Join Delphi Research today and immediately get access to our full Member Portal!
Join Delphi Research today and immediately get access to our full Member Portal!

Beta Finance is a Permissionless Money Market Enabling the Short-Selling of the Long Tail of Crypto Assets

Aug 2, 2021 ·

By Tom Shaughnessy

The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy sits down with Allen Lee, Founder at Beta Finance, the first permissionless money market protocol for shorting any crypto asset. The two discuss Beta’s use cases, shorting long tail assets, being part of the Alpha Launchpad Incubator, and more.

Every Delphi Podcast is dropped first as a video interview for Delphi Digital Subscribers. Our members also have access to full interview transcripts. Join today to gain exclusive early access to every new interview before it’s published.



 Music Attribution:


Interview Transcript:

Tom (00:02):

Hey, everyone. Welcome to The Delphi podcast. I’m your host, Tom Shaughnessy. I help lead Delphi Ventures. I’m thrilled to have on Allen from Beta Finance. Allen, how is it going?

Allen (00:12):

It’s great. Thanks again for having me here today.

Tom (00:14):

Yeah. So Allen, tell us a bit about yourself. And how did you get into crypto?

Allen (00:19):

Yeah, so I actually got my first exposure to crypto in the fall of 2018. So right after the ICO craze. And for some contexts, I did my undergrad at MIT and also my masters. So they actually offered their first decentralized systems class in the fall of 2018. And that was my first exposure. And I took this class because it was like, the founder of [IC 00:00:42] at the time, Robert Morris was teaching it. And so I was like, oh, if this guy who’s super established in the tech industry is interested in this space, then there’s probably something valid here. And so I went into the class and build out this simple social dap, which was like a Twitter like application that was built on top of block stack. So the Bitcoin blockchain. And it was a really cool experience. But I dived more into the technical side, reading a lot of research papers, rather than doing a lot of engineering work.

Allen (01:13):

And so that first piqued my interest in blockchain and crypto, and I kept in the back of my mind. But with the bear market and climate we’ve been in for the past two years before DeFi summer, I diverted my attention to AI a little bit more. And so I did a lot of really cool AI research around the memorability of videos, published some papers, and then had some stints at both Facebook AI as well as Microsoft Research, where I continue to work on ML optimizations. But I’ve always had this interest and awareness about what was happening in the blockchain and crypto space, also because my freshman roommate was working for the theory and foundation. And so when the DeFi summer rolled around, I had a lot of friends that were interacting with all these different protocols telling me about all the opportunity that was happening in the space, how there’s been so much innovation that was just really taking off during DeFi summer.

Allen (02:12):

And so that piqued my interest, and I got back into the space, started interacting with different protocols, compound, new slops of etc, and executing trades myself. And I was like, wow, DeFi has really changed the blockchain space. It’s not just being focused on building these social daps. There’s a lot of financial tooling and infrastructure that is really taking off right now. But as I was interacting more and more with the protocols in the space, I realized that it was still very new. While there’s still a lot of work that’s been accomplished, there’s still much much much more work to be done. And so around October, November, while we were in a mini bear market, I’d wanted to initiate some short positions. And so when I was trying to go about figuring out how to do this, I realized that I would need to interact with multiple protocols.

Allen (03:04):

So what this looks like, is you say, borrow token from compound, swap this token through some DEX like Uniswap to an underlying token, then go on to this spreadsheet, or however you manage your positions, and keep track of a bunch of different numbers like fluctuating bar APY, fluctuating prices, etc. And it was a very manual and complicated process that didn’t have a lot of transparency. And so I actually ended up losing a lot of money because of how inefficient it was to manage these positions. And it got me thinking that, wow, there’s something that could be done here. There’s really a need for better tooling and infrastructure in DeFi in order to really give users accessibility to the tools that we need in order to create a more modern financial infrastructure on DeFi. And I think that shorting is especially important, because it’s one of the pieces of modern traditional financial infrastructure that is being used to offset volatility, and price inflation and speculation. And that’s something that I think is especially relevant in crypto today where we have seen these pump and dump cycles for a lot of tokens. So that’s-

Tom (04:18):

Allen, that’s a killer intro, man. I have so many questions. I mean, before we get into shorting assets, and Beta and things like that, your experience is pretty wild. I mean, what was it like talking on AI? Where you were, I mean, the MIT course is incredible to get you interested. But I mean, you’re also coming from very large leading tech firms and you’re coming into a space where you don’t really have a large team. You don’t have 50 people to work with. It’s just you, man and the community. So how do you grapple with those differences and how was it working in those roles, too?

