This time, I interviewed Aiham, one of the founding contributors of Silo, winner of ETHGlobal’s 2021 Hackathon.

As you can see in the interview, Silo has raised seed funding from investors including the founders of Fei, Frax, and Reflexer, and plans to distribute tokens through Gnosis Auction soon (By the way, this information is not yet announced, so readers in this post are the first in the world to know about it ☕ ).

I think a permissionless lending protocol will be a big thing in the next 3-6 months and become an important part of DAOs and token communities.

This was translated into Japanese and posted in my weekly newsletter Bspeak!. Enjoy the interview☕

*This is not investment advice and informational purposes only.

CoffeeTimes: Hello, Aiham! Can you tell us briefly what Silo is?

Aiham: Our protocol does for lending what Uniswap did for liquidity. In other words, you will be able to use any token as collateral to borrow another. We implement this through a permissionless, risk-isolating lending protocol.

CoffeeTimes: How does it work?

Aiham: This is achieved by isolated money markets called Silos. A Silo is a market that supports only two assets: a bridge asset (such as ETH) and a unique token. Each token asset in the protocol gets one Silo only. The bridge asset connects all the silos in the protocol.

For example, let’s say the Silo protocol has two Silos: $UNI-ETH Silo and $BAL-ETH Silo. You can deposit $UNI as collateral in the UNI Silo and borrow $BAL from the BAL Silo. Behind the scene, Silo protocol opens two totally separated positions for you:

• Deposit $UNI and borrow ETH (position 1)

• Deposit ETH and borrow $BAL (position 2)

By separating the positions, risk is also separated. Now, if $UNI is manipulated, only liquidity providers in the UNI Silo are exposed to risk. Users in BAL Silo are completely isolated because the borrow position 2 is collateralized with ETH, not $UNI.

By isolating the risk of any asset to a specific silo, new and higher-risk assets can be immediately utilized in lending markets without causing systemic risk to assets held in other Silos.

CoffeeTimes: That sounds great. I’m just curious, is Silo also able to support LP tokens(e.g. Uniswap LP)?

Aiham: No, you cannot create Silos for Uniswap LPs at the moment. Let me explain a bit:

• Silo uses  Uniswap v3 TWAP oracles and therefore we cannot support markets for Uniswa v2 LP tokens.

• Uniswap V3 LPs are ERC-721 tokens, which we don’t support now. However, we have plans to support Silos for Uniswap V3 LP tokens where users will be able to deposit LPs as collateral to borrow other tokens in the protocol

CoffeeTimes: What made you start this project?

Aiham: Frustration with existing lending protocols. We have seen how easy it is to exploit existing lending protocols, not to mention how restrictive they are when it comes to accepting token assets in their protocols. That has motivated to form a vision for a lending protocol that delivers on three key areas:

• Security by design - not through gatekeepers guarding a whitelist

• Inclusive of all crypto assets - not just for top 10 or 30 token assets

• Efficiency: Deep money markets that create value

Unfortunately, the recent exploits of money markets have validated our approach. A growing segment of the community has started to learn how risky it can be to use existing lending protocols.

CoffeeTimes: I expect permissionless lending protocol is going to be a big thing and there are other projects such as Fuse and Euler. What would be the difference between them?

Aiham: DeFi is the financial infrastructure of tomorrow. The market opportunity is gigantic. DeFi is not a winner-takes-all market, thanks to the composability of DeFi that makes it cheap for developers to innovate and for users to switch to protocols that happen to offer a better value at the time. If you want user loyalty, keep delivering value.

Many builders in DeFi, including the Silo team, are degens at core. Silo, Euler, Rari, and many others, are all trying to ship solutions to problems plaguing existing lending protocols.

To me, it seems that Euler improves drastically on existing shared-pool lending protocols but I’m not sure I would describe them as isolated money markets.

On the other hand, Kashi and Rari’s Fuse implement isolated money markets, but in two different ways.

Kashi creates an isolated money market for any pair of tokens imaginable. For Dai alone, they have over 30 markets such as DAI-ETH, DAI-WBTC, DAI-COM, etc. This market design achieves high security through extreme isolation of markets. But liquidity is fragmented and markets are spread too thin; they cannot perform efficiently.

