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Entangle Protocol AMA

By June 20, 2023No Comments

Entangle Protocol: Omnichain Liquidity and Synthetic Vaults

June 13, 2023

Entangle Protocol is an oracle-centric cross-chain DEFI protocol utilizing synthetic vaults for omnichain liquidity and yield access via liquidity staking derivatives (LSDs) while allowing users to borrow against their synthetic collateral in the native enUSD stablecoin.

Faisal Mehrban, Founder and CEO, and Slava Korolev, Co-founder and Chief Innovation Officier, of Entangle Protocol, joined us for an AMA on May 11th.

vVv: Before we look closer at your project, let’s start with an introduction of yourselves. Can you tell us more about your background story and what brought you into the blockchain space?

Faisal: Greetings, I’m Faisal, and I’ve been involved in the crypto industry since 2017. Simultaneously, I worked as a lead consultant on global regulatory technology (RegTech) and fintech projects for prominent investment banks. The 2017 bull run caught my attention prompting my initial investments. After enduring the subsequent market crash, I embarked on an educational expedition enrolling at Oxford University’s Blockchain Strategy Program in 2018. This journey allowed me to build a robust network of founders, fund managers, and researchers deeply invested in this space. From late 2018 to 2021, I managed a small successful crypto-focused fund primarily concentrating on infrastructure in decentralized finance (DeFi). It offered me multiple perspectives on the sector as I invested and actively participated in networks through staking, yield farming, and airdrops. During this process I observed significant issues within DeFi, particularly related to liquidity fragmentation and capital efficiency. This realization initiated my research into liquidity optimization. I’ve known Slava’s brother for over three years and Slava for more than a year. Our shared experiences and mutual understanding of these issues led us to create Entangle. I’ll now hand it over to Slava for his introduction.

Slava: Thank you all for attending this AMA. My name is Slava. I’m the Chief Intelligence Officer at Entangle, and I’m in charge of co-leading the development team and managing the project. I hold a computer science degree from Chemnitz University of Technology in Germany and have been involved in the crypto industry since 2016-17. My interest began with blockchain and oracle technology research. I was particularly fascinated by the philosophical approach to oracles as conceptualized by Sergey Nazarov, the CEO of Chainlink, in their V1 Whitepaper. Prior to 2020, I researched extensively into various whitepapers and managed a few yield optimizers and trading bots. My journey into yield farming led me to work with chains like Fantom and Tezos where I experienced various complexities and usability issues. This encounter sparked my curiosity, urging me to explore ways to simplify the process. During this time, my brother introduced me to Faisal, knowing our shared experiences in the space. This meeting served as the genesis for our collaboration on Entangle, our “golden child”, over a year and a half ago.

vVv: Could you elaborate on Entangle’s mission and the specific problem is it addressing in the broader blockchain ecosystem?

Faisal: Entangle aims to address the fundamental issues related to liquidity in the blockchain ecosystem, thus our tagline is “Liquidity Resolved”. We noticed a proliferation of new blockchain chains each promising better speed, scalability, and finality. Yet, despite these advancements, a lack of interconnectivity led to fragmented and siloed liquidity. This fragmentation compounded the problem of capital efficiency for users and negatively impacted liquidity retention for protocols. Hence Entangle’s mission is to unify and optimize liquidity within and between individual blockchains. By ensuring efficient liquidity provision users gain better composability with their assets to undertake more DeFi activities thereby enhancing capital efficiency and incentivizing liquidity retention for the protocols.

Entangle's mission is to unify and optimize liquidity within and between individual blockchains

vVv: For listeners unfamiliar with DeFi, can you provide a simplified explanation of Liquid Staking Derivatives (LSDs) and how they enhance capital efficiency?

Faisal: Of course. A Liquid Staking Derivative (LSD) functions similarly to a paper certificate for a physical asset like gold. When you stake an asset such as Ethereum in a protocol you receive an LSD token which represents your original asset. You can borrow against this LSD much like using the paper certificate to borrow against the physical gold. If you default the stakeholder gains access to your original asset. Similarly with Entangle, when you deposit your liquidity to a protocol you receive an LP token. This LP token can be converted into an LSD representing your original staked asset against which you can borrow or undertake other DeFi activities. However, this comes with the understanding that your original staked asset is at risk if you default.

vVv: For those of us who are new to Entangle, can you describe the whole user journey? 