Allen (04:53):

Yeah, it’s interesting that you bring up this points. I think working in AI is not that much different from working in crypto. There are a lot of really interesting technical problems being solved. And the teams at these companies like when I was at Facebook AI and Microsoft Research are actually quite small, because when you’re doing research, you delve into one topic very deeply. And there’s a small group of maybe three or four people that you work closely with the entire time. And you’re isolated from the large scale engineering work being done in the organization. And somewhere into Compound and crypto, like we see, most of the teams in the space are very small as well, like Uniswap had six people when they were doing billions of dollars in volume, which is absolutely insane.

Tom (05:41):

The feedback’s got to be different though, right? I mean, instead of sharing your work with a boss or a team, you’re sharing your work now with the world.

Allen (05:49):

Yeah. And I think that’s one of the most impactful things that I feel about crypto is, it’s that you’re not really dealing with bureaucracy, or having to go through multiple levels before approval. Crypto is completely open, you just publish your code, and everyone can start interacting with it. And it’s really great to see how you open source the code and you search grow community around what you’ve built. And they start to really take it upon themselves to lead and promote the further development of the protocol.

Tom (06:27):

I’m totally with you there. And I mean, not to go too scientific with you. Not a tangent but I mean, everyone talks about generalized AI, they talk about iRobot, stuff like that, what’s your take on where we actually are with AI versus what people see now?

Allen (06:44):

Yeah, I think all these ideas of generalized AI robots, robot delivery cars in the future, I think that’s all going to happen. So a few years back, I also worked at a self driving car company called Cruise, which actually launched self driving cars in Dubai recently. I think the biggest blocker is just high quality labeled data. And that’s actually what I thought I ended up spending most of my time on doing research at these companies. It’s just making sure that we have high quality data in order to train the right models. Because the basic science and techniques are pretty much there to accomplish having very knowledgeable AIs that are able to predict complex tasks. It’s just making sure that you get the right data and that it’s labeled with high fidelity.

Tom (07:39):

No, that’s interesting. Yeah, no. I remember there was always those programs. I’m going to botch this, but I think the capture things were basically labeling pictures, right, or something like that?

Allen (07:51):


Tom (07:52):

Yeah, that’s awesome, man. So let’s go back into Beta before we talk about robots for too long, but you mentioned that shorting is a very obvious and existing thing in financial markets side, I think everybody’s aware of that. It’s a known fact. But it’s very hard to do that in a decentralized way in crypto, especially for DeFi users. It does exist on some centralized platforms. But as you and I both know, there are blockers there. What are the most interesting use cases for people to short assets today? It’s just a hedge yield farming rewards volatility, why would people want to short assets today or DeFi?

Allen (08:28):

Yeah, so I think there are a few different reasons. I think one of the biggest reasons is that you’re really able to offset volatility by shorting. Because right now, we see this like up and only mentality where a lot of DeFi users don’t really know how to take the opposite side of a trade. We see for example, with a lot of DeFi projects that have happened in these past months where there have been rapid pumps in the price. For example, there’s this virtuous cycle with yield farming rewards, where people have high yield APYs, which incentivizes them to buy the token Orange or churn, even more APY, driving up the token price. And so we see this massive inflation in the price in a short period of time, which is unsustainable, and it’s just followed by a price crash, like shortly. And it’s often hard for the protocols, or the token of these protocols to recover and price in the long term. Because when something crashes, so dramatically, like 99%, in such a short period of time, it removes the trust that DeFi users have in that project.