Rari’s Fuse creates isolated pools that can consist of any number of tokens, not necessarily two. To solve for efficiency, a Fuse pool functions like Aave or Compound. Because a pool can consist of many tokens, the entire pool is rendered risky when one of the token assets cannot be trusted for any reason — as seen with Rari’s Tetranode pool 6. In this situation, if a user doesn’t trust one of Tetranode’s 19 token assets, the entire pool is rendered valueless to them. In other words,  we are back to the same problem we see with CREAM/Aave where users share the risk of all tokens in the pool.

In addition, each fuse pool has a manager that can change the parameters of the pool unilaterally, thus placing the security of a pool on a single point of failure. In other lending protocols, we see governance perform this functionality.

CoffeeTimes: Silo is going to launch their own token soon. What can people do with the token?

Aiham: Silo will be managed by its community. The core contributor team works for the DAO. We choose to launch our token with one utility - that is governance - because we want token holders to decide on the tokenomics. Token holders will control the DAO’s treasury and direct its assets, adjust collateral factors, among other functions.

CoffeeTimes: Tokenomics are already fixed?

Aiham: The token allocation and release schedule is decided on, however, we will work with the community on designing the token model that aligns the interest of everyone in the community. For example, we think that our tokenomics should do the following:

• Incentivize users to get an insurance cover. We’re talking to Nexus mutual about that.

• Incentivize users to hold the token and participate in governance.

• Incentivize builders to build on Silo as a lending primitive.

We’re currently talking to economists that have designed many token models. The goal is to propose a token model to the community that in turn can discuss and improve on before enacting it.

CoffeeTimes: How would the token be distributed?

Aiham: True decentralization is only achieved when the community is offered a fair chance to own significant control of this project. Therefore, we will be running a liquidity bootstrapping event starting in the next three weeks. To offer a fair chance for everyone to participate, we're offering the tokens to the public through Gnosis Auction - a fair price discovery mechanism that is secure, easy, and transparent.

CoffeeTimes: Okay, what are the advantages of Gnosis Auction?

Aiham: Gnosis Auction's mechanism adds major benefits over existing approaches available today like Balancer LBPs:

• When the auction is over, everyone will pay the same price per token. There will be one token price when tokens enter circulation. This gives everyone peace of mind.

• Users have control over the participation price. They can bid and change bids until the auction is closed - basically it is the perfect way for the community to assign the right value to the token, without hypes and FOMO.

• It eliminates the possibility of rug-pulling.

• It’s front-running resistant - bots cannot buy tokens and sell back in the auction.

CoffeeTimes: Please tell us briefly about your future plans in the coming few months!

Aiham: In the next 6 months we will be focusing on the basics below.  However, we’re also exploring opportunities with our friends and seed investors Joey Santoro from FEI Protocol, Sam Kazemian from Frax, Santiago R Santos, Tyler Reynolds, Ameen from Reflexer, Tyler Ward from BarnBridge, and others. We will share more about this with the community to help us form a product vision for the protocol.

Q4 2021 — Q2 2022

• Silo DAO

• Liquidity bootstrapping event

• Security reviews & audits

• Silo protocol beta

• Collateral factors optimization

• Interest model optimization

• Tokenomics

• Data analytics & performance tracking

• Improved UI/UX

• TWAP Oracles security

• Developer toolkit for bridge-asset yield strategies

CoffeeTimes: I think your team members have been quite active in the space. How did you form the current team?

Aiham: Some of us have worked together in the past on DeFi projects and some we have met through friends. The entire team works on Silo full-time and is fully dedicated to the growth of the protocol.

CoffeeTimes: I always ask this; If any, do you have any impressions on the Japanese crypto scene? And can you give any words to the Japanese audience?

Aiham: The Japanese community is one of the most active in space. We have a channel dedicated to the Japanese community in our discord server and we would love to see them joining us. I am personally impressed with the caliber of Japanese projects and would love to see developers joining the contributors team.

CoffeeTimes: Thank you for taking your time! Where can we learn more about Silo?

Aiham: Please find us on Twitter and Discord, and read Medium.

