Listen to our podcast with TAU Labs and learn how the strongest vault teams are deliberately choosing smaller, faster-growing infrastructure platforms instead of competing on the already crowded ones dominated by the biggest players.
In this episode, Nertila from Trading Strategy discusses with Vlad from TAU Labs. TAU Labs is an experienced risk manager, curating 10+ vaults across strategies including loops, carry trades, and lending optimisers, with a peak TVL of $100m.
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Transcript
Nertila:
Hello Vlad. I'm so happy to have you here today for our [email protected]. I appreciate you joining us and we'd like to know more about you, what you have been doing so far and how did you get involved with crypto?
Vlad / TAU Labs:
Thank you. Thank you for having me. It's great to be here. I'm honored to be on the first episode. My name is Vlad. My crypto name is zero X Pixels. I've been in crypto since 2016. I started working in crypto in January 2022. Before that, I worked in financial services in London. I set up TAU Labs initially as a research desk. It then became a tokens advisory firm. That went pretty well. But then, because we were working mostly with DeFi protocols, we organically gravitated towards more DeFi protocols and more asset management. And when ERC-4626s came out and Vault curation started being a thing, we just naturally gravitated towards being a Vault curator. And as of last week, we have over a hundred million in TVL. And about $18 million in actual deposits that are going through our strategies. And yeah, we are mostly on iPort. We're gonna be doing strategies in other places as well, but we're a risk manager and a vault curator.
Nertila:
That's a very interesting journey. Considering that in 2016 we didn't have DeFi, how did you come up with the current venture? And getting more into DeFi as it is today.
Vlad / TAU Labs:
Back then it was just trading really. It was just the only semblance of DeFi back then was BitMEX and dYdX. DeFi as we know it today really started after DeFi Summer in 2021 with Uniswap and Sushiswap and all of those guys. But only after ERC-4626s from a couple of years ago came out and Vaults started being a thing, did we start to enter what we call the money Lego era of DeFi, where we can take different yield-bearing assets or different assets altogether and combine them in such a way that it generates a certain yield for a certain risk category and a certain risk appetite. But back then it was a hobby. It was in 2016, it was just a hobby. I liked Bitcoin. I liked Ethereum. I've been a believer since I read Satoshi's white paper and Bitcoin and the whole cause of decentralization. And I think today more than ever, it shows how important it is to not have all monetary decisions or all economic decisions be so centralized. And yeah, the company came much, much later.
Nertila:
What about TAU Labs? Why is it so unique and who do you exactly consider as your competitors?
Vlad / TAU Labs:
We're a vault curator. So we're in the same space as Gauntlet, Steakhouse, Clearstar Capital, bunch of these guys. When we launched our first vault 10 or 11 months ago, so like end of April last year, and back then you had four big curators and then really the rest didn't matter. You had Gauntlet, Steakhouse, EV Capital and RE7. And we realized that we can also do vaults, but we had certain disadvantages. First of all, we didn't have any large LPs to allocate capital so that we can start off, so that we can be bootstrapped. Second of all, we did not necessarily want to manage vaults on Morpho because all the big guys were already there. So we would've been on page eight somewhere with one tiny strategy. And third of all, we didn't exactly have a name for ourselves. All of these guys, they were big before vaults started being a thing, so they were smart enough to move into this space. So we started off from a very different point. So our thesis was, okay, let's be asymmetrical and think outside the box in terms of strategy and how we grow the firm.
First of all, we tackled the question of what vault infrastructure we're gonna use. Back then, you had a bunch of others that were starting to come up. So iPort, Upshift, a couple of others. We decided, we tried several and we ultimately ended up staying with iPort, with whom we developed a very close relationship and very good friends. The two teams between each other. We kept growing at kind of the same rhythm. So this fed into itself really well. So that was already one idea — if we were ever going to be big, and if we're ever going to be big on a different platform, it's smarter to tackle something that can grow much faster rather than be a very small player on Morpho, for example.
Then on strategy. Most vault curators, more than half of their fees generally come from lending optimization. So just simply allocating capital to lending markets, the exact markets that are under pressure today, which we'll talk about later. So we decided to be a bit more exotic in terms of the strategies that we do. Back then leverage loops weren't as popular as they are today. So we were quite early on that. So this was our second bet — to just be more diverse with strategies. We did stuff like Pendle bond, PT assets, which is still the only vault of its type in crypto. And we kept on developing partnerships with other yield-bearing stablecoin providers, like in Fify and Reservoir to do loops for their strategies. And this gave us enough knowledge and enough know-how and enough brand to become a vault curator.
And the last big thing that we made a bet on, and it was in hindsight a very smart thing to do, or very lucky thing to do, depending how you wanna look at it. Very few people know this, but the vast majority of curators, they're not actual managers. They allocate, they function as a multisig and they simply allocate capital to other vaults. And that's it. Whereas we, on the other hand, we actually build strategies and we actually have automations that keep a strategy in between certain LTV levels or certain other parameters. They have a variety of kill switches and actions that they do whenever they're under stress. So the fact that we decided to really double down on tech really makes us have very unique strategies and we can execute on these faster and with more quality than other curators, big or small. So this is what differentiates us from the others. It's really a different way of being a vault curator.
Nertila:
What kind of risk management system do you use? If you can give some more insight on that.
Vlad / TAU Labs:
We are very proud of this point because we started developing our in-house risk management methodology in May to June last year. So this has helped us very well over the past stream blow up. We never allocated to Stream because it never passed our own internal due diligence. It was a black box and we have all of our strategies that are permissionless and the entire flow of assets can be seen. Therefore, allocating to a black box is something that breaks our whole permissionless chain. We have extensive internal documentation. We also have a dashboard that we built that automatically runs scripts, which gives scores based on at least the quantitative analysis that we can do for different assets. We believe that because most of the team are data scientists and quants, we want to make sure when we enter into a market or we allocate to an asset or we do a strategy that the fundamentals are good. And that at least the bare minimum is met for it to pass at least the quantitative part of the risk management. And then there's the qualitative one, which is of course knowing the team, having experience in the space and more esoteric risk management methodologies that you also have to run. Because in the end, beyond being a numbers business, crypto generally is also a people business. So knowing who invested in the protocol, knowing who backs it is just as important as understanding the raw volumes and the yield stability and peg stability that we can quantify.
Nertila:
True. Regarding the future of DeFi and algorithmic trading, where do you think the profit and risk will accumulate in the future?
Vlad / TAU Labs:
Quite a day to have this conversation, isn't it? Look, in the end, the only difference between DeFi and TradFi is that in DeFi you can do all of the things you can do in TradFi faster. You can combine financial assets and derivatives much easier. The market is not clearly regulated, so you can operate these relatively freely. So as long as this differentiation will exist and DeFi will still keep being a thing, I definitely see a good future for it. It's very volatile, as we see. It's highly experimental. So I think a lot more capital is gonna come in especially through the RWA side. I am personally very excited to see options-type contracts growing in this space. That's a lot of strategies we can build there. I'm personally very interested in seeing how stocks and stock ETFs come into this space.
Nertila:
You have been so long in crypto industry, so I'd like to know more like what were some of the hard lessons you learned so far?
Vlad / TAU Labs:
There are a bunch. Me personally, I've been burnt on a bunch of airdrops, a bunch of trades. We made pretty okay money on others. As for TAU, we have somehow managed, again through a combination of luck and skill, depending on how much you like us and how much you want to give credit to us. We have avoided every single large blow up. We never got too greedy with our TVL, with our allocations, with stuff, to just cross certain lines. So we constantly learn how hard it is to grow in this space because we first grew through a lot of retail and only second did we start getting large LPs and large funds actually have capital with us and ask to have bespoke strategies done for them.
Nertila:
How do you improve the digital asset management ecosystem? What are some of your ideas about this?
Vlad / TAU Labs:
More transparency, obviously. There are still a lot of people and funds and a lot of involved curators and protocols that are not very transparent with their yield source, with where they give over-collateralized loans to. And whenever stuff like what happened with Resolve happens, everybody is, "Oh my God, oh no, we should have seen this coming. Why aren't the protocols doing more? Why aren't the vaults doing more?" Because there's no incentive to do more because people, everybody from retail investors to large serious funds, everybody just cares about TVL, just cares about large numbers and just cares about yield. And people are more than happy to turn a blind eye to yield sources that are not as transparent or TVL that is reflexively looped. It was the same thing after Stream. Everybody was outraged. How did this happen? The space needs to grow and a couple of weeks, months after everything got back to normal, and TVL was the only metric that mattered. Nobody cared about risk as much as they said so a month ago, and it's gonna be the same now. So unless we get more transparency, the space is just going to constantly go from one protocol exploding to another.
Nertila:
And this might be the last question. During our private conversation when I was trying to schedule our interview with you, you did mention Resolve and that something happened. Can you give us some more detail on what happened and what is still happening and what is your opinion about what happened regarding Resolve?
Vlad / TAU Labs:
Resolve had an internal exploit where long story short, a very small amount, I think $100,000 worth of USR was used to mint something like 50 million of Resolve stablecoin on their junior tranche. This has caused a lot of stress on the protocol and in return, same thing as what happened with Stream. A lot of the large vault curators that allocate to the lending side markets for these assets are now pulling the assets out of the markets. This is causing utilization to spike because there is all of a sudden all this capital leaving, which is causing borrow rates to spike. Now this affects leverage loops a lot. Because there, the only prerequisite to have a loop be profitable is for the underlying yield to be higher than the cost that you pay for the borrow rate. And right now, because a lot of these people are deleveraging, including us from some of our strategies, combined with the fact that a lot of other curators are pulling the liquidity to reshuffle money around, it causes a lot of volatility in borrow rates. And it causes a lot of protocols to have their yield sources affected. And yeah, this overall affects the market. I don't think it's as bad as it was with Stream. The contagion is not as obvious. I heard one of the larger curators is hit a bit more than they should have. But it doesn't seem, at this point at least, to be that serious. We still have to see what other postmortems, what other bodies will float to the surface of the water. But yeah, it's just another day in DeFi and that smart contract risk is always a big problem.
Nertila:
Was this like a one-time event or can it be avoided?
Vlad / TAU Labs:
In theory, anything can be avoided, but this isn't a one-time event at all. Same thing happened with Stream last time. The reason for the blow up was different, but the outcome was the same. A lot of strain on lending markets, particularly on Morpho due to their under-collateralized model.
Nertila:
Thank you so much. We will know more later on what will be the real impact. And thank you so much for joining me today. The interview was very insightful. I wish you the best of luck. I hope to get you another time on the interview, probably for a better event rather than like Resolve.
Vlad / TAU Labs:
Thank you very much.