Allen (09:35):

And so if you’re able to offset this volatility beforehand, and allow people to counter this excessive speculation, leading to a healthier long term value call at the token, then it’s better for the overall health of DeFi and the long term health of the project as well because then they’ll have a more steady stream of adoption. Some other things that I think are really interesting are like being able to short opens up a lot of new hedging strategies that DeFi users can now take. So say for example, you’ve locked up your tokens on some protocol, and it’s earning like 10, 15% interest. But because of this lock up, you can’t take out your tokens as immediately as you would like. Say for example, there’s potentially a seven day lockup. But the way with crypto, there could be massive price fluctuations that happen in a short period of time, where you could potentially want to take your profits.

Allen (10:34):

I know, [Axe 00:10:34], for example, is going to the moon right now. And you could be able to go to Beta Finance and initiate a short position on the tokens that you’ve staked, and just be able to take profits earlier, hedging the risk of your stake tokens. And then when the stake tokens on lock, you can then repay with the underlying token, for example. Another thing is like Delta neutral strategies, right? So you’re long on one position, but you want to be Delta neutral overall. And so you’re able to open a short position to be delta neutral, and just pocket either yield farming rewards or like spread. Or like sorry, additional interests that you’re earning on those positions.

Tom (11:17):

Makes a lot of sense. Now, there’s a lot of reasons why someone would want to short I mean, yield farming hedging volatility makes a lot of sense. It’s really hard to do in DeFi today, if not somewhat impossible, not for long tail assets. What’s the focus of Beta though? Are you focused on Bitcoin, Ethereum? Are you focused on the long tail?

Allen (11:35):

Yeah, so primarily right now, what we want to do is really enable accessibility to all the tokens for people to short them. And the reason for this is because from my own personal experience, it’s been a huge problem to just identify where can I find a money market for the token that I want to shorts. Because right now, you have to go through either like the developers or governance in order to unbound a crypto asset. And so for example, Compound only has 12 tokens that they support. But if you look at the actively traded pairs on your site, they’re like over 1000. So this really means that 99%, of tokens are just unavailable to users.

Allen (12:17):

And we really want to make these long tail assets more accessible, because they’re also the assets that are of short interest, usually, that are more volatile, more speculative, that really need this counterbalancing force that we’re providing, as well as shorting provides additional liquidity to that pair as well. And so we see ourselves as initially focusing more so on the long tail of assets, rather than shorting Bitcoin and Ethereum. But we do recognize that popular assets are extremely important to us. And we’re not neglecting them at all, either.

Tom (12:54):

No, that’s fair. I mean, the other… So one of the innovative things that you’re doing is, I mean, at a high level, you’re offering people the ability to short assets, which is very hard to do in DeFi to begin with. But the second differentiator for you guys is the focus on long tail assets. New farms, new pools that pop up, which are important beyond the large assets where people would want to hedge beyond that. I guess the question, though is, I guess, there’s a lot that goes into this, right? I guess, let’s start at the assets listed, how do you ensure that the long tail of assets actually gets listed on your platform? And then, how do you do it in a way that’s secure and doesn’t risk Beta blowing up?

Allen (13:34):

Yeah, those are definitely good questions. And I think these are… The volatility and risk is a big reason why we don’t see these assets currently supported. And so we’ve thought about this extensively from day one, we’ve been building Beta Finance with a short selling framework in mind and a very secure framework in mind. And this is a lot of technical product and design decisions that really enable us to deliver a secure and great experience to our users. So for example, creating a money market is completely permissionless automatic. Anyone can create a token say from Shiba token, Akita token to Axe, for example, if they just pass in the token address, they’ll be able to create a money market on Beta and immediately start lending tokens, borrowing tokens and shorting tokens. And the way we structure the risk around these new long tail asset money markets, is that we have a tiered risk model. And so what this means is that based off of what’s an asset as a sign from S,A,B,C,D, all the way to F, there’s no E level.

Allen (14:47):

It’ll determine the risk configuration. So what this means is like the open loan to value ratio, the liquidation loan to value ratio, what the collateralization ratio is. And so for these long tail assets that are more risky, we have a more aggressive risk framework for them. So there will be like a lower LTV value for when an asset could potentially be liquidated. And so we use this as a strategy in order to mitigate the risks. But the big part of why we’re also able to ensure that users funds are safe is that we use an isolated collateral model. And this is a big technical design decision that we made, that essentially prevents your collateral from being liquidated if suddenly one of your positions becomes underwater.

