aave lost nearly $10B in TVL. Those funds, for the most part, did not move to another lending protocol. Morpho ended the window flat. So did Fluid. Compound fell 13% and Euler lost about 40% of its supply.

The only one that gained was SparkLend.

SparkLend gained $1.27B over the window. The largest single depositor was Spark's own automated treasury contract which net-contributed $437M, roughly a third of SparkLend's total gain. Outside the treasury, the depositor base was top-heavy and focused within a handful of large wallets

In a bank run, people don't go to the bank, withdraw their funds, and then go deposit to the bank next door. The financial system is interconnected. If one bank is in trouble, they all could be.

So, Aave didn't break. They managed to plug the hole and cascading failures were averted. But.. the capital didn't come back. The entire sector remained contracted beyond the event

I think this is because Aave functioned as the trust ceiling for the category - the safest option onchain capital had. When the safest venue is in trouble, there is nowhere safer to run. And if Aave isn’t safe, the logical conclusion is that nowhere is.

In the same month, total stablecoin supply hit a record $320 billion. The capital is here. It just isn't lending.

Aave's USDC supply rate sits at 3.50%. SPAXX, Fidelity's government money market fund, is paying 3.29%.

The premium for DeFi lending's opaque risks is twenty-one basis points right now

Most depositors were likely unaware they had indirect exposure to rsETH until this event. The question now is what else they are unknowingly underwriting

[chavis @chavis_]

@Langerius yeah the asset definitely matters. but I think we’re also finding that all the other exposures that come with it matter just as much

[chavis @chavis_]

The most interesting thing about the fallout from the rsETH exploit is where the capital fleeing Aave didn't go.

During the event, Aave lost nearly $10B in TVL. Those funds, for the most part, did not move to another lending protocol. Morpho ended the window flat. So did Fluid. Compound fell 13% and Euler lost about 40% of its supply.

The only one that gained was SparkLend.

SparkLend gained $1.27B over the window. The largest single depositor was Spark's own automated treasury contract which net-contributed $437M, roughly a third of SparkLend's total gain. Outside the treasury, the depositor base was top-heavy and focused within a handful of large wallets

In a bank run, people don't go to the bank, withdraw their funds, and then go deposit to the bank next door. The financial system is interconnected. If one bank is in trouble, they all could be.

So, Aave didn't break. They managed to plug the hole and cascading failures were averted. But.. the capital didn't come back. The entire sector remained contracted beyond the event

I think this is because Aave functioned as the trust ceiling for the category - the safest option onchain capital had. When the safest venue is in trouble, there is nowhere safer to run. And if Aave isn’t safe, the logical conclusion is that nowhere is.

In the same month, total stablecoin supply hit a record $320 billion. The capital is here. It just isn't lending.

Aave's USDC supply rate sits at 3.50%. SPAXX, Fidelity's government money market fund, is paying 3.29%.

The premium for DeFi lending's opaque risks is twenty-one basis points right now

Most depositors were likely unaware they had indirect exposure to rsETH until this event. The question now is what else they are unknowingly underwriting

[chavis @chavis_]

@LotusFi_ I sincerely believe this is on track to be one of the best apps in DeFi.

[Anthony Bowman @AnthonyBowman43]

https://t.co/q1ryPn36Vv

[Yassine C. @yasche_]

https://t.co/M5o3iGcEoX

[DeFi Dad ⟠ defidad.eth @DeFi_Dad]

New @Edge_Pod!

Aave compresses risk.
Morpho isolates it.
Lotus clears it.

The @LotusFi_ Founder @Davidareising on why bad debt in DeFi can be better addressed, and how Lotus handles it with new tranched credit markets for better vaults.

Lotus will launch this summer 2026 👀

[chavis @chavis_]

@DeFi_Dad @edge_pod @LotusFi_ @Davidareising lets talk about bad debt

[Lotus Protocol @LotusFi_]

DeFi lending needs a more expressive risk curve.

Rates that match the risk you chose, on collateral you'd actually hold, with transparency you can verify.

First look at the Lotus app.

[chavis @chavis_]

@alica_ this would definitely set off alarm bells

[caf @alica_]

aesthetic punishment for at-risk position holders on our app. be warned.

[chavis @chavis_]

@AnthonyBowman43 that bit about secondary markets not being able to form around permissionless ZCBs is interesting

if a secondary market did form here, wouldn't it basically be a bond curve? has anyone actually pulled anything like that off onchain?

[chavis @chavis_]

idk why but fixed rate borrowing hasn't ever really taken off onchain

@AnthonyBowman43 makes a pretty good case that if you put fixed term loans inside instant liquidity vaults it sets up wonky outcomes

curious if anyone has a clean counterargument

[Anthony Bowman @AnthonyBowman43]

https://t.co/EiLzFw18HQ

[chavis @chavis_]

This announcement comes with a model you can try yourself

See firsthand what changes when the base rate is built into a lending protocol: https://t.co/2bVsH4SQCM

[Lotus Protocol @LotusFi_]

On Lotus, lenders earn yield even when no one is borrowing.

We’ve integrated @WisdomTreePrime’s tokenized money market fund into the reserve framework for LotusUSD.

A new model for DeFi lending: productive debt.

[WisdomTree Prime® @WisdomTreePrime]

Regulated yield meets DeFi lending: @LotusFi_ has selected WisdomTree's tokenized money market fund as a reserve asset in their protocol.

Lenders earn yield even when no one is borrowing, first integration of its kind.

[chavis @chavis_]

@LotusFi_ @theyoungcrews @WisdomTreePrime Lets end idle capital 🫡

[Jai Bhavnani @jaibhavnani]

Looping is dead. Long live tranching.

Looping has been at the center of DeFi for the last 2 years. It's a great deal at first glance... higher yields while underwriting the same risks (albeit with leverage). If you are confident Ethena isn't going to blow up, well, you might as well loop that to get 15%+ APR.

But what's happened now is something that most loopers hadn't expected. They're earning -100% APR. Nothing has changed with Ethena. What's changed is the borrowing rates...leaving loopers stuck in deeply unprofitable positions. This is painful!

A single weekend (like this past one) can wipe out months (or years) of returns, from a risk that most folks aren't even underwriting. This all comes from rates being unpredictable... a looper can't know when Aave's rates will skyrocket or when they'll get stuck and be wiped out. You're not just underwriting Ethena. You're underwriting the constantly changing borrowing market.

So what now?

People still want 15%+ yields, and they're going to get them somehow. But looping as a vehicle is broken.

Tranching is what replaces it. Take any yield source, split it into a secure senior and a first-loss junior, and the junior gets looped-like returns without any borrow-rate exposure. No getting stuck. No negative carry.

This is exactly why Royco is built the way it is.

The proof is live. Participants in the junior tranches of Avant, Neutrl, AutoUSD, Smokehouse USDC, SyrupUSDC, and USDai have been earning 1.2-5x the underlying yield source, without the tail risk that just collapsed looper portfolios. And there are a lot more pools going live soon.

For folks thinking about portfolio construction, feel free to DM - happy to chat about the advantages of tranching.