为什么 Katana 不是 L2，而是 DeFi 超级应用

And so with Katana, the way to access the yield that's being generated isn't to hold assets in your wallet; it's to participate in the DeFi ecosystem. The core economy of the chain is designed around these VaultBridge assets. Those are yield-bearing, but in the same way that USDC is yield-bearing behind the scenes—like native USDC or native Tether, where these companies are making money through their treasuries and backing it right there, right?

It's the same thing on Katana, but the yield is actually generated on-chain through the L1. It's backed by overcollateralized loans on the L1, on Morpho, and I think that's something that LPs and investors are aware of. We've said that from day 1, and it's something that they have to underwrite. What Katana does—and I think we'll talk about these other things—is focus on risk-adjusted yield, right? I think that's the point.

Nothing said on the Edge podcast is a recommendation to buy or sell tokens or securities. This content is for educational and entertainment purposes only. Nothing shared here is financial advice. Welcome to the Edge podcast. I'm DeFi Dad here with Nomadic. Today's show features Katana CEO Matthew Fisher.

Matthew, thanks for joining us. How are you doing?

Doing well. Yeah, long-time listener, so it's great to be here.

We're really excited to talk to you about what has gone into building Katana as an Ethereum L2. One of the things that stood out to us is the fact that it's a network that employs V3 mechanics. So, more like a super app and less like a traditional L2, you guys are playing a game of how to better coordinate liquidity on the Katana network.

1. Matthew’s background in DeFi

We want to better understand what's gone into that, what's next, and, of course, there's a token listing coming. Once that becomes transferable, it's a watershed moment, I'm imagining, for folks who are earning yield on Katana. But, Matthew, why don't we start with more of your background? Can you tell us more about who you are, what else you've worked on in crypto, and what led you to Katana?

Yeah, for sure. I've been in crypto for about 5, almost 6 years now. I joined Katana and started working on it about a year and 3 or 4 months ago. Before that, I was working on a DeFi protocol for this guy who was a financial historian, building all these crazy things, like liquidation-free lending markets that were tokenizing the creditor side and debtor side, an AMM built for yield-bearing tokens that kind of solved some problems for LSTs inside AMMs, and tranche-backed stablecoins. We were kind of floating product-market fit, never really hitting that, but learning a ton about the different instruments.

And then, for 2 years before that, I was at Libra. It was definitely a pretty crazy ride, working on what started off as Facebook's stablecoin and blockchain, with this whole association of various partners. It's interesting now to see some of these things come back. Stripe was a part of that, as were Uber and Spotify—these different use cases that got written off after FTX, and now they're coming back, too. Great to be here, and I'm looking forward to diving in more.

I didn't realize you worked at Libra. Anything to share about how that influenced the work you do now? I feel like Libra took a lot of heat. I was definitely giving Libra a lot of heat at the time. I wanted to see the purest forms of DeFi get built. I don't think the industry was ready for a major fintech to launch a stablecoin like that, but a lot has changed since then.

Obviously, now I think the industry was pretty excited to hear that Meta is rethinking how to support digital assets. Anyway, I'm curious: are there any lessons that you took from your time there?

Yeah, I think I started off in my career writing these 3- or 4-page research reports for the whole team every week. A lot of those focused on policy and regulation, and from that I learned how things actually get taken up in government and across the world as well. There was also all the investor stuff and business development surrounding the space.

I would say it's interesting. Like you were saying, a lot of those players are now back at the table, trying to integrate stablecoins into their businesses. I think there was very healthy skepticism around Libra. Mark Zuckerberg famously went into Congress and said, “I want to create the new money,” and there were very valid reasons why that wasn't necessarily great for the economy, or for 1 tech company with 3 billion users across WhatsApp, Facebook, and Instagram to have that core currency that goes around.

So I think there was just a lack of trust with Cambridge Analytica and all these things that happened right before that. But it's interesting now: everybody in the industry is welcoming exactly what they were trying to build before then, with remittances. I had a babysitter when I was growing up who would send money back from Venezuela through Western Union.

When I was at Libra, I thought, “Damn, this seems like it would be a really good social-good thing: banking the underbanked.” People like to say that was all just positioning, but in reality, that's how you would do that: through this Facebook, WhatsApp, and Instagram global network of humans who want to transact and move money faster. A lot of the companies they were trying to target only entertained these ideas because of those 3 billion users, right?

Now, with regulation in just the past year, a lot of these companies are seeing, “Hey, we could get disrupted.” If you're working at a fintech and your boss asks you, “What's our stablecoin strategy?” and you don't have an answer for your boss—or he doesn't have an answer for his boss about what the stablecoin strategy is within the company—you might be kind of cooked. So, yeah, I kind of just paused there, but I could ramble about that for a while.

Oh, yeah, it's crazy to think how long ago that was now and how long it takes to go through the traditional bureaucratic engine of a lot of this stuff. It's wild that it's all coming back as well.

2. Katana’s origin story

I want to get into the origin story of Katana, and I'm going to inject my own speculation into this because this hasn't been confirmed by anybody at Katana. I remember there was this bridge dispute—I think it was on Polygon, obviously—between Aave and Morpho. At the time, I remember thinking, “This is a cool idea: use the bridged TVL to earn yield.”

Lo and behold, later on down the road, I saw Katana emerge with a similar idea. I don't know if that's actually where that came from or if I'm just injecting my own spin into the origin story, but maybe you can tell me: what was the genesis of this?

It's so funny, actually. There's so much behind the scenes with that within all of this. I don't know if it's worth getting into right now or not, but in general, the idea of this VaultBridge has been around for a few years within Polygon.