Allen (15:36):

And what this isolate collateral means it’s like say you have 100 ETH, right? And you have 90 ETH deposit or sorry, 80 ETH deposit on the platform, 10 ETH being used to initiate a preposition on say [AXS 00:15:51] and then 10% sorry, 10 ETH being used to initiate a short position on Akita. And suddenly Akita spikes in price, right? If Akita spikes in price, only the 10 ETH associated with your Akita position is at risk of liquidation. Your other 90 ETH on the protocol is completely safe and not risk of liquidation. And so this is a big factor for how we protect user funds.

Tom (16:18):

No, that’s interesting. I want to get into the isolated collateral model a bit more. But just going back to the automatic listing, I mean, I’ve seen a lot of projects come out and most talk about, permissionless pool creation, permissionless listing, stuff like that. But the way Beta works is you have a framework, depending on certain factors for an asset, it gets listed with certain collateralization ratios loan to value etc. Can you walk me through an example of, let’s say the riskiest, newest most illiquid asset that’s listed on Beta. What exactly would the parameters be if somebody wanted to go out and save shortlist?

Allen (16:53):

Yeah, for sure. So let’s walk through an example. Let’s say that we’ve just opened a money market for like Shiba token, right? And this is a sign like it’s your FF. And so right now, the risk configuration is structured such that Akitas have a 32.5% open LTV ratio, which means that you can only short or borrow up to 30.5% of the value of your collateral. And then if the loan to value ratio of your position goes up to 40%, then that’s the liquidation loan to value ratio. And so at 40%, your position would be at risk of liquidation. And the reason why we have a low liquidation value is to really prevent users from taking too speculative of a position so soon and getting immediately liquidated.

Allen (17:50):

Because we also want to ensure that these positions are profitable for liquidators that are coming in, and making sure that positions are not underwater. And so we want to ensure that the collateral being used is always profitable for them to repay the debt, such that we don’t have a scenario where the money markets become illiquid, people are just not repaying their debts, and essentially, like the collateral becomes worthless.

Tom (18:18):

Got it. So I guess the other question for you, though, is just like from a user experience perspective, the risky illiquid assets are generally the most volatile. So let’s say, the risky asset, someone short starts to increase in price. And let’s say it increases too fast. Obviously, they get liquidated. But is there any concern on this getting out of hand? How does it get liquidated in time before I guess it becomes a risk to the collateral not covering it? And I think that’s the right way or?

Allen (18:49):

Yeah, that’s correct. Yeah, that’s exactly why we have such an aggressive LTV value for both the open and LTV. And so the open and liquidation loan to value ratios. It’s really to ensure that even in the case of the spikes, there’s still a sufficient buffer, such that the collateral will be more valuable for the liquidator to come in and repay with the underlying token, even though it’s spiked in price. And one thing I also want to know is that another thing that we do to ensure this is we always really support stable coins and eth as collateral. And this is to mitigate compounded risk from fluctuating prices of the collateral.

Tom (19:35):

Got it. No, that’s interesting. And I guess who actually is the one liquidating people when it gets out of hand? Is this all programmatic based on smart contracts, or are there actors that come in here, whether it be bots or people that handle this?

Allen (19:49):

Yeah, so it’s going to be a mixture of bots, people, both institutional traders, institutional crypto traders as well as just heavy DeFi users or your average DeFi user as well. And so we’ll have a simple interface on the Beta Finance stuff that will basically show the positions that are that have like the highest LTV value, and our sort of closest to… in descending order for how close they are to liquidation such that you just simply click a button if you’re a normal user, and you’ll be able to execute the transaction to liquidate that position if it’s underwater. But we do believe that probably people will be creating bots, to manage these liquidations and do them much more faster and much more efficiently.

Tom (20:45):

That’s pretty cool. And moving on to the isolated collateral model. I mean, that’s the thing that I found most interesting with you guys. Because I guess you’re siloing the risk per pair, right? So one collateral per asset. I mean, other projects do this a bit differently, like Fuse has an isolated pool design. With sushi has like isolated lending pairs, how do you differentiate versus those platforms? There’s a lot to unpack here, but it would be interesting to figure out what you guys do differently versus what’s already out there considering shorting and DeFi has been something people have wanted for a long time. So it’s nice to unpack these other solutions, too.