Docs | Twitter | Discord| medium | Website  | Telegram

This time, I interviewed Aiham, one of the founding contributors of Silo, winner of ETHGlobal’s 2021 Hackathon.

As you can see in the interview, Silo has raised seed funding from investors including the founders of Fei, Frax, and Reflexer, and plans to distribute tokens through Gnosis Auction soon (By the way, this information is not yet announced, so readers in this post are the first in the world to know about it ☕ ).

I think a permissionless lending protocol will be a big thing in the next 3-6 months and become an important part of DAOs and token communities.

This was translated into Japanese and posted in my weekly newsletter Bspeak!. Enjoy the interview☕

*This is not investment advice and informational purposes only.

CoffeeTimes: Hello, Aiham! Can you tell us briefly what Silo is?

Aiham: Our protocol does for lending what Uniswap did for liquidity. In other words, you will be able to use any token as collateral to borrow another. We implement this through a permissionless, risk-isolating lending protocol.

CoffeeTimes: How does it work?

Aiham: This is achieved by isolated money markets called Silos. A Silo is a market that supports only two assets: a bridge asset (such as ETH) and a unique token. Each token asset in the protocol gets one Silo only. The bridge asset connects all the silos in the protocol.

For example, let’s say the Silo protocol has two Silos: $UNI-ETH Silo and $BAL-ETH Silo. You can deposit $UNI as collateral in the UNI Silo and borrow $BAL from the BAL Silo. Behind the scene, Silo protocol opens two totally separated positions for you:

• Deposit $UNI and borrow ETH (position 1)

• Deposit ETH and borrow $BAL (position 2)

By separating the positions, risk is also separated. Now, if $UNI is manipulated, only liquidity providers in the UNI Silo are exposed to risk. Users in BAL Silo are completely isolated because the borrow position 2 is collateralized with ETH, not $UNI.

By isolating the risk of any asset to a specific silo, new and higher-risk assets can be immediately utilized in lending markets without causing systemic risk to assets held in other Silos.

CoffeeTimes: That sounds great. I’m just curious, is Silo also able to support LP tokens(e.g. Uniswap LP)?

Aiham: No, you cannot create Silos for Uniswap LPs at the moment. Let me explain a bit:

• Silo uses  Uniswap v3 TWAP oracles and therefore we cannot support markets for Uniswa v2 LP tokens.

• Uniswap V3 LPs are ERC-721 tokens, which we don’t support now. However, we have plans to support Silos for Uniswap V3 LP tokens where users will be able to deposit LPs as collateral to borrow other tokens in the protocol

CoffeeTimes: What made you start this project?

Aiham: Frustration with existing lending protocols. We have seen how easy it is to exploit existing lending protocols, not to mention how restrictive they are when it comes to accepting token assets in their protocols. That has motivated to form a vision for a lending protocol that delivers on three key areas:

• Security by design - not through gatekeepers guarding a whitelist

• Inclusive of all crypto assets - not just for top 10 or 30 token assets

• Efficiency: Deep money markets that create value

Unfortunately, the recent exploits of money markets have validated our approach. A growing segment of the community has started to learn how risky it can be to use existing lending protocols.

CoffeeTimes: I expect permissionless lending protocol is going to be a big thing and there are other projects such as Fuse and Euler. What would be the difference between them?

Aiham: DeFi is the financial infrastructure of tomorrow. The market opportunity is gigantic. DeFi is not a winner-takes-all market, thanks to the composability of DeFi that makes it cheap for developers to innovate and for users to switch to protocols that happen to offer a better value at the time. If you want user loyalty, keep delivering value.

Many builders in DeFi, including the Silo team, are degens at core. Silo, Euler, Rari, and many others, are all trying to ship solutions to problems plaguing existing lending protocols.

To me, it seems that Euler improves drastically on existing shared-pool lending protocols but I’m not sure I would describe them as isolated money markets.

On the other hand, Kashi and Rari’s Fuse implement isolated money markets, but in two different ways.

Kashi creates an isolated money market for any pair of tokens imaginable. For Dai alone, they have over 30 markets such as DAI-ETH, DAI-WBTC, DAI-COM, etc. This market design achieves high security through extreme isolation of markets. But liquidity is fragmented and markets are spread too thin; they cannot perform efficiently.