I think some of the things that Katana was already launching when this whole dispute was happening made it a nice test in all that. I think the core reason that that didn't go through, whereas Katana could—and the other things that Katana is designed around—is that trying to initiate that into a chain that's already existing is a lot different than saying from day 1, if you bridge over to Katana, this is what's happening.

And so that's one thing I would say around that. I think when Katana was picking its core partners, we met with Aave and Morpho very extensively throughout that. This was part of a broader, behind-the-scenes DeFi effort.

3. vbTokens and why yield goes to DeFi participants, not holders

The other thing I would say is that part of the reason for Katana, which I'll get into, is that we benefit from the builders who have built before us and from things that we learned either at other startups or as users. It's kind of a “built by users, for users” type of thing as well.

4. Katana’s endgame to tap into fintech liquidity

When we're talking about bridging, maybe I can get into one of the core value propositions of Katana without getting too far ahead here. Blast tried something similar: if you bridge ETH to Blast, you would get ETH, plus the other side, which is a lot of staked ETH under the hood. If you bridge USDC to Blast, or a different stablecoin, it's kind of the same Maker-like savings rate under the hood as well. Then you end up with USDB and ETH+ on Blast.

What happens with Blast is that users could sit holding these assets in their wallets, still earning 3% or 4% for doing nothing, right? The difference with Katana is that all that yield doesn't go to the end user for holding these assets in their wallet. It goes to the foundation. You can say it's a source of revenue that we can do things with, whatever we want, but so far, 100% of that is flowing back to users as a form of real, sustainable yield.

With Katana, the way to access the yield being generated isn't to hold assets in your wallet; it's to participate in DeFi in the ecosystem. What Katana does is that we don't treat all users equally. We never said we did. We treat the people who are actually using the protocols as first-class citizens.

5. How the vaultbridge actually works with Morpho on Ethereum

I think that's part of the Katana story around VaultBridge. That has a bunch of other consequences and opportunities that give us advantages in certain circumstances.

Matthew, when you look at app.katana.network and see WETH, or wrapped ETH, USDC, Tether, and wrapped Bitcoin, there's a VB next to those. The default way to hold or transact in those major blue-chip assets—those are all yield-bearing, right? Am I right to say there's no form of just plain old USDC or plain old WETH? Are we all holding a VaultBridge yield-bearing form of these assets?

Yeah, the core economy of the chain is designed around these VaultBridge assets. We do have native assets, like Lombard or EtherFi, that you can have a different risk profile with if that's what you want. But the utility we ingrain into this controlled—or, I guess, how do I say it?—this coordination layer that is Katana is these VaultBridge USDC, VaultBridge ETH, and VaultBridge USDT.

Those are yield-bearing, but in the same way that USDC is yield-bearing behind the scenes, like native USDC or native Tether, where these companies are making money through the treasuries in their backing. It's the same thing on Katana, but the yield is actually generated on-chain through the L1. Then the yield is actually going back to users. That is first and foremost.

vbETH and vbUSDC, for example, stand for Vault Bridge ETH and Vault Bridge USDC. These are not backed by those assets. They're actually backed by overcollateralized loans on the L1 through Morpho. When we were designing this, it was really important because those assets being used means you're taking the risk of the L1 as well.

There are trade-offs behind that. You're lending USDC against Bitcoin and against ETH. It's super safe in terms of the relative safety of DeFi, and these vaults have been around for a long time. They've had hundreds of millions go back and forth. We're super confident in that, and I think that's something that LPs and investors are aware of. We've said that from day 1, and it's something that they have to underwrite.

What Katana does, and I think we'll talk about these other things, is that we care about risk-adjusted yield, right? I think that's the point.

Wait, so just to clarify, when I deposit or bridge, let's say, some Ether from Ethereum mainnet to Katana, that ETH that would have sat in the bridge on some other L2—this is instead sitting in a Morpho vault now on Ethereum mainnet. Then I'm holding this representation of a yield-bearing form of ETH on Katana. We've got that underlying yield being earned and, to your point, it's backed by overcollateralized loans on Morpho.

There's a lot of thinking that's gone into this. I recognize it's not risk-free. It's like comparing: do you want to hold Lido stETH, or do you want to hold plain old ETH? There is risk to holding stETH versus native ETH, but we're at a place where these DeFi primitives are more battle-tested, and you're using one of our favorite DeFi primitives, Morpho, under the hood.

It's a really interesting way to have more users default to earning with a yield-bearing asset, not just holding plain old assets and missing out on the yield. To your point, it allows someone like Circle to earn the T-bill-rate yield with the underlying dollars behind USDC. In this case, you're always earning a yield with Vault Bridge USDC. You're always earning a yield with Vault Bridge Tether.

Yeah. To illustrate it more for the audience, the user experience is: I come to Base or Arbitrum, or these other chains. I deposit my USDC there. I earn the L2 supply rate, driven by borrowers paying lenders on the L2 from that activity.

You come to Katana, and you deposit this USDC into a Morpho vault. You're earning the L2 supply rate that is driven by these overcollateralized loans. On top of that, you're also earning the L1 rate—or a portion of the L1 rate—that's driven by the L1 for taking the same smart-contract risk and a lot of these very similar risks. That's the pitch there.

I think we can get into the consequences and the things that opens up for us as well. I would also say that not only is it almost impossible for this to replicate—which Polygon kind of tried to do—for a chain that already exists, but it's also really hard for a chain that isn't purpose-built or verticalized for DeFi.