Allen (21:26):

Yeah, that’s a great question. So Sushi’s Kashi and Rari’s Fuse with the isolated pools. Both are trying to address this problem of how do you manage the volatility of long tail assets better, and so that you can onboard more of these risky assets rather than just supporting more popular established mature assets. But the problem here is, with these isolated models, they result in a lot of fragmentation. So for example, with Sushi’s Kashi, you have to say there could be like a deuce eth pair, or an AXS Eth pair. But there could also be an AXS-USDT pair like an AXS-USDT pair [crosstalk 00:22:09]

Tom (22:08):

Allen, when you say pairs like… So you’re saying that there could be 10 pools for Axe but all with different collaterals?

Allen (22:20):


Tom (22:20):

AXS-USDT. Got it. So yeah, that’d be [crosstalk 00:22:23]

Allen (22:23):

All different collateral. And then yeah, it would result in a lot of fragmentation. And each of these has a different borrow, if you want a different lending APY. And so if you’re a lender on this protocol, you have to constantly move around your tokens in order to maximize your yield. And this is a very similar problem we see with Rari’s Fuse as well, where there’s a lot of overlap between what tokens are within each of these individual pools, for example USDC is in each of these pools, but the spread between the lending APY can be double digits between the different pools. And so again, lenders have to constantly move around their tokens in order to maximize the yield. Whereas like, we have this isolated collateral model isolates the risk for users when interacting with more volatile assets. But we don’t have this fragmentation with the lending pools.

Allen (23:16):

So if you’re a user coming into our platform and depositing your token, you know that you’re immediately earning the maximum possible yield on your tokens without having to move them around ever.

Tom (23:27):

Got it. And why is it hard for people to maximize their yield again, on say, Sushi or Fuses, I understand that you have a lot of like, we’ll take Axe for example, that could be five Axe pools for your deposit either ETH or USDC as collateral, and they’re all their own pools. But why would the yields be different from those pools? Is it because people are… Why do the yields vary within those pools?

Allen (23:50):

Yeah, so there are different… So each of these pairs has its own set of AXS tokens that are isolated from each other in the pairs. And so this means that there’s a different amount of liquidity for each of these pairs, depending on how much people have deposited specifically for, say, the AXS-USDT pair. And because of this, that results in varying lending in APY and borrow APYs between these pairs. And since the lending APY differs, if you’re trying to maximize your yield, you have to constantly monitor which is the most profitable pair at the time, and be able to transact and move your tokens effectively to that pair. But again, things constantly change and fluctuate. So what might be the most popular pair right now is not necessarily the most profitable pair, say a week later.

Tom (24:42):

Got it. So what you’re saying and correct me if I’m wrong here is, on the lending side. So those that have assets to lend, their yield is fragmented because they’re lending their assets to very different or multiple pools and the interest they’re earning from those pools filling their assets varies because people are borrowing assets and paying interest, but they’re causing all different forms of collateral, which is fragmenting the yield to the lenders. But on you guys, it’s one asset per pool, and you can post different forms of collateral. So there’s no fragmentation on the yields to the lenders, because they’re all posting to one pool?

Allen (25:21):


Tom (25:22):

Got it. That’s cool, man. No, it makes a lot of sense after you talk about it. But why do you think we’re really trying it this way? What’s the bad side of this?

Allen (25:34):

Yeah, so I think with the isolated collateral model, you do limit people’s ability to borrow as much. And say for example, make it very easy for people to cross collateralized their position and leverage up on their tokens. And this is one of the trade offs that we decided to make in order to really ensure the safety of our users funds.

Tom (26:04):

Nice, cool, man. No, I’m just thinking through it, it makes so much sense. It goes back to original conversations. It’s really cool. And then just talk about the interest rate model, how do you figure out the interest rate model for each asset? Right? Is it the same for each asset, let’s go back to tearing? And can you describe when the interest rate model comes into play for each side?