Slava: A typical user journey starts when a user, say a liquidity provider on Trader Joe, deposits Avax/USDC and receives an LP token from Trader Joe. Instead of merely staking the LP token on Trader Joe and earning a 15% APR, the user can deposit the LP token into Entangle. Entangle runs auto-compounders on the LP token stakes and provides a synthetic vault or an LSD in return. This LSD of the staked LP token can then be used for further lending and borrowing within Avax or on any of the seven other chains we’ve integrated. The user can provide it to a protocol that requires liquidity thus achieving capital efficiency and liquidity retention for the end protocols. Consequently, the user is either simultaneously earning and earning, or earning and borrowing.

vVv: Can you provide some more information on Entangle’s cross-chain functionality such as which blockchains are currently connected and whether there are future plans to link additional blockchains?

Slava: Absolutely. Entangle has integrated several prominent EVM (Ethereum Virtual Machine) blockchains to optimize TVL, including Ethereum, Avax, Polygon, Fantom, Arbitrum, Optimism, and Binance Smart Chain. Multiverse X will be our first non-EVM blockchain after Testnet V2. Future integrations will focus on other high TVL chains and the Cosmos ecosystem, which currently experiences substantial liquidity challenges.

vVv: Considering the myriad of options, which LP tokens will be supported on the platform?

Slava: We’re primarily targeting legitimate protocols that have passed audits, have a reliable team, and are popular among users with a minimum TVL of $3 million for any liquidity pool. During Testnet V1 we integrated Uniswap, Pancake Swap, Quick Swap, Trader Joe, and Stargate among others.

vVv: Entangle uses synthetic vaults. Can you explain their architectural function?

Faisal: Synthetic vaults form the core of Entangle’s strategy. Our initial testnet connected multiple blockchains including leading EVM-based chains such as Ethereum, Avax, and others. We also integrated the premier decentralized exchanges (DEXes) from each of these blockchains. These DEXes offered liquidity provider (LP) tokens representing a user’s stake in the exchange’s liquidity pool. Using Entangle’s architecture we then issued Liquid Staked Derivatives (LSDs) based on these LP tokens. This process of converting LP tokens into LSDs is handled by synthetic vaults.

In the next development stage, we plan to extend our reach beyond EVM-compatible blockchains and integrate non-EVM chains starting with Multiverse X. This expansion will showcase Entangle’s capabilities in unifying liquidity across different blockchain architectures.

 On the smart contract side, we’re upgrading our contracts to proxy smart contracts. This technology will give us the flexibility to add an unlimited number of partner protocols from different blockchains. The partner protocols refer to the other DeFi projects on these blockchains, especially the ones that offer yield-bearing opportunities.

 Finally, in addition to integrating various blockchains and their protocols, we’re actively forming partnerships with other protocols to facilitate the acceptance of LSDs. This strategy will provide more utility to LSDs as they can be used in more DeFi activities on various blockchains. By doing so we aim to resolve the liquidity issues currently faced by many DeFi protocols and enhance capital efficiency for users.

vVv: Can you share more about Entangle’s partnership landscape, its ecosystem benefits, and why someone should choose to use this platform?

Faisal: Entangle’s expansive proposition naturally lends itself to numerous layers of partnerships. We’re excitedly preparing to connect with ZK instances and roll-ups, such as ZK Polygon and ZK BnB, and delve deeper into the Liquid Staked Derivatives (LSD) narrative. Additionally, we’re exploring the potential within the Oracle narrative with Chainlink restructuring fees.

 We’ve established partnerships with all eight connected chains during our testnet V1 phase. While some partnerships are light, they are set to transition to full partnerships post-audit. Transparency is important to us and we understand the need for audits, especially given my background in regtech and fintech.

 We’re also building relationships with Telos, Metis, and other new Layer-1s like SEI. Partnerships are also emerging from DEXs, yield-bearing protocols, lending and borrowing protocols, and potentially binary option protocols. Our unique Oracle solution offers protocols facilities they don’t normally have in a more cost-efficient environment so we’re inviting several protocols to test our V2 solution and oracle.

 Our focus is not on frivolous partnerships for mere logo exchanges but on meaningful, productive relationships that we can effectively service. We’re prioritizing internally and establishing clear processes for the next six to eight months to ensure we can meet partnership needs efficiently.

vVv: How is Entangle different from similar projects like Layer Zero or Axelar?