If it's a gaming chain or a general-purpose chain, they don't want to take that risk. I think it's a different story when that same USDC is being used in these other applications that maybe don't care about this risk-adjusted yield, but all Katana is doing is DeFi, right? It's a little bit different for us.

6. Vitalik’s L2 comments and Ethereum alignment

Yeah, I want to get into how all of this was premeditated. There are protocols that are enshrined. You kind of had to create this economic engine from the beginning. That's what I actually think you are creating—more of an economy on-chain—rather than just building a chain and seeing what happens and seeing which apps proliferate.

But I want to take a step back really quickly because we've been talking about Katana as an L2. Recently, Vitalik put out some comments about the L2 roadmap, saying that it needed a rethink. I'm curious how you interpreted that and how you think Katana fits into the current Ethereum L2 landscape right now.

Yeah, for sure. Great question. It's funny—I'm smiling right now. About a month or so ago, I was going to present in Korea to the community there, which is crazy—those people are so energized about DeFi and crypto. But the day before, I had this slide that said—or basically alluded to—this Ethereum-alignment thing, because Katana is actually the most Ethereum-L2-aligned L2.

When you're bridging these assets that we just talked about, you're locking these assets in on Ethereum rather than using these kinds of generalized chains that are doing all this other stuff. As Ethereum is getting faster, those chains aren't as needed.

What Katana is basically saying—and maybe I can talk a little about where this came from—is that about 1½ years ago, maybe even longer than that, Polygon had this thesis internally: general-purpose blockchains and general-purpose blockspace would cease to be as important. If you don't build a chain that's purpose-built for a vertical, we'll build one that's better than you.

Polygon ended up doubling down and tripling down on payments. It's been working behind the scenes for a while, but now it's becoming really clear to the market as these new things keep going. Katana was designed from first principles to optimize for DeFi. Vault Bridge is one of the things we talked about.

I think it's been validated. We basically built in stealth, which is a little bit different from doing the VC thing, and then announced at the end of May last year and launched 1 month later in July. We've been live for about 8 months after that.

Where I was going with this is that there's been a lot of validation right after that, right? Plasma launched right after that.

Clear narrative: payments, stablecoins, neobank, and all that stuff. You've seen Tempo come in and validate that, and there are Lighter and Hyperliquid, too: purpose-built, verticalized chains that aren't trying to do a bunch of different things. Katana had been working on that for months before then, and that's what we wanted to do.

That's where some of that vision came from. We also thought about interoperability within Polygon. They built AggLayer, which is supposed to connect all these different chains, whether it's an app chain, a vertical chain, or a general-purpose chain. It could be any of these things, across any type of programming language—EVM, SVM, and so on.

Katana was basically built to be this DeFi liquidity hub that imports liquidity from all these other chains and exports yield. We do that through what we talked about, and the name is escaping me, but there's a gaming chain. They came to us and said, "Hey, we don't want to worry about DeFi. We want to offer it to our users."

Then they said, "Hey, we have this DeFi liquidity hub. You can basically deposit on your chain or even on Polygon PoS, which you can get into as well. It exports into Katana through LayerZero OFT or any kind of cross-chain interaction, and then we export yields." These users never actually have to leave the chain. They just get this vault receipt token, and they earn yield that way.

I think those are the things that Katana came from as well.

7. How Katana can win over users as a DeFi hub

Matthew, something I'm thinking about as a DeFi user myself, and thinking through the thought process for other DeFi users, is: what is the ultimate secret sauce that's pulling people into the Katana ecosystem? Why can it be a winning hub for DeFi?

We talked about AggLayer and some of the thesis around the verticalized chain, and the question is how you do that and how you survive in a world where there are too many chains. When I was interviewing, what I didn't know was that Katana was still more of an idea. I had been building in the space for 2 years, as I said, and I saw a lot of competitors saying, "We'll talk to all these different chains, too."

People talk about mercenary liquidity all the time, but they don't necessarily talk about mercenary builders. In 2022 and 2023, everyone was grant-hopping from chain to chain. What ends up happening is that there's fragmented attention, fragmented incentives, fragmented liquidity, and all these other things.

A lot of what Katana was built to do was solve for fragmentation. That occurs across different chains, but also across protocols on the same chain that do the same thing and across assets that serve the same utility. Arbitrum is an extremely impressive ecosystem, and what they've built is impressive. I can't really see a future where they would be able to turn their back on some of the builders who are native and homegrown.

If you look at their DEX space, it's Camelot, Ramses, SushiSwap, and Uniswap. Their lending protocols are Fluid, Aave, Euler, and Morpho. What you then get into is fragmentation, and it almost incentivizes—obviously, it does incentivize—capital in crypto to go from place to place instead of having a core, deeply liquid, high-yield ecosystem.

There are also knock-on effects. Slippage is one of the things on the DEX side, and there are volatile borrow rates on the lending side. Katana is a permissionless chain. Anyone can come and deploy on it, but the way the Vault Bridge, the tokenomics, and everything were designed made it really hard for people to come and compete at the base layer—almost like an infrastructure layer.

We only have one core lending protocol, Morpho; one AMM, Sushi; one perp DEX, which we can get into some exciting stuff around; and launchpad stuff like that, too. The idea is that you take this Vault Bridge source of real yield. We can also get into what happens when token emissions run out, and Vault Bridge is one source of sustainable revenue that we built. It has driven 3.5 million since launch, which is redirected, as we were talking about.

There is still competition, but we view the competition as being at one layer above that. It's almost like composable applications that can build on top of Morpho, inherit the liquidity, inherit the incentives, and deliver a custom, differentiated user experience that attracts other users.

For example, Yearn is a vault, and you guys know the Yearn team. We have Beefy, Charm Finance on the ALM side, Ichi—or I guess it's called Amplify—and Steer Protocol, along with these other projects that are built on top. We do have competition; it's just at that layer above, without fragmenting the underlying liquidity or the user experience there, which I think is cool.

Then we do other things around the chain and liquidity and recycle its sequencer fees, along with the Vault Bridge revenue, the ve-tokenomics stuff, and all these other things as well.

8. IDEX acquisition and Katana Perps launch

Matthew, we spoke on a call maybe 9 months ago, and you laid out this protocol-enshrinement vision. It's been cool to see it play out in real time. Katana wasn't really on my radar when we first spoke, but you mentioned to us offline just before we hopped on this podcast that you've added another member to the protocol-enshrinement stack, and I believe it's a perp DEX.

You didn't really go into who or what it was, but is there anything more you can share about this perp DEX? Ultimately, I'm curious what that acquisition does for the chain. What benefits does it bring to this vertically integrated machine that you're building?

Not to bury the lead, which I feel like I've already done throughout the whole podcast, but Katana is a revenue-generating business. We have 5 different ways we're trying to generate revenue in a world where there's very unclear value accrual at the chain level in these other projects within crypto right now.

This perp DEX takes that to the next level. I do think this is almost a mispricing or repricing of Katana. What Katana has been missing is sophisticated traders, and how do you really onboard them without a perp DEX?

We had been talking about and had planned to launch with Vertex, and obviously they got acquired by Kraken. We've been looking for the right team, and we had talked about building it ourselves. Then I got on the phone with the founder of IDEX, and it was just, "Okay, this is the perfect fit." They had been struggling with constant liquidity and distribution, which we have, and they have a really great product that they've been adapting for years.

For those who don't know, IDEX was actually the number-one Ethereum application from 2017 to 2019. At one point, they had hundreds of thousands of users who were all there to trade on their spot order-book DEX. I think they had a hybrid spot order-book DEX.

Then Uniswap came in in 2020. Obviously, that disrupted things and was a better form factor for longer-tail assets, but IDEX kept building. It's crazy: when we're talking to their team, most of the team—90% of them, I think—has been together for 7 years, and the minimum is 4 years. They just kept going.

What they were struggling with was liquidity and distribution. They had a really good product, and their users would come to them and say, "Hey, come back to us when you have a points program and more liquidity." When you're a 2017 project that has spent a lot of its treasury, that's very hard.

This marries the 2 companies, and 10 people have now joined our team. They're super-legit builders who know their stuff, and these APIs have been adapted over many years. It's very battle-tested. They've had no downtime other than 5 minutes of planned downtime here and there.

Selini Capital and a bunch of market makers had been trading on their perp DEX instance for more than a year before we acquired them.

9. 5 revenue-generating businesses for one network

You had a great line there that basically Katana has brought 5 revenue-generating businesses under one roof. Going back to this perp DEX idea, perp DEXs are looking like some of the highest-revenue-generating businesses in crypto, to some extent, if you take the leader, Hyperliquid.

Maybe speak a little more to what this acquisition does for the whole Katana chain.

Again, we talked about sophisticated traders and onboarding them. You hit the nail on the head: what's the highest-revenue-generating application on any chain? It's the perp DEX.

Bringing that under Katana's wing and launching it as Katana Perps—which, again, will go out in a week—we have this pretty big partnership with a market maker, and we have a few other market makers that will be quoting. This will be pretty sizable liquidity.

One thing we want to get into as well is not being labeled as just a crypto-only perps exchange, but also introducing commodities, RWAs, and all these things that people really want to trade, especially when the market is where it is and the cycle is where it is.

Hyperliquid absolutely crushed it by tying the revenues of its flagship application back into the chain.

I think Katana’s coming at it from a little bit of an angle. It started off as more of a chain, and now we’re kind of getting into this super app. Perp DEXs have clear product-market fit; it’s undeniable at this point. We’re super excited about that, and we have other things that will be launched later this year as well that will allow retail users to access professional strategies that are custom-built by market makers. We’re pretty excited about that as well.

I think more L2s should reframe what they’re doing as a super app. At the end of the day, they’re giving you access to all these different DeFi applications. Specifically with Katana, the real value is that you’re able to batch transactions and ultimately have them settle on L1, but you’re giving users all the speed and the cheap cost of being able to transact at high throughput, depending on which L2. It’s a great way to reframe it, and it makes a ton of sense.

I think that years from now, most folks won’t have any idea what’s happening under the hood. I would hope that they’re aware that they’re using the most secure, decentralized, reliable, uncensorable, credibly neutral blockchain, which is Ethereum, but I think it’s important that you guys are packaging it up that way. I love that you’re doing that.

10. Built for both retail and institutions

My impression has been that Katana looks like it’s been more focused on retail users to start, but there’s this grander story around institutions coming on-chain. What’s the thinking behind the scenes? Is Katana building for both retail and institutional DeFi, or is it more focused on either?

Yeah, publicly, we have our own super app. We have these questing activities. It’s gamified and will be more gamified, and we’re attacking retail from that angle. But I would actually say that I’d disagree a little bit—or not disagree, but I would clarify that we care a lot about institutions, honestly.

One stat that people don’t really understand is that 80% to 90% of DeFi TVL is institutional. 90% is from wallets worth $1 million or more. We’ve known this from the beginning, and so we’ve spent a ton of time with institutions as well. We’ve had the FalconX's and MMs, like several—maybe 20 different institutions that have had size, that we’ve had very deep conversations with on Katana since the beginning.