Allen (26:27):

Yeah, so the interest rate model is the same across all money markets on the protocol. And we want to figure out how we could create a interest rate model that would be able to scale with the number of assets that we’re trying to support. And so we decided upon using a dynamic interest rate model. And so what this means is that, we always try to target utilization rate range of 70 to 80%. So if the utilization rate is within this range of 70 to 80%, then the interest rate won’t change. But depending on the deviation of the actual utilization rate, at the current time, from this range, as well as some additional scaling factors we’ve incorporated, it’ll dynamically adjust the interest rate. So decreasing if the utilization is below the target range, or increasing if it’s above the target range. And so that’s how we like to incentivize users to always borrow and lend tokens such that we have solid utilization of that lending pool at any given time.

Allen (27:35):

And then another interesting thing about this model is that we were trying to figure out how we could really make sure that tokens were not over shorted. And so one of the things that we do is if the utilization rate is over 80%, then we have more aggressive approach to how we increase the interest rate. So say if it’s a 95% utilization, then this interest rate could quickly double and become like 200, 300% APY and really motivate people to repay the debts and close out their short positions. And so there’s a lot of interesting dynamics that we’re probably going to see as the Pogo gets deployed and used. And we’re going to be actively monitoring it and see how we can further fine tune this model to give users the best experience, because everything we’re doing is pretty new right now.

Tom (28:30):

Yeah, no. I was going to ask you how crazy can the interest rate get? Does it technically go to infinity or obviously not infinity. Is there 1,000%, 10,000% cap right now?

Allen (28:41):

Yeah, we keep it at the 1,000% cap right now. And so the reason for this is because we think that 1,000 is a nice number. And if tokens are have a 1,000% bar APY, then it should be a pretty significant amount of interest that needs to be paid out to these lenders. And so this is also really beneficial for people to our long term token holders, and lending out their long term assets on our protocol. Because previously, there wasn’t really any way for them to earn additional yield on the tokens that they’re holding. But now, they can lend them out on Beta, and start earning additional interest in that token itself, without having to worry about moving their tokens around or actively managing their positions.

Tom (29:30):

That’s really cool, man. So here, I’ll sum it up for the listeners and let me know if I’m off here, but just to run through it, just so that everyone could understand what’s going on. So with Beta, anyone could lend any asset let’s say Axie to one large Axie pool, so there’s not fragmented pools, not fragmented pairs. So if I want to borrow in short, I post collateral and say ETH, USDC, DAI, those main assets and I could borrow or I could short, and then the amount depends on the tier. So that’s automated through the framework you discussed depending on how volatile and how liquid they are, and then ABCs, or sorry, Axie is listed because basically it’s all permissionless. So it does that get there other than the AXS group?

Allen (30:14):

No, everything’s perfect. You explained it much better than I did.

Tom (30:17):

No, no, it takes me a while. But after a while I get it. But no, it’s a really cool moment. So I guess just moving on, just talking fun higher level stuff beyond the program, how do you think about the culture of shorting assets? Do you think that… I’m really hoping people use Beta to genuinely and authentically hedge positions? But do you think that this could roll into a situation where people are safe shorting assets and attacking them? Does Beta become a proxy for how secure these networks are? How do you think about that side of things?

Allen (30:55):

Yeah, so I think there’s a lot of misconception around what shorting does, everyone sees shorting as very evil, how they’re trying to make everyone poor, and really take good projects, and just kill them by shorting. And this is really not the case, shorting is really a way for more efficient price discovery, for example. It’s really great for figuring out what is the… It helps mitigate bubbles for these tokens as well, provides greater liquidity, as well as if there is fraudulent activity going on for a token, then people are able to reflect this in the market by shorting that assets and prevent pumping crash where people would lose much more money had a short stock come in and reduce the volatility there. And so some of the the misconceptions for shorting that I really want to point out is that, when you short a token, it’s not like these people are going to kill the price. It’s going to only decrease access to speculation.

