Sommelier Liquidity AMA With Mona El Isa From Enzyme

Joining Taariq will be Enzyme Finance CEO Mona El Isa, who is building a decentralised asset management infrastructure built on Ethereum. Using Enzyme Smart Vaults, individuals and communities can build, scale and monetise investment (or execution) strategies that employ the newest innovations in decentralised finance.

Enzyme Finance Cofounder, Vault Pioneer, and Infrastructure Visionary: Mona El Isa

When asked to describe Enzyme, Enzyme Finance cofounder and visionary pioneer paused and said “Where do I begin?” She explains:

“Enzyme is a protocol for decentralized asset management. We’ve been around for five years, previously known as the Melon Protocol. We never branded ourselves as vaults until recently, but I’d say we are the first vault infrastructure. The Enzyme contracts together with the interface that’s provided for them enables anyone to create a vault and run any strategy they like without necessarily having to be a developer. Just ‘risk managing’ that handles investments, redemptions, you can manage pools, fees, performance -- all that kind of stuff from our interface.The word DeFi did not exist when I started in 2016.”

Sommelier’s co-founder, Zaki Manian interjects: “I think you definitely deserve the Visionary moniker. You were way, way, way ahead of the curve. I remember when Melon came along. I was like ‘What is this really for? Or, it seems really right!’”

Sharing the accolade, Mona says: “I would give the prize to Maker on that front, really. They were ahead of us. But, we were pretty close behind, to be honest.” She explains why:

“One of the challenges that we had was v1 of Melon -- unfortunately it was such a complex protocol -- it was very hard to use. And a lot of the user experience improvements for Ethereum only happened in the last couple of years. So, v1 Melon, I think users just found it too clunky, too hard to work with, and there were not as many things to do within a vault. Farming wasn't around, lending wasn’t around, borrowing wasn’t around in the forms it is in today. We recognized that. We were like ‘ok, we didn’t have many users when we launched v1, but DeFi is now becoming kind of interesting.’”

A new development phase

With the explosion in the asset universe today, compared to 2016, Mona observes how far DeFi has come:

“All the things we thought would happen, this explosion in the asset universe, different types of assets becoming available, AMM pools were a new innovation by Uniswap -- now everyone’s doing it. Curve pools, this idea that you could incentivize growth with your own token, staking, all the stuff we see -- perpetuals, synthetic products. Basically, that was a reinforcement that we were on the right track. Unfortunately, a lot of these protocols were not around when we started building. Now we know what we’re building for.

“So, we went into another development phase last year, where we were like ‘let’s just put our heads down’, it was Crypto Winter so not much was happening anyway, as far as we were concerned. We just started building, building, building. Together with the team we re-architected the infrastructure from the ground up and launched v2.

“Since v2, I can say I am very happy with the functionality of Enzyme. I’m very happy with what users can do with it and where it’s going. You’ve probably noticed we’ve seen a lot of traction in the TVL since we launched in January.”

Talking TVL Truth

When asked, Mona shares Enzyme’s TVL growth story:

“I haven’t looked today, just bear in mind that for most of last year we had close to zero in TVL, since launch January 19th we’ve gone from close to zero and, I think, we peaked at $113 million a few days ago. Obviously the market came off a bit after that. But, I think that's exceptional growth considering Eth has moved up 40 percent, I think our growth is like 1,900 percent since January. So we’re very, very excited and we think that that’s a validation of the superior functionality that Enzyme has.

“Because we have zero marketing budget at the moment. We are going to spend money on marketing later this year, but we currently have no spend, close to zero on marketing. There’s no budget allocated for community management today. And we also don’t do liquidity mining. So this is real growth that is not incentivized and we are really excited about that.”

Uniswap v3 is on Enzyme’s roadmap

Happy to indulge Sommelier’s question for Alpha snippets, Mona obliges:

“I can tell you what you can look forward to. We’ve been asked so many times in the last couple of weeks if we are going to integrate with Uniswap v3, and we’ve sort of shied away from it. I can actually say that we will be integrating Uniswap v3 pretty soon.

“I wrote a blog post a year or two ago about AMMS. And one of the things I said is that I think it’s going to be difficult for AMMs to scale on their own because market making is at its essence a very people-oriented business. You need to know the right people, you need to know where the liquidity pools sit, etcetera. When you’re generating a smart price you need to have information, which AMMS don’t have because they are hard-coded, so they can’t adapt for new information. What I argued in that paper is that we need more human input for AMMs to be smarter. Because, otherwise, impermanent loss ends up stacking up and it doesn’t really make sense unless you’re doing AMM pools for stablecoins or whatever.

“For me, the way I see Uniswap v3 is that it’s moving more towards a more manual direction, like just giving people the option to set more dynamic parameters, so in that sense it didn’t surprise me. What did surprise me a bit is that it takes this new form, it doesn’t follow the ERC20 standard anymore, which makes its composability with DeFi a little bit tricky. And so that’s why we didn’t integrate it immediately, because it requires more thought and planning and it’s non-standard, but I’m happy to say our team has cracked the main components of how to integrate a protocol like that into Enzyme now and it’s definitely on our roadmap”.

Mona says she thinks Uniswap v3 is a great thing for AMMS.