We’ve had Ethereum digital asset treasuries. GameSquare has been deployed on Katana as well, in size, with ETH. Katana was incubated by Polygon, but also GSR, which is an institutional market maker. So I think we definitely care about these things as well.

To your point, we’re still trying to figure out our positioning and branding, and something that we’ve been struggling with a little bit is whether we can compete in the mobile app space and all this other stuff. Are we this DeFi, very low-risk infrastructure that’s delivering better risk-adjusted yields? There are a bunch of different directions we can go, and I think right now institutions have been really hot in crypto, and obviously in these vaults, Midas, and all this other stuff. I think it’s a really interesting time to be building and figuring out who your target user is and who your core 1,000 users are. So, definitely something that’s internally discussed frequently.

11. ve(3,3) flywheel at the network level on Katana

Hey, so, Matthew, one of the core incentivization mechanisms behind all of this that wraps it all together is this ve(3,3) tokenomics mechanism. I’m sure people who watch this show know what it is. I’m under no illusions that people are tuning into this show without an idea of what it is, but maybe just fill us in on your spin on how you’re thinking about it and implementing it at the protocol level.

Yeah, well, actually, I think that is the key point—the last thing you said, which is the protocol level. Katana is the first chain to implement ve(3,3) at the chain level. It got really popularized, obviously, with Curve and Aerodrome. What they do, obviously, is embed a ve version of their token into the AMM, use that to direct emissions and liquidity, and have voting. People can participate in the ecosystem by putting their money where their mouth is, if you will.

What Katana did is build this generalizable ve-locker with Aragon DAO. The first implementation, which will be live on day 1, probably in a week, will be on Sushi in this AMM format. But it was built in a way where we can embed it into the money markets, like Morpho. We can embed it into the perp DEX that we acquired. There are a lot of exciting things we can go from there.

I think, taking a step back real quick—and maybe we touched on this on the revenue side and all these other things—but why are these tokens worth anything? Which tokens are worthless? What are the emperor’s clothes behind the scenes? I think this is a continued discourse that will be prevalent throughout the rest of the year: How do these tokens build to accrue value?

Again, touching back on the other things we’ve talked about before, we’re benefiting from launching a little bit later than all of this kind of DAO and ve(3,3) structure and other iterations, and we’re able to come to market after seeing some things that we would improve on, even in Aerodrome and stuff like that, in terms of cooldown periods, exit fees, and how long you have to lock it up. All of these things tie back together.

And then, to your point, I think the ve(3,3) tokenomics is a little hard and unapproachable for a lot of people. That’s another frame we’re thinking about. I’ve been pushing the marketing team: “Okay, come up with some analogy.” I’m like, “What about a committee, like a Senate committee on budgeting or something?” They’re deciding where liquidity and incentives, or cash flow, are going to support different businesses in the US government. Can we make it more humanized, more approachable, even for retail or institutional users who are a little bit outside the ve(3,3) tokenomics space?

It’s extremely challenging. Credit to anyone who’s tried to educate people; it’s even difficult for me, honestly. There’s not really a tokenomics person on our team to even verbalize some of these things.

So, on the ve(3,3) side, just to baseline this for anyone who’s never been able to understand these ve(3,3) tokenomics—

Believe in something.

Believe in something.

Yeah, believe in something.

Every week I look at that list of liquidity pools. Those liquidity pools have an APY that I can potentially earn. One component of the APY is the trading fees; the other is bribes, or just call it an incentive. Someone could load up a pool for ETH-USDC with AERO tokens.

I look at that APY and decide, first, where I should vote with my AERO voting power in terms of where AERO emissions should be directed to incentivize LPs on Aerodrome. Especially if you’re thinking about the health of Aerodrome long term, where do I vote so that we’re incentivizing the right LPs and the right liquidity pools? I don’t want it to go to some clown meme coin token. I tend to vote for more blue-chip assets.

However, the thing that’s really driving what I vote on is that I’m looking for liquidity pools with real fees that I know I can earn and an APY that’s substantially higher. So I will vote on pools where the APY is higher than the rest, and I have confidence that the trading fees and the incentive—the bribe, whatever it is—let’s say it’s AERO tokens, or let’s say someone loads it up with ETH—I want to make sure I’m voting for rewards that I believe will hold their value in the next week.

It drives, I think, really positive-sum behavior. I vote for pools that I think best benefit Aerodrome every week and that best benefit me by earning the highest amount of yield for those votes. Meanwhile, the LPs can earn those AERO emissions that we’re voting to reward them for being liquidity providers, or they can just earn their trading fees.

They have an option there. So, if you understand that idea—let's direct emissions to the best LPs, and let's be aligned so that we're able to claim those trading fees and bribes—you can see why there's this amazing flywheel that works within the likes of Aerodrome. Can you talk about how this ve(3,3) lens gets applied to Katana at the network level? I can't help thinking that there's essentially some kind of game theory between Katana and Aerodrome that might be live by the time this is live, or may or may not go through by then. Kudos to that team, and it'll be interesting to see.

There's a lot in what you said, and I'll try to answer some of it, but I'm probably going to forget parts of it as well. I can't help but take a quick step back and talk about—shoot, I don't want to go on this ramble—but basically how coordinated the AMM liquidity is with the money markets on the chain.