Allen (32:07):

But these people who are shorting the tokens have to buy back the tokens at some point later in time. And so this means that for every token shorter, that means another token needs to be bought eventually. And so this will drive more buying action in the future, when there’s a more market efficient price and leading to a healthier long term value accrual of the token. So if you’re someone like me, who’s mostly a long term token holder, rather than someone who’s trading all the time, I’m not worried about the short term volatility of this token. And what I really care about is that this token has a healthier long term value accrual, rather than the sudden pump, and then crash in the span of two days or three days, where I’m not able to liquidate or get out of my position in time. And so I think it’s actually really beneficial for people like me, and other people who really you want to support projects in the space, because it’ll ensure that they’re able to safely develop without having to worry too much about the volatility of their token.

Tom (33:11):

Do you think it will primarily be a retail first UI UX model where people come on and use it? Or do you think this is more of a let’s integrate this into a [inaudible 00:33:22]? Let’s integrate this into XYZ DeFi project?

Allen (33:27):

Yeah, I would say both. We definitely want this to be retail friendly, which is one of the driving factors of why Beta in the first place really make this tooling accessible to any user in the space. But there are definitely a lot of more complex strategies that you can build on top of this solution. And so, integrations with for example, like [Auryn 00:33:52] and for example, like alpha, who were incubated by would be like really interesting to pursue in the future. For example, I know with like Auryn, we could have like Delta neutral strategies, for example. And so, yeah, what we’re really building at Beta are foundational Lego blocks and DeFi starting with this permissionless money market, as well as the short selling tooling. And I think there’s a lot of exciting stuff that we can build on top of it in the future.

Tom (34:22):

That’s awesome. No, I’m sure people way smarter than me are going crazy with what they can build from being able to short long tail assets, personally less than you can automate a lot of it. And one other question for you, how do you… Let’s say you have a risky asset, or let’s just say a new asset because risk is the deeper question, but something that’s very volatile, liquid stuff like that, how does it move up the tiers? How does it eventually become an asset which reflects on Beta that’s growing in size?

Allen (34:52):

Yeah, so this is where the community comes into play here. So the community is able to actively vote on whether or not the risks here or the money market should be upgraded or not. And so that’s how money markets on Beta will be able to move up their risk tiers.

Tom (35:11):

Got it. No, that’s cool. And, we’d be remiss not to talk about it. I mean, you guys are part of Alpha Finance, I got to shoot through Tasha and the pool so thank you to them. How is that experience been going? I mean, you’re part of I guess, their ecosystem? And what’s the name Beta? Is that because Alpha was first or how that happened?

Allen (35:31):

Yeah, it’s very interesting. So I actually came up with this name, because Beta is a measure of volatility in traditional finance. And it’s the common term that’s being used. And since our mission at Beta Finance is to offset crypto volatility, that’s why I chose the name Beta Finance due to that relationship with volatility. And then it just really worked out, I guess marketing wise, that Alpha’s named alpha and we’re named Beta. So it was just a happy coincidence.

Tom (36:05):

How is it, I guess, at a high level, within their umbrella, within their ecosystem? I mean, obviously, your own guy building your own project with your team, but how is it? Because they bring a lot of resources and full disclosure, we’re invested in Alpha, and we’re invested in you. I’m playing like the dumb new [inaudible 00:36:22] for the podcast. But I’m just making those disclosures. But how is it been working under them? Because a lot of projects in the space, they’re not started through incubators, right? They are started from individual people may not get those resources. So how is that been going?

Allen (36:37):

Yeah, I would say being part of the Alpha Launchpad incubator program has been an incredible experience. And I really think it’s so great, because it’s a program that was started by founders for founders. So Alpha really understands all the details and all the challenges that projects will encounter when they’re trying to go from zero to one. And so previously, because DeFi really just took off this past summer, there hasn’t been a lot of expertise in the space. But now that these projects have become like more established, people are like really going out of their way in order to like pass on what they’ve learned, to new projects that are coming on and being built so that they’re really able to advance the space and not think the same mistakes that have been made previously.

Allen (37:25):

And what I really think is great about the incubator program itself, is that it offers this great blend of both strategy and technical advising. So they’re able to help the founders and team skills on both these fronts, no matter what your starting point is. So from my own experience, going through the process, I came in with a more technical background, as I mentioned earlier, but now I feel very comfortable in both the strategy and technical side, and have really become a much more well rounded founder than I was before. And it’s also always great to just have crazy smart advisors to bounce ideas off of and get really fast feedback from them. I think like, personally, it’s just made all my work 10 times more efficient because of this.