Slava: Our journey started with building an oracle solution to support synthetic vaults on multiple blockchains. Existing solutions like Chainlink or Layer Zero can’t handle the complexity and cost of our dApp. We created an externally verifiable oracle solution that performs all computations on-chain for transparency. Unlike Chainlink, which performs computations off-chain, or Layer Zero which excels at pairwise general messaging, Entangle can message to as many chains as we want simultaneously. As for Axelar, we share many similarities but our approach is different. While we both build on top of Cosmos SDK, Entangle imbues EVM compatibility allowing contracts to be written in Solidity. This provides a developer-friendly environment compared to Axelar where contracts need to be written in Cosmwasm or Rust.

 Moreover, we believe in complete flexibility and allow end protocols to choose the number of keepers they want to use depending on the delicacy and importance of the data. We provide a solution that is both secure and cost-effective.

Unlike Chainlink, which performs computations off-chain, or Layer Zero which excels at pairwise general messaging, Entangle can message to as many chains as we want simultaneously…..we believe in complete flexibility

vVv: In terms of keepers, what are the measures in terms of security and reliability of the oracle solution? How will you ensure that the keepers are honest in the system?

Slava: The first measure we take to ensure the security and reliability of the oracle solution is running full KYC on keepers. We require that the keepers be an identifiable corporation, company, or person that has undergone the relevant KYC or KYB process. Additionally, we require keepers to stake a certain amount of Entangle tokens as a form of financial security which can be forfeited if dishonest behavior is detected. For example, if Entangle keepers are delivering information to the Polygon network and the protocol determines that three out of ten keepers are providing inaccurate data, those three keepers will lose their Entangle tokens. This system incentivizes honesty and truthfulness among keepers.

vVv: What are other uses for the Entangle tokens in the ecosystem besides incentivizing honest behavior in keepers?

Faisal: The Entangle token is essential to the function of our project. It serves as a validator and security measure for the blockchain either through delegation or by running a node. It is used to stake as Entangle keepers and it also serves as gas on the Entangle blockchain. Furthermore, Entangle tokens are used for rewards and buybacks which are distributed as revenue. Looking ahead, we’re considering additional uses for the token such as voting on which protocols we should connect for liquidity-sensitive derivatives, adding other utilities, and potentially other verticals like the oracle solution itself.

vVv: Do you have any plans to utilize this oracle infrastructure for other use cases besides DeFi?

Faisal: Yes, we certainly see the potential to apply this oracle infrastructure to various use cases beyond DeFi. We hold regular in-house R&D sessions to brainstorm and plan new technical integrations. Some ideas we’ve discussed include building our own yield optimizer and a cross-chain stablecoin backed by the original liquidity providers which back the liquidity-sensitive derivatives.

 Our approach to these new opportunities is establishing a robust V2 and testing the oracle solution with select partners. Through this process, we’ll establish a standard protocol and make the integration process seamless and competitive with other prominent oracle solutions in the market. We see many niches within the oracle market that we could target and which other solutions are not currently covering. I’m sure Slava would love to talk about some of those niches and use cases.

Slava: Multiverse X invested in Entangle from their ecosystem and infrastructure funds mainly because they needed an efficient and cost-effective oracle solution. The use of centralized scripts posed security risks for their protocols and while Chainlink has been integrated, they have become expensive. Therefore, they saw our solution’s potential and supported us greatly. In terms of specific use cases, our oracle solution is mainly targeting smart contract automation, particularly complex cross-chain operations. This means that we can support protocols like a cross-chain Dex, lending and borrowing, and derivatives or options to enable cross-chain dependencies. An example would be a situation where you don’t need to host liquidity on every single chain. By setting the logic centrally inside Entangle’s blockchain, cross-chain transactions can be managed efficiently with the Entangle oracle solution taking care of the complexity.

Our oracle solution is mainly targeting smart contract automation, particularly complex cross-chain operations. This means that we can support protocols like a cross-chain Dex, lending and borrowing, and derivatives or options to enable cross-chain dependencies

vVv: It’s truly exciting to see the potential of your oracle solution. While focusing on the initial use case makes absolute sense, the future applications you’ve outlined show immense promise. The prospect of expanding the oracle platform’s functionality is thrilling.