When you're talking about what's being voted on in these different pools and what's better for Aerodrome, I think naturally, in human behavior, people will be rational in voting for what is driving real fees, right? Typically, that ends up being these stable-stable pools, like USDC/USDT. It can also be an ETH/USDC pair or a BTC/USDC pair, and those consequently are the most important on the money-market side, too.

You want to have as much liquidity there so curators can support higher supply caps on Morpho, where I can go borrow stablecoins against my USDC or borrow stablecoins against my Bitcoin, so that they have enough on-demand, local liquidity for liquidations. Going back to what you were saying about the APYs and all of that, I will say one thing that's different about Katana: it's this vault bridge revenue, which keeps coming back—the gift that keeps on giving. Now we have another source of sustainable yield to direct emissions toward that rewards LPs more.

With Katana, the vKAT ecosystem is basically—I’m earning trading fees, as you were saying. I'm earning potentially bribes or voting emissions, and this vault bridge revenue, too. The third twist that we have is this exit-fee concept. I'm actually not sure if this is implemented on Aerodrome or on these other chains, but I would assume other people are doing this, too.

Basically, if I unstake my KAT, I can pay an instant redemption fee, or I can wait, and it decays from 25% down to 2.5% once the network is stabilized. We have an initial stabilization period, and after around 60 days, we're going to lower these exit fees. It creates this game-theory element where the more people who unstake, the more of that yield goes to the people who do stake. So it's another interesting source of APYs: you're basically earning trading fees, exit fees, and these bribes, as you mentioned.

I think the other thing, too, is on the asset side: why do users come to new chains? This is another high-level DeFi core building block. Why do users come to new chains? It's to trade new assets and execute new strategies with the assets they already hold and love.

Again, I hate to say it, but literally this coordination layer—this tight ownership and collaboration across these different protocols—is great for us there, too. If you're ether.fi or Solv or these other assets, we can basically set it up for you with the foundation incentives and this real yield revenue. You have these incentives on the AMM; you can incentivize this, you can subsidize looping rates with real yield on the money-market side, and now we can also list your token on perps, too, because we kind of control that, too.

With all these building blocks, what's nice about Katana—we talked about it in the beginning—is that vault bridge revenue might not be enough on its own, right? If it's fragmented across the different protocols and assets, that's not enough. It's not actually significant or sustainable. But if you concentrate the protocols and also have this revenue, it can be significant enough to move the needle. Then you layer on the ve-tokenomics and this other value-pool system.

In a world where the KAT price is doing well, it self-reinforces this overall flywheel even further. Honestly, I'm not sure how this will play out in the first few weeks. We'll see how the market reacts. It'll probably be a journey for people to understand where we're coming from.

12. KAT vs vKAT vs avKAT

Again, it's more complicated with all these pieces coming together, but once you spend the time to understand the vision around the overall economy of the chain, we hope that it'll be a genuine attempt at something different. People have done a lot of different things and experimented with a lot of different things. It's a genuine attempt at something different. We'll see how the market reacts.

If listeners are following some of the thinking behind ve(3,3) tokenomics and how this is going to play out at the network level with Katana, there's a really important concept here to understand around vKAT versus avKAT. Are you able to dumb that down for us? I want to make sure folks understand the difference between the two.

Yeah. In general, KAT technically has 3 forms. Actually, people and builders are welcome to build more things on top of this, and we actually have 1 team that's doing this, too. But basically, you have KAT, vKAT, and avKAT.

If you come to app.katana.network, go to the staking page, and stake KAT for vKAT, what that gives you is the ability to vote on the chain, participate in the ecosystem, and drive liquidity and emissions to where you think is valuable for you personally and might also be valuable for the ecosystem. You can do this weekly voting that you were talking about.

We also created a way for you to set it and forget it on the vKAT side. You can vote for 1 thing, and it keeps voting for that same pool. I think that solves for some people's inconvenience or the need to come back every week.

The second thing we did to solve for that is called avKAT. With vKAT, you can mint avKAT. avKAT is a yield-bearing ERC-20 that you can think of like a compounder, which you can delegate to relayers who, under the hood, are building and doing these things for you.

What that opens up is the ability to loop it, for example, because it's just vKAT—this NFT part, right? If I take avKAT, I can even go borrow more KAT and loop it that way, or I can borrow stablecoins against it and access liquidity at any point, which I think is super important for users. If you look at Pendle and some of these things that have come up recently, they've changed some of their tokenomics.

Again, we've been able to learn from people who have built before us and optimize for these different things, too. So avKAT is an ERC-20. The other thing that's different is that if you're unstaking vKAT for KAT, you go through that cool-down period as well. With avKAT, it's a simple swap on an AMM.

Because it's an ERC-20, I can swap avKAT back to KAT or into another asset. We expect this to trade at a discount, naturally, on the AMM, but we'll have liquidity there for people to easily access that, too.

I think avKAT is going to be a favorite for most because it means we don't have to do any of the manual voting each week. I'm doing things, to be fair, the most painful way. I'm voting every week. I don't know—it feels rewarding to do it, and I do get to ensure that I guess I maximize the real rewards that I'm getting, but I'm confident that avKAT is probably going to be a better approach.

In other words, I think a lot of the effort that I take, I'm probably not earning more than what an auto-compounding version of it does. I'm pretty sure there's something in Aerodrome that I've missed that offers that. You can also delegate to someone else to just do that for you, and again, I've skipped that step for whatever reason. I'm a glutton for pain, I guess—we are gluttons for punishment.

