Mellow Finance’s View on the Impact of Curators on the Future of On-Chain Financial Systems

Mellow Finance is stealthily constructing the foundational elements for the next evolution of DeFi. With over $600 million locked into a modular vault system that is open to all, Mellow is creating an environment where curators, ranging from hedge funds to decentralized autonomous organizations (DAOs), can craft innovative financial strategies.

In this interview, Etienne , Head of Ecosystem at Mellow We share insights on how the protocol's curated vault framework promotes scalability, composability, and attraction for institutional players. We explore Mellow's growth strategies, its engagement in the restaking trend, and the increasing convergence of traditional finance with DeFi and AI.

Can you share your journey into Web3?

With nearly a decade of experience in finance and fintech, I have always found the world of finance to be captivating. In 2020, as decentralized finance started to make waves, I became an active user, supplying liquidity to various protocols.

Eventually, I recognized that DeFi could offer me a promising career opportunity. This led me to leave my position in my fintech startup to engage with multiple DeFi initiatives, including DAOs and more conventional organizations in diverse ecosystems like Starknet. By 2024, after meeting Nick, Mellow's founder, I connected passionately with his vision and the team’s execution, which led me to join Mellow.

How is the curated vault framework of Mellow Finance driving its significant total value locked (TVL) growth to an impressive $600 million?

I believe it’s a confluence of various elements. Mellow’s open and modular vault framework allows anyone to create a vault, gather capital, and implement strategies. The curated model you mentioned is gaining traction in the DeFi realm. Essentