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The Big Whale: At 25, you have the opportunity to do a lot of things, and you chose to work in the crypto ecosystem, and more specifically in decentralized finance. Why such a choice?
Pablo Veyrat*: I discovered decentralized finance at the end of my studies. I was at Polytechnique, and that's where I had my first course on crypto-currencies, then I had a second one when I was at Stanford in the United States. I was immediately fascinated by the subject.
Given my engineering background, I could have gone to work in the ecological transition, which is the path taken by most people of my age, but I saw in DeFi the opportunity to build a fairer and more efficient financial world. The traditional system does not work well, there are too many intermediaries who are expensive and work in an opaque way...
When I understood how DeFi worked, and what transparency allowed, I thought we could create some really interesting things.
When did you first come into contact with cryptos?
That was in 2019. I had obviously been following the 2017 Bull market because I had friends who had invested, but I hadn't looked too hard to understand. To me it looked like a bubble, a Ponzi scheme 👀.
It was really when I took the time to understand the technical fundamentals of cryptos and especially DeFi that I clicked. In 2020, I decided to get into it completely.
It went pretty fast... You immediately had the idea to create the Angle protocol?
I first applied to many crypto companies, but they didn't want me (laughs). It was only afterwards that I decided to develop my own protocol, Angle, whose main function is to issue a stablecoin euro: agEUR.
In retrospect, I think it was a good thing that other companies didn't pick me.
Stablecoins have become a major topic. The total value of the projects is 130 billion dollars, but for what use?
I may disappoint some people, but it's still not much use in "real life". Today, the point is to transfer money. When I send a stablecoin to the other side of the world, it costs almost nothing, and it's very fast. No more than a few minutes at most and it works continuously.
For a bank transfer outside the euro zone, you will have to wait several days. If you are in the middle of a weekend, when the banks are closed, it takes even longer.
I think stablecoins have a great future in providing cross-border transfers. In fact, Société Générale recently launched its own stablecoin, CoinVertible, which is a real use case.
Société Générale, through its subsidiary Forge, works with the Maker protocol (which issues the decentralized stablecoin DAI). Do you also work with Société Générale?
Discussions are well underway.
Do you see other uses for stablecoins?
The other current "utility" of stablecoins, which is less mainstream, is the possibility to generate returns. In what is called decentralized finance - although I prefer the term "open and composable finance" - stablecoins are at the center of all interactions. It's kind of the cornerstone of DeFi.
Stablecoins come into play when you take out a loan, when you take on leverage, etc. Since there is a lot of volume around them, you can generate returns.
Our vision is that stablecoin holders receive a return because the reserve that supports them is made of, for example, tokenized government bonds.
What impact and interest for the real economy?
With this new infrastructure, companies would be able to borrow stablecoins by pledging any of their assets as collateral, which is obviously not possible today. This would thus significantly improve their financing capacity to grow 🚀.
There are still a lot of regulatory uncertainties to get to this system, but our goal with Angle is to provide liquidity to companies and individuals. The goal is not to remain in a vacuum in DeFi, as is still too often the case.
You chose to develop a decentralized stablecoin, which requires a complex technological infrastructure to maintain its parity. Why didn't you opt for a simple, centralized solution?
The operation of a centralized stablecoin is only simple in theory. In reality, it requires a lot of regulatory infrastructure, relationships with banks, auditing firms, etc. It's easier to write the code yourself!
More seriously, I think a decentralized stablecoin can provide more utilities. On Angle, the borrowing rates are only 0.5% of borrowing because it's fixed at the protocol level. On the other hand, if you want to borrow USDC (a centralized dollar stablecoin) on a platform, you're going to get rates of 3% or 4% because there are many parameters and intermediaries involved.
In my opinion, there is also a regulatory advantage. When I borrow USDC, who guarantees that the person I'm borrowing from didn't fund North Korea? On a decentralized protocol, the stablecoin I borrow is created at the time I make the transaction. So we can be sure that the stablecoin is "clean" 🧐.
The recently adopted European MiCA regulation defines a framework for centralized stablecoins. Do you know if this applies to you?
This is still a grey area, so it is to be expected that the exchange platforms operating in Europe will not take the risk of listing us to avoid potential problems. To anticipate this, we will focus our efforts on becoming a leader in DeFi as this part of the industry is not yet covered by MiCA.
When the regulators work on the subject, we will make sure that we are also a leader in compliance, even if it means making sacrifices on what we can offer...
Do you have any exchanges with the authorities on this subject?
We try to be proactive. That's why we are members of Adan (the professional association that defends the interests of the sector, editor's note). I have already had the opportunity to exchange with the Autorité des marchés financiers (AMF), I participated in the discussions that led to the publication of a report by the banking regulator (the ACPR), and I also met with the Minister for Digital Affairs, Jean-Noël Barrot.
What you have to understand is that we work for the development of our industry. We are not anarchists, we have nothing against the state. The goal is to improve finance. We just need to be given the means to do so.
You recently had a very difficult time with the Euler Finance protocol hack, which strongly affected Angle. What happened?
Some of Angle's assets that support our stablecoin are placed in other protocols to work and make money for us. We did this in Compound, Aave and Euler.
Unfortunately, the latter got hacked and we lost $18 million 😬 which was around a third of Angle's total assets.
We'll come back to piracy later, but wasn't it a problem to have so much money on one protocol?
This was not a mistake. The decision that led us to choose this type of allocation was authorized by a vote of the governance. Everything was planned.
Many people have forgotten this, but before the hack, Euler had an excellent reputation. I know others would have preferred to put caps on, but our strategy was the right one.
What did you do to avoid a "bank run" by your users who had to rush to get what was left in Angle's reserve before the others?
Luckily the hacking occurred on a Monday morning and we were able to intervene very quickly. We paused the protocol, as I am a signatory to a multisig that allows me to do so in case of emergency.
In the end, no one was able to take advantage of an asymmetry of information to the detriment of those who were unaware of what was going on. Our responsibility was to ensure that everyone had the same level of information. We then quickly communicated the status of our reserves so that everyone could verify it.
Have you considered putting Angle into liquidation?
It was one of the options on the table, we almost stopped everything, but it was not the only one. We could also have been bought out by another protocol, raised funds with Angle Labs (the company led by Pablo Veyrat which contributes to the development of the protocol, editor's note) to make up for the losses or raised funds in cryptocurrencies via the protocol itself... Fortunately, everything has since returned to normal.
The hacker finally returned the stolen funds to Euler (after an agreement that he would keep about 10% of the loot). How did you experience the negotiations?
The $200 million hacks are pretty rare, and it's even rarer when the perpetrator returns the money. From what I know, Euler's team had a role in the negotiations, but I don't know if it was the FBI or Euler that dealt directly with the hacker 💸.
Have you also been interviewed by the FBI?
Yes, by video conference. We were also interviewed by the US Department of Justice. Naturally, we told them everything we knew, but I don't think we taught them much.
I explained why Angle had invested so much money in Euler. Like Euler, we were presumed guilty in the beginning.
The US authorities are traditionally very strict with crypto project holders. How were you treated?
It's true that I wasn't very confident about talking to them. However, our American investors, who made the introduction, immediately reassured me, and it went very well.
How did the return of funds go?
To be honest, we didn't really like Euler's method, as the conditions were a bit arbitrary and we feel that some other creditors were favored. In the end, we lost $100,000.
Nevertheless, since the hacker had returned the funds in ethers (ETH) and its price appreciated, we eventually earned $1.5 million.
Finally you can thank the hacker, he made you money!
The protocol ends up in a better financial situation, but I would have much preferred to avoid this episode. There is real reputational damage. Angle didn't get hacked, but we are indirectly involved in a hacking case.
Are you experiencing a crisis of confidence in the protocol?
It's possible. Now, our job is to reassure, to insist that it was not Angle that got hacked. I was very pleasantly surprised to see that there wasn't a big cash leak when we restarted the protocol.
Only 8% of the outstanding EUR-agents were burned by people who wanted to get their assets back. This shows that the majority of people still have confidence in the project and that the eAgEUR continues to be used as before.
Do you plan to improve Angle to prevent such an event from happening again?
We are working on two things: first, a new system in which the protocol would not be as affected if this happened again. Secondly, we are working on a device that would make Angle insensitive to a loss in value of the USDC (an asset that makes up a large part of Angle's reserve, editor's note) as we observed in March during the banking panic in the United States.
Our ambition is to build the most robust, resilient and autonomous stablecoin issuing protocol possible.
With such hacks, how do you think you can convince traditional finance to switch one day to DeFi solutions ? Is the reluctance of some not totally justified ?
For sure, these situations are not good publicity. But many tend to forget that DeFi is something very risky 😅.
Personally, I only interact with protocols whose code I know has been audited several times and whose team has an excellent reputation. But sometimes that's not enough, and Euler reminded me of that very well.
How to build trust?
By being transparent and accepting that it takes time to create a solid protocol. It can be quite frustrating, but I think we need to impose much longer development cycles in our industry.
In web2, a platform can release a new feature every week without taking big risks, while in web3 we need several months to do all the testing and make sure there are no flaws.
I think specialized rating agencies could provide confidence by evaluating projects completely independently. I know the traditional agencies, like S&P and Moody's, are interested.
You have repeatedly said that you want to make Angle Protocol a "commons" that belongs to everyone. How much influence does your company, Angle Labs, have on governance?
We designed the protocol, but we are no longer the only contributors. We have less than 25% of the voting power. Proof that control is decentralized, a recent vote put us in the minority.
We advocate for further increasing this decentralization, while being aware of the shortcomings that this may have, especially in terms of agility and decision making. Nevertheless, I hope that we will continue to have influence and that we will be listened to when we make proposals.
How many of you are in the team?
There are currently nine of us. I wanted us to remain a small team to be agile and continue to innovate.
Angle Labs is registered in the British Virgin Islands. Why is this?
Let me say right away that this is not for tax reasons.
First of all because it was not possible from a regulatory point of view to create something like Angle two or three years ago. We domiciled Angle Labs in the British Virgin Islands and we repatriate the money from there to France. The French structure is called Nocturlab. It invoices services to Angle Labs.
If we had to do it again we would do it differently, but in 2020-2021 there were a lot of uncertainties, and we wanted to protect our investors, some of whom are Americans, financially and legally. They were the ones who advised us to do this.
Do you plan to officially install Angle in Europe?
The protocol does not have a legal entity per se, but we want to concentrate the activity in Europe and in France. The debates are still ongoing to know what status to give to a DAO (decentralized autonomous organization). It is complicated because everything is immaterial.
Does it have to be an association? A cooperative? Something else? It's still uncertain legally. Some people set up foundations in the Cayman Islands or Switzerland, but I'm not interested. I want us to be established in France.
Among your investors, you have the famous American fund Andreessen Horowitz (a16z). What does it bring to you?
I see them as an additional team member, because they have brilliant research teams. Every time we come up with new concepts, we talk to them. It's a very rich relationship, they are great!
There is a full-time person who thinks with us, who understands very well what we do. Sometimes they even go further than we do in their thinking! They are also very helpful for legal matters, as well as for recruitment.
Isn't it contradictory to be a supporter of European sovereignty and at the same time financed by a big American fund?
I would have preferred to have only French investors, but the a16z fund has a lot to offer and in particular a great technical expertise on our subjects.
It is also a fund that can deploy a lot of money very quickly. This has been a huge time saver and the amount raised ($5 million in total) allows us to avoid spending time raising money. We still have two years of cash ahead of us, so we can focus 100% on development.
What is their weight in the governance of the Angle protocol?
It is minimal, because they don't really get involved in it. They don't even have their tokens locked into the protocol to vote on proposals submitted to governance. If they did, they would have a 7.5% voting power.
The Big Whale organized in February its first "Web3 Awards" to reward the best talents and projects of the European ecosystem. Pablo Veyrat won the "Young Web3 talent" award.