13. OKX Earn and Binance programs powered by Katana

Let's talk about some of these major partnership announcements. These are product-driven partnership announcements. We recently did a podcast on a Kraken Earn product, and it's a DeFi-mullet-type product. We've covered Coinbase-related products. We're fans of what Robinhood's doing with its own L2, and we think they're going to have a DeFi-mullet-type product.

It looks like OKX has a DeFi-mullet-type product that you guys are working with. Tell us about that. What's the story there?

Yeah, for sure. So I think it'll still be live. I think we'll have a continuing kind of loan program with OKX and Binance on 2 of the largest centralized exchanges. I think I might actually, again, be taking a step back in explaining how I see the liquidity ecosystem on a chain.

I consider it in 3 phases. Phase 1 is more mercenary capital: liquid funds. It's this bootstrapping phase where people want to take risk early and be rewarded for it, and then probably leave when those rates come down. These are sharp, on-chain-native crypto funds that I won't name, but we kind of know who they are.

They deserve a place in the ecosystem, and they help protocols out. They're a needed market participant, right? What we do with OKX and Binance is basically what phase 2 is for us. Phase 2, I consider crypto-native earn programs, and phase 3 is more traditional liquidity, which we'll get into as well.

After you move into mercenary capital, what I think you really need to do as a chain, or even as a protocol, is move into these crypto-native earn programs. We had a Jumper wallet kind of thing go live. We had the OKX wallet go live. What we were really excited about was the OKX centralized exchange integration, where they have 30 million or something like that users on their centralized exchange.

A lot of those users aren't using the wallet, right? So now they can come to the OKX centralized exchange and deposit into Onchain Earn. Under the hood, it's routing into Katana Morpho vaults, and they're still earning these on-chain yields, these on-chain incentives. That's super powerful. I think it's slightly stickier than phase 1, and it has a lot more retail distribution.

Similarly, Binance did this Binance Wallet thing, where they integrated Katana Morpho vaults at the wallet level. Again, they have tons of users as well, right? Now we're increasing retail distribution here. It's a little stickier capital and there's a little less demand for higher APYs, but obviously that's still there.

It's not super sustainable, so I will say that Katana is sober enough to know that a lot of these campaigns are kind of like a hop-on, hop-off of money. Especially in a bull market, people will leave from one campaign to another. There isn't that much retention there. By the time this comes out, we'll see how much retention there is.

We have some continued things and ways that we're going to continue to work with these exchanges going forward. We actually drove a lot of inbound from other people as well once these went live. The reason for that is this is part of the stepping stone we'll get into: Binance and OKX have some of the hardest due diligence and security requirements in the space.

There were a ton of calls and a ton of due diligence. What this does for Katana is basically create more trust among ecosystem participants. If it's good enough for Binance and OKX, it might be good enough for your company too, right? That's one thing I would say about that.

That brings us to phase 3, which is the FinTechs—where we want to get to. Crypto-native liquidity is a little bit tapped. We're not going to hide from that, right? Where do you get to that really, really big outcome? It's landing these FinTechs.

As you were mentioning with Kraken, everything is a vault, like modular lending. When I was interviewing Katana, that's what I was thinking. I was also talking to Morpho at the time, ironically. I knew about this FinTech vision for a year and a half, but I was like, this is definitely going to come. I wrote a business plan behind it. I had this other stuff.

Then the question is, okay, it's great—everybody wants to go after these FinTech earn programs. There's a very good reason for it. As we just touched on, FinTechs have the most distribution, the lowest demand for APYs, and the stickiest capital.

Talking about APYs, they don't give a shit about KAT tokens. What they care about is earning 2% or 3% extra on their native stablecoins or on their dollars. That brings us to what Katana's competitive advantage is here, which is this Vault Bridge revenue.

We can redirect the yield from the L1 back to the L2. They're also earning the L2 rate. They're taking the same risk, and they're earning the L1 plus the L2 rate. Now that's a sustainable source of yield that other chains can't replicate, and it's really hard to do that retroactively over a long period of time.

Second competitive advantage—you probably still are like, “Oh, whatever.” The thing about the Vault Bridge stuff is that with the Binance and OKX thing, that basically tells those people, “Hey, they've already underwritten Vault Bridge USDC and Vault Bridge ETH.”

I think the whole thing with Binance, and when you talk about these other exchanges too, is, “Hey, I don't want to add all this extra risk for my users. I want them to just deposit native USDC. They don't have to take the Vault Bridge risk.” Now that we have some of that social signaling and have built some trust, I think that actually opens up a stepping stone from phase 2 to phase 3 for us.

14. Why Katana is strategically aligned with Polygon

I wouldn't say that for every chain it's worth doing all these earn campaigns, right? But for us, it actually is really powerful because it delivers risk-adjusted yield. That brings us to our second kind of competitive advantage, and that comes to this big Polygon alignment, too.

People might not know this, but most of the FinTechs in the space are on Polygon—objectively, hands down. Lemon Cash, the biggest in Argentina, is on Polygon. Mercado Bitcoin, the biggest in Brazil, is on Polygon. Revolut does almost all of its activity on Polygon. Stripe currently—we'll see what type of rollup—but all of its activity is mostly on Polygon.

There are people in India and these FinTech distributions around the world. For non-USD stablecoins, most activity happened on Polygon. How did Polygon get that? They onboarded them for payments. You onboard these users for payments—that's what they want: the cheap rails and all this other stuff. Then you upsell them on earn programs.

This kind of ties everything together. Now I'm upselling these FinTechs that are already on Polygon PoS on these earn programs. We have these LayerZero vaults where we do other implementations as well. They're depositing on Polygon PoS, all that liquidity routes into Katana, and Katana exports that yield back to those users.