Slava: As Faisal mentioned, we are collaborating with several lending and borrowing protocols, some of which can’t be disclosed yet. We’ve discovered a significant niche market that certain oracle providers have yet to tap into or even consider – this involves aggregating specialized Time-Weighted Average Prices (TWAPs) of Liquidity Provider (LP) tokens to all blockchains. This is why we’re currently working with various lending and borrowing protocols that want to incorporate LP tokens and synthetic vaults. Our goal is to ensure secure aggregation of the TWAP of the underlying LP token thus preventing any potential manipulation of the lending and borrowing protocol. This is certainly an area we aim to focus on in the future. However, as Faisal pointed out, our primary focus right now is on synthetic vaults. We don’t want to fully unveil this just yet.

Our goal is to ensure secure aggregation of the TWAP of the underlying LP token thus preventing any potential manipulation of the lending and borrowing protocol

vVv: A question from one of our community members Joseph, why have LP tokens never been used as collateral within the ecosystem of the chains they’ve been issued on. Can you comment on that?

Slava: That’s a great question, Joseph. Interestingly, about three years ago we did see some lending and borrowing protocols experimenting with this. However they soon gave up primarily due to high gas transaction fees, the nascent state of DeFi at the time, and general unfamiliarity with the process. A few protocols that did try, faced manipulation issues and ultimately failure likely because the oracle infrastructure back then was still in its infancy. Consequently, this approach was largely forgotten. Recently, however, we’ve been discussing this topic with a few lending and borrowing protocols. One major hurdle is the need for a sophisticated approach to Time-Weighted Average Price (TWAP) calculation. For instance, using the TWAP price given by Uniswap on-chain isn’t necessarily accurate enough due to insufficient block lag. A reliable lending or borrowing protocol value necessitates combining multiple TWAP prices and off-chain calculations based on centralized exchange aggregator prices. This is the challenge we’re currently addressing with our partner protocols.

vVv: That’s quite fascinating. If I understand correctly no other entities are currently attempting to build a similar solution. Do you see any competition in this space at the moment?

Slava: We’ve seen oracle solutions like DIA and PYTHIA effectively calculating TWAP prices for individual assets like Bitcoin or Ethereum, which is beneficial for lending and borrowing protocols. However, to our knowledge, no oracle solution has ventured into the specific domain of providing an accurate TWAP price for LP tokens that could be used by lending and borrowing protocols.

vVv: That’s quite impressive. A related question, how is the monetary value of the LSDs calculated given that LPs can suffer from impermanent loss? Does this introduce additional risk when using them as collateral for loans?

Slava: The monetary value of a synthetic vault is determined by the equation ‘a x b’, where ‘a’ is the current LP token price calculated by TWAP, and ‘b’ is the ratio of synthetic vaults to LP tokens. We aggregate this ratio approximately every 15 to 30 minutes, depending on the LP token’s chain and APR. If the LP token has a high APR, we aggregate more frequently and vice versa. This is designed to mitigate any potential impact.

vVv: Faisal, you mentioned the potential introduction of a synthetic stablecoin. With many current discussions around regulatory risks, I’d like to hear more about your view on the international landscape of DeFi regulations and your outlook on this space.

Faisal: Absolutely. We do indeed have plans to launch a cross-chain stablecoin which would serve as a critical part of our lending and borrowing solution. We are engaging with capable partners to build out these solutions. However, we’ve decided to temporarily pause our stablecoin project due to two reasons. Firstly, we’ve invested heavily in building our blockchain oracle and the synthetic native dApp. Secondly, the uncertain regulatory landscape especially in the US has made us cautious about stablecoins. That said, our approach to a stablecoin is fully collateralized and not algorithmic, making it different from initiatives like Luna. Our simple premise is that the value of LSD in circulation at any point in time shouldn’t exceed the dollar value of liquidated synth vaults and LPs. While this explanation may sound simplistic, it involves a lot of behind-the-scenes math. In terms of future possibilities, we’re looking at yield optimization, particularly with V3 and even more abstract use cases like a lottery system for LSD holders. While we’re working on multiple plans, our primary focus now is on engaging with partners, conducting market research, and deciding our next product launch scheduled for Q1 2024.

vVv: We’ve already discussed the cross-chain functionalities of your network. When we look back at some of the biggest hacks in the Web3 space, they’re mainly associated with bridge hacks and cross-chain protocols. Can you tell us more about how Entangle plans to address these cross-chain risks and improve upon bridging issues?

