Spotlight On: Lago Finance

Spotlight On: Lago Finance


June 16, 2022

Welcome to Kadena’s Project Spotlight Series, where we’ll highlight the groundbreaking work of organizations currently building on Kadena!

Today, we’re profiling Lago Finance, an innovative first mover co-founded by Matthew Teeter and Sergio Mello, whose mission is to build the first Kadena-native decentralized stablecoin. We recently caught up with Matthew and Sergio about their vision for the future of decentralized finance, and why they chose to build their foundational DeFi infrastructure on Kadena.

1. Tell the world about Lago Finance. Why should we be paying attention?

Lago Finance is building foundational DeFi components on top of Kadena, the fastest Layer-1 blockchain network. Our first product is a bridge to Ethereum to facilitate liquidity inflow to Kadena. Then we will launch USD 2.0, the first Kadena-native decentralized stablecoin.

We strongly believe that Kadena will be one of the most important smart contract platforms in the future. Building necessary infrastructure there now is like building a railway to the west in the pioneer days. Eventually, it will be a huge ecosystem with a vibrant community and having your infrastructure at the heart of the system is an amazing opportunity. People have been slow to grasp the full extent of use cases that web3 can offer and a powerful, secure network like Kadena is prime to fully unlock this value.

2. How does Lago differentiate itself from other algorithmic stablecoins, especially Terra?

USD 2.0 is a “two in one” stablecoin. It is engineered to express the essential idiosyncrasies of fiat-backed and algorithmic stablecoins. We set out to disprove the myth that those are mutually exclusive features.

So the defining characteristics of USD 2.0 are full redeemability, capital efficiency and decentralization.

Full redeemability means that the protocol prioritizes treasury accumulation over income redistribution, with the goal to maintain enough reserves to redeem every USD2 token for one USD at all times. We define it as Total Collateral Ratio greater than 100%. Terra took a diametrically opposite financial design choice, with the total absence of USD denominated collateral.

We are inspired by the innovation introduced by FRAX, which pioneered a capital efficient reserve system where their reserve tokens complement USD-denominated collateral with an elegant mint/burn counterflow. Our reserve token LAGO is therefore essential to enable capital efficiency and algorithmic market operations. The Operational Collateral Ratio defines the USD-denominated vs LAGO collateral split. It will start from 100% and decrease as a function of evolving market dynamics.

Last but not least, USD 2.0 is decentralized by nature and by governance. It lives in PACT smart contracts on the Kadena chains, therefore it is fully open source. It caters to a permissionless crypto world, so it does not support the revocation and blacklisting functionality implemented on the top two stablecoins today. LAGO token holders are ultimately the governors of the platform through the Lago DAO.

3. Why did you choose to build on Kadena?

Kadena is the most innovative layer-1 blockchain that currently exists. It combines the security of PoW with nearly infinite scalability due to its braided parallel chain architecture. Their smart contract language, Pact, is currently the safest and easiest to use in the industry. By simplifying the language and only having the core features that devs need, it cuts down the risk of bugs and makes building a breeze.

Kadena also just recently launched their grant program which is an amazing opportunity for builders. Developer adoption is exponentially growing on Kadena and that means there will be a wide range of innovative products and services. Building now in this growth phase guarantees network effects that will continue long after the contracts are deployed.

4. Founders always have unique backstories. What prior experiences led you to pursue a DeFi infrastructure and stablecoin startup?

The Lago Finance team has a unique mix of traditional and web3 experience.

Our CEO, Sergio Mello, is a generalist, an entrepreneur and a bit of an adrenaline junkie. He was a pro skier in his teens, he favors open nature over city life and practices triathlon. Unfortunately, he no longer has time for skydiving and ice climbing these days.

He founded and exited companies in web1, web2 and web3. More specifically, he was pioneering VoIP infrastructure in Italy in the 2000’s, he pioneered the “data is the new oil” movement by connecting social media API to the travel industry in the early 2010’s and he has been in crypto since his friend Ian from Tasmania sent him bitcoin to nerd out in 2014.

He is a big fan of decentralized identity and wants to see crypto enabling self sovereignty for all. This can only happen if the infrastructure meets the needs of real-life application developers. Hence a decentralized stablecoin.

Our CFO, Matt Teeter, is a self professed tokenomics nerd. He got into crypto in 2015 with the launch of Ethereum. A global, decentralized world computer that could make money programmable was an idea that he found extremely profound. He would go on to drop out of his master’s program to found his first company, where he built an algorithmic trading platform that catered to both retail and institutions.

Since then he has been involved with multiple crypto startups and ran an FX desk at a major financial institution. This combo of both TradFi and DeFi experience gives him a unique perspective and helps him to understand how we can begin to bridge the gap between the two worlds.

5. We all love hot takes! Have any about the web3 space you’d like to share?

While regulation is generally seen as a negative in web3, we strongly believe that it is necessary to bring crypto to the next billion users. Regulation brings legitimacy and signals to the broader world that cryptocurrency is an important asset class that is here to stay. It will also help with consumer protections that are desperately needed given the amount of projects that have resorted to foul play. Overall it will make web3 stronger and bring more sophisticated users and corporations who have been sitting on the sidelines due to regulatory fears.

6. What can we expect from Lago in the next 6 months? Where will you be in 5 years?

In the next 6 months our main focus will be on building and integrating our products into the wider Kadena ecosystem. The community at Kadena has been amazing and we have already closely connected with many of them who are excited for what we are building.

In the next 5 years, we see web3 finally hitting the mainstream adoption that has been foretold since 2015. The crypto market cap will reach hundreds of trillions of dollars, traditional institutions will be clamoring to get involved and the DeFi space will no longer be labeled as such and will just be referred to as “finance”. Stablecoins will represent the main form of global transaction settlement and Central Bank Digital Currencies will be making their way to complement digital finance. USD2 will be a tier 1 global currency.

Oh, yes, and you will finally use NFTs instead of paper boarding passes and concert tickets :)

7. What advice would you give to entrepreneurs looking to innovate in web3?

Our advice would be to just go out and start building! You won’t know the limitations and potential issues until you jump in and start. For many people, they want to get involved with crypto but they feel like they don’t have time or that it is too technically complicated. However, right now is a prime time to be a builder as we are just reaching a critical mass of adoption. Applications built right now could truly be the foundations of a new world, all powered by web3.

Thanks to Matthew and Sergio for sharing their goals for the future of Lago Finance! Keep an eye on this space as we spotlight additional collaborators in the coming weeks and to learn more about the innovative and exciting projects that are building on Kadena.