Now we get that FinTech retail distribution, which again is hard to replicate. I will say, more on the FinTech side, that it's not as easy as just going out and pitching some of these FinTechs. It's actually really relationship-driven and trust-driven over long periods of time.

Polygon was famously ridiculed for turning its back on crypto natives in 2022 and going really, really hard into the enterprise and institutional front. All of that actually blew up in their face because, when FTX collapsed, all those partnerships that would have happened—and one that we were trying to replicate—just went away, right?

But those relationships continued to be built over the next few years. If you ask those FinTechs about Polygon's performance relative to all these L2s, it hasn't been great from a price standpoint, right? The price action has been pretty brutal. Those people don't even know. They're just like, “Oh yeah, I know Polygon.”

They do the Starbucks or Nike thing. It's like their LinkedIn has a lot of followers. I don't know. These little things matter to them, too. With this alignment—and there's an airdrop to Polygon stakers, and a lot of people on the Katana team came over from the Polygon DeFi team—all of that is super additive to even giving us a chance to pitch these people with this risk-adjusted yield.

The combination of that gets us to phase 3. That's what we're excited about and what we're going for. You add AggLayer into that, in a world of a bunch of different chains, and you could get something like a very, very sizeable outcome, in our opinion.

I'm really glad you dropped that nugget about the FinTech activity on Polygon. I had no idea. I'm kind of taking it at face value from you, but I do know some of those names that you mentioned. That's such an obvious funnel into a yield product.

I'm wondering what you can share—what you can comment on—about the stage you're at with some of these bigger payment companies or FinTechs and their appetite for actually coming into the Katana ecosystem and generating yield from Katana. Is that, like you mentioned, Lemon Cash and Mercado Bitcoin? Are those ongoing discussions? Can you share that? Are they dipping their toes in?

Yeah, I would say that everyone is evaluating the space. The same thing that you have to tell your boss at one of these FinTechs—“Hey, what's our stablecoin strategy?”—is kind of the same thing with these vaults, and it's a super competitive space. A lot of people are going after it.

We have an advisor named Centaura, and we're working with other people as well who are hyper-focused on some of these things. I will say that a lot of these conversations are NDA by nature, so it's really hard to talk too much about them. I also wouldn't expect these things to happen overnight. These are long sales cycles, so anyone who starts talking to people today—it could take a while, too.

That being said, the more competitors that start moving, right? If my competitors move, now I've got to move faster, too. So, there's definitely a world where things can accelerate. I think that's also nice. I guess I would also say that Morpho does a really good job of these kinds of things as well. They've had a ton of conversations. You see the app rollups that they're building, and Polygon has those, too, and this kind of combination is pretty exciting for us.

I think Ravi said there's pretty tight alignment with Morpho, considering the USDC that's bridged from Ethereum to Katana is kind of Morpho's TVL on the L1 and then also on the L2. Assuming DeFi Dad corrects this, but we'll get into it. Anyways, the thing I wanted to touch back on around that was, yeah, I think the fintechs are open to this and they're evaluating it. I think Katana needs more time in market to build more trust, and we're focused on the crypto side of the business right now.

15. What Matthew's most excited for in 6-12 months

Over time, as we build more trust, I think we'll get there. Again, I think that's all I'll say for now.

Maybe the last question here, Matthew: over the next 6 to 12 months, what are you personally most excited about seeing with Katana? Maybe it's something new you're building or a new partnership that you can share, or just whatever in general that you're focused on and excited about.

Yeah, I mean, first and foremost, within the next week there'll be 2 big product launches for us. One is the token itself, and one is a perp DEX. I think there are a lot of things that we can tie together there. We're building in the vault space as well, and we're really interested in customizing certain things to allow for new strategies, bring in different types of users, and let them participate around that, too.

As I mentioned, this kind of Polygon Earn concept, where Katana is in the background, is a focus, too. And then, yeah, I think there's a ton there. The one other thing is that we want to be this home for advanced credit, I guess I would say, where you can come access credit and access dollars on a variety of different assets. I think Morpho, too, is going to bring in some new excitement around that.

Overall, we're working on ironing out what we have, fine-tuning the app a little bit, and delivering user experiences that people actually want to come back and use. I think we're pretty excited about going forward. Regardless of what price may say, we'll see how things go. I think it's natural in crypto. We've been around for 8 months now, and people have been earning yield.

There are market-neutral funds, delta-neutral funds, and a variety of different users who will sell, obviously, on day 1. Some of them will. There are stats about that as well, and then at some point you find some stability and can further sell your vision. The thing about Katana that's been pretty tough is that I haven't been announced as CEO yet, and we need this kind of voice. I think we'll be able to start talking more and more about it following launch and start educating the market about our vision and why we deserve to survive and thrive.

16. Closing

We really appreciate you coming on with us, and we're definitely rooting for you guys with the token becoming transferable. Again, it's been a long time coming, and this KAT Rewards program—I know there's been a buildup there. Matthew, thank you again for your time. We pre-recorded this, so we have no idea what happens between now and the token becoming transferable, but I want to give you the final word before you go.

No, I really appreciate you guys having me on and your interest in DeFi. I remember when I was listening to some of these podcasts and learning from a bunch of great founders who had built before. I thought, “Hey, I kind of want to work on that problem. I want to work for that team.”

My number-one thing would be if someone saw this podcast and thought, “Hey, I might want to work on Katana, or on a similar idea.” That would be super cool, considering I was a listener before. Thank you so much for having me, and I'm definitely happy to come back at any point.

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