Tom (38:11):

No, no, that’s awesome, man. Yeah, no. I’m a sucker for a founder who’s technical but can also talk to give it very TLDR. But it’s hard to find founders who could do both to be honest, I mean, it’s two very different skill sets. So no, I think it’s awesome. And I guess what are you thinking on here just for your own value accrual down the line? How are you thinking about that at a high level?

Allen (38:35):

I’m sorry, can we clarify the question a little bit more? What do you mean by value accrual?

Tom (38:39):

Just like the Beta token itself down the line, how do you accrue value from that sort of thing?

Allen (38:46):

Yeah, so the Beta token itself, you’ll be able to stake this token on the platform for voting rights and governance rights, for example, which will allow you to have a stake in what the direction of the protocol is going in terms of the risk framework or what collaterals we support on the protocol. But really cool as well is that you’ll be able to collect a portion of all the protocol fees on the platform. So we have 20% of all borrow and short positions, 20% of the interest paid for all borrow and short positions will be distributed as protocol fees to Beta token holders. And so these protocol fees I want to mention will also be much greater than what we see exists in money markets, because we have this short selling functionality with the protocol.

Allen (39:39):

And what this really enables is much higher volume that you would see more similar to like DEX is than money markets. And so this is one way of how we are really bootstrapping a lot of value for holders of our token initially, but my long term vision for the project is just as like Uniswap is the DEX for swap trading, I want Beta to become like the Uniswap for lending out assets, borrowing assets, and especially short selling assets.

Tom (40:09):

That’s awesome. It makes sense. And one of my last questions for you, is there an interplay between Beta and Alpha Finance from a product standpoint? Obviously Alpha has Alpha Homora V2 lever yield farms hold on yields there. Is there any interplay that you can see happening there?

Allen (40:24):

Yeah, for sure. There are definitely a lot of different strategies that we can implement, leveraging Alpha Homoras yield farming products, and Beta is shorting products. I won’t go into too many details because these are still under the wraps and might be like an Alpha leak or something. But there will be an integration coming up between Beta Finance and Alpha Finance that will leverage both our products together to enable greater financial tooling to DeFi users.

Tom (40:58):

That’s awesome, Allen, and I guess what are you thinking on timeline for those listening? What can people look forward to? How should they get involved? And what’s next?

Allen (41:08):

Yeah, great question. So we’re actually going to be launching quite soon, this quarter, actually. We have a Q3 2021 launch target, which is right now. So maybe you’ll see something in a month or two months, actually. And I think the best way to stay updated on our progress is to follow our social media. So we’re on Twitter as @beta_finance. You can go to our website, which is and follow all our socials, there we post actively on Twitter medium, we have a discord channel that we’re rolling out as well as a telegram chat. So yeah, hope everyone is able to take a look at the project and connect with us and support us as well.

Tom (41:55):

That’s awesome, Allen. No, I mean, we’re thrilled to be investors in you guys, I mean, the isolated collateral model makes a lot of sense. I love the ability to short, long tail assets to frankly hedge yield farming and volatility because markets get a little crazy. And it’s something that definitely has to exist that really does in DeFi today. So I commend you for that. And I think it’s awesome that you have, I guess, the power and the breadth of the Alpha ecosystem as well. So this is awesome, man. I really appreciate you coming on and sharing the story with us.

Allen (42:24):

Thanks, Tom. It was great being here.

Show Notes:

(2:40) – First Question: Allen’s Background and how he got in crypto.

(8:50) – Allen’s thoughts on AI.

(10:14) – Most compelling use cases.

(13:43) – Beta’s focus.

(15:09) – How Beta works / how assets get listed on the platform in a secure way.

(18:26) – Filtering assets by parameter in Beta.

(22:50) – Beta’s isolated collateral model / how Beta differentiates from other platforms.

(28:00) – Beta’s interest rate model.

(32:07) – Allen’s thoughts on the culture of shorting assets.

(36:52) – Experience launching out of the Alpha Finance Incubator.

(40:00) – Allen’s thoughts on value accrual / Beta’s token.

(42:20) – Beta Finance roadmap.