Rari’s Fuse creates isolated pools that can consist of any number of tokens, not necessarily two. To solve for efficiency, a Fuse pool functions like Aave or Compound. Because a pool can consist of many tokens, the entire pool is rendered risky when one of the token assets cannot be trusted for any reason — as seen with Rari’s Tetranode pool 6. In this situation, if a user doesn’t trust one of Tetranode’s 19 token assets, the entire pool is rendered valueless to them. In other words,  we are back to the same problem we see with CREAM/Aave where users share the risk of all tokens in the pool.

In addition, each fuse pool has a manager that can change the parameters of the pool unilaterally, thus placing the security of a pool on a single point of failure. In other lending protocols, we see governance perform this functionality.

CoffeeTimes: Silo is going to launch their own token soon. What can people do with the token?

Aiham: Silo will be managed by its community. The core contributor team works for the DAO. We choose to launch our token with one utility - that is governance - because we want token holders to decide on the tokenomics. Token holders will control the DAO’s treasury and direct its assets, adjust collateral factors, among other functions.

CoffeeTimes: Tokenomics are already fixed?

Aiham: The token allocation and release schedule is decided on, however, we will work with the community on designing the token model that aligns the interest of everyone in the community. For example, we think that our tokenomics should do the following:

• Incentivize users to get an insurance cover. We’re talking to Nexus mutual about that.

• Incentivize users to hold the token and participate in governance.

• Incentivize builders to build on Silo as a lending primitive.

We’re currently talking to economists that have designed many token models. The goal is to propose a token model to the community that in turn can discuss and improve on before enacting it.

CoffeeTimes: How would the token be distributed?

Aiham: True decentralization is only achieved when the community is offered a fair chance to own significant control of this project. Therefore, we will be running a liquidity bootstrapping event starting in the next three weeks. To offer a fair chance for everyone to participate, we're offering the tokens to the public through Gnosis Auction - a fair price discovery mechanism that is secure, easy, and transparent.

CoffeeTimes: Okay, what are the advantages of Gnosis Auction?

Aiham: Gnosis Auction's mechanism adds major benefits over existing approaches available today like Balancer LBPs:

• When the auction is over, everyone will pay the same price per token. There will be one token price when tokens enter circulation. This gives everyone peace of mind.

• Users have control over the participation price. They can bid and change bids until the auction is closed - basically it is the perfect way for the community to assign the right value to the token, without hypes and FOMO.

• It eliminates the possibility of rug-pulling.

• It’s front-running resistant - bots cannot buy tokens and sell back in the auction.

CoffeeTimes: Please tell us briefly about your future plans in the coming few months!

Aiham: In the next 6 months we will be focusing on the basics below.  However, we’re also exploring opportunities with our friends and seed investors Joey Santoro from FEI Protocol, Sam Kazemian from Frax, Santiago R Santos, Tyler Reynolds, Ameen from Reflexer, Tyler Ward from BarnBridge, and others. We will share more about this with the community to help us form a product vision for the protocol.

Q4 2021 — Q2 2022

• Silo DAO

• Liquidity bootstrapping event

• Security reviews & audits

• Silo protocol beta

• Collateral factors optimization

• Interest model optimization

• Tokenomics

• Data analytics & performance tracking

• Improved UI/UX

• TWAP Oracles security

• Developer toolkit for bridge-asset yield strategies

CoffeeTimes: I think your team members have been quite active in the space. How did you form the current team?

Aiham: Some of us have worked together in the past on DeFi projects and some we have met through friends. The entire team works on Silo full-time and is fully dedicated to the growth of the protocol.

CoffeeTimes: I always ask this; If any, do you have any impressions on the Japanese crypto scene? And can you give any words to the Japanese audience?

Aiham: The Japanese community is one of the most active in space. We have a channel dedicated to the Japanese community in our discord server and we would love to see them joining us. I am personally impressed with the caliber of Japanese projects and would love to see developers joining the contributors team.

CoffeeTimes: Thank you for taking your time! Where can we learn more about Silo?

Aiham: Please find us on Twitter and Discord, and read Medium.

Docs | Twitter | Discord| medium | Website  | Telegram