“One thing that I think is great about it is that, previously, if you were providing liquidity in a volatile pair you gave a lot of that away to arbitrages for free, whereas you’re the one taking the risk and providing the capital. And, I think v3 evens the game a little more where the person providing the capital has the chance of not losing as much or maybe even making some money on the impermanent loss/impermanent gain.Whereas in Uniswap v2 you could never have an impermanent gain, you can only have a loss. Because Uniswap v3 does require more management of pools, I think Enzyme is perfectly set up for that.”

The frontier of DeFi right now

Zaki jumps in on one of his favorite subjects:

“Our bet and our work -- and all the code I’m writing on a day-to-day basis -- is all about the automation that needs to be built around liquidity provision. I think the biggest thing right now, and I think this is what was visionary about Enzyme, is the need for DeFi products to hold more complex positions. That it isn’t going to just be like ‘hey, I’m going to hold this LP position in this price range, the price is going to fluctuate, and I’m going to collect my fees -- and that’s the ideal position to hold.”

“ I think that’s a good starting point, but I think we’re going to be in an arms race where positions consist of a tick range, a set of options, and a mix of assets that isn’t really just sort of like ‘hey here’s a fund and we’re going to try to optimize gains.’ Instead, we’re going to try to optimize your capital efficient exposure to some opportunity by holding a mix of different assets together and that mix is going to evolve over time.

“That is the frontier of DeFi right now. What we in traditional finance would call ‘structured products.’ And, that I think is where the vault space is going. That is really what I think is the potential of Uniswap v3. By making being an LP capital efficient, you free up the capital to be invested in structured products, but the structured products like largely don’t exist yet. And that’s sort of like the gap between where we are in Uniswap v3 and where we’re going to be.“

Mona says:

“The way I look at it is we’re in the infrastructure business, we’re not in the product business. We’re just building tools and services so people can build awesome vaults that solve people’s problems. Of course, someone who works full-time in a completely different industry is not going to waste the time and invest the time to learn about how Uniswap v3 works and actively manage a portfolio. And, if they did and they’re not fully dedicated to it, they’re probably not going to perform very well. I think what we’re trying to facilitate is for great minds to build great products on Enzyme and we’re just making sure they have the tools and the services to do that. And, we’re very aware that this kind of active management of AMM pose is going to be a very hot topic in the next few months and we’re working towards facilitating that.”

Secret alpha dropped from the Paraswap team

Mona confirms that Enzyme has been approached by Paraswap for some collaboration:

“That’s still a work in progress, but basically, the idea came from [Paraswap cofounder] Mounir. He identified an opportunity and reached out to us. I love working with the Paraswap team, so does my team, they’re super efficient, they’re super motivated. They’re just great guys to work with, and they’re smart guys so when they had an idea, we’re like ‘let’s figure out a way to make it happen.’ That’s often how it goes with us.”

Enzymes core or top priority customer or partner would be a protocol or an infrastructure partner that is seeing the opportunity to leverage. Mona says among the priority customers or partners Enzyme might consider is not bound by size:

“It could be a talented manager, it doesn’t matter their size, it could be an application looking to build lots of products a la Yearn, or it could be a single manager. You’re like, ok, I’ve got friends and family who want me to manage capital for them on chain and that’s how I’m going to do it. So we’re totally agnostic to the type of user. We expect treasury management people to use our protocol, we expect increasingly more and more even institutional types using our protocol. All we’re focused on is building great tools for our users.”

The Enzyme view of the multi-chain verse & secret alpha

Since Enzyme is an asset management protocol, Mona says it doesn’t really make sense to deploy Enzyme on a chain that doesn’t have assets and liquidity. “Otherwise, what’s the point of the asset management protocol? What’s it going to manage? So, we’re looking very closely at where the liquidity is going and where interesting assets are being created.”

Mona drops some secret alpha:

“You might know we are working towards the Sulu release in September this year. Sulu is the name of our upcoming release, by the way, in case that’s news to you. What is less talked about is that we have actually expanded the scope of Sulu to include other things that have not been talked about in previous release notes, which doesn’t happen very often. So, we’ve managed to squeeze in the integration of Yearn vaults, I’m really excited about that. We’re also going to be adding more pro tools, we’ll add Uniswap v3 for trading.

“The good news is that after that, we will be shifting our attention to Layer 2. And we’ll announce more about that when it’s closer to the time, but that’s something people have been asking us to do for a long, long time and people will be happy to hear that will become one of our next priorities after this release.”

Meanwhile, Enzyme’s team is keeping an eye on what’s happening in the DeFi space.

“We love the Cosmos work, we’re impressed by the sheer volumes that Matic has attracted, or Polygon, the last few weeks. We’re fans of Moonbeam and Acala, I mean as a part of DeFi chains. Taking a look at Arbitron, I like what they’re doing. Those are the ones we’re keeping a closeish eye on. But, as I said, most of our resources are focused on the Sulu release and we’ll take a deeper look after September.”

Congratulations on the Enzyme community as it continues to grow. Mona says:

“I’m so happy with our community. It has been growing from strength to strength. I think it kind of plateaued for a while in 2019 and early 2020. Ever since the V2 release it’s just been growing a lot again. One thing I see as a strong sign of decentralization’s effects on the community is you don’t have to answer as many questions in your own chat as you used to and people like community members step in and answer questions or other community members offer to help, we see collaboration across the board.”

“It’s exciting to see the vision that Mona had really being reality now,” says Zaki.

Mona says: “It’s been a five long year’s waiting for that, but yeah. Thanks so much, it was really great to be here.”