Slava: Certainly. If we look at hacks such as the one on the Harmony blockchain involving Ronin, it was more of a social hack involving email penetration and server access. This incident highlighted the risks associated with centralized validators. At Entangle, we mitigate such risks by fully decentralizing validators and limiting the number of validator slots per infrastructure provider. This approach also applies to our keeper system. Furthermore, we encourage our network to use smaller diverse server providers instead of large centralized ones like AWS or Google. The key strategy here is to limit each service provider’s number of validators and keepers. Additionally, we run a majority keeper system wherein information aggregation is handled by multiple keepers. We also use a threshold consensus mechanism backed by an executor module with its own oracle. This module can accept or reject a transaction provided most keepers haven’t been compromised. Although this explanation might sound complex, it’s the foundation of our security approach.

vVv: I appreciate your thorough explanations on these critical topics. Trust and security are paramount in this ecosystem, given that a single hacking incident can shatter a platform’s reputation. Switching gears, I’ve observed Entangle’s active engagement with its community on Twitter and Discord and it’s impressive. Can you share more about the significance of this community engagement for Entangle’s future growth? Also, how can users contribute to your initiatives like the testnet?

Faisal: The community is absolutely integral to our vision for Entangle. We understand that a strong engaged community can greatly contribute to the growth and success of our platform. We’ve seen an excellent response to our recent initiatives such as Thread Wars where some of the space’s top writers are competing for a prize. We’re also actively rewarding community members for their engagement through actions like whitelisting for airdrops. We have a system of tasks and activities that members can participate in to raise their rankings thereby increasing their chances for an airdrop.

 In terms of contributing to our testnet, users can stake their test synthetics or test liquidity provider tokens (LPs) into contracts and borrow against them. We’re collaborating with our partners to develop a private instance of lending and borrowing solutions. We’re also planning some exciting community initiatives in the coming weeks and those who are with us from these early stages will certainly be rewarded. We’re committed to fostering a tight-knit community that can support each other throughout this journey.

vVv:  What can we look forward to from Entangle in the upcoming months? Do you have any exciting milestones on the horizon and is there anything else you’d like to share before we wrap up this AMA?

Faisal: We have several exciting developments lined up. Testnet V1 is live and we’re preparing for the launch of V2. In V2, we’re focusing on expanding our offerings. We’ll launch our blockchain node and oracle and get protocols to test, not just users. We’re also considering building private instances of lending and borrowing solutions where users can deposit their test LPs or test LSDs and borrow test USDC against it.

 Our aim for V2 is to provide users with more verticals and a richer experience. While we’re still finalizing the details, the plan is to either launch V2 in stages or wait a few more weeks and launch it all at once. Following V2, our focus will shift to the mainnet we’re targeting for August, though we’ve set September as a buffer in case we need more time for extensive post-audit testing.

 We’re planning dual audits from two independent firms and based on the results, we may have to make some adjustments before launching the mainnet. In the meantime, we encourage everyone to stay tuned to our Twitter @Entanglefi for all our latest updates and announcements. We believe in maintaining open communication with our community and we’re excited to have you join us on this journey.

vVv: That’s great to hear. I’m sure many of our listeners including myself are excited to test out the platform. Can you guide us on how to participate in the testnet? Should we be following your Twitter updates, or is there a specific place we should look for these details?

Faisal: Indeed, Discord is our main hub for most of our activities. Key team members including myself, Slava, Rod – who’s handling business development – and even some from our development team are active there. We have noticed an influx of technical queries recently so we’re urging our tech lead Andre to be more active there as well. We encourage users to raise a ticket in Discord or reach out to us directly with their queries. While we maintain a presence on both Twitter and Telegram, we are placing a more significant emphasis on Discord. Nevertheless, you’re welcome to DM us on Twitter for any assistance. As we move forward, we’ll ask the community where they’d like us to focus more on our efforts. We’re also currently running a validator infrastructure round which presents an opportunity for community members to run a node and a keeper. This forms part of our initiative to secure the network enhancing its decentralization and thereby the entire ecosystem’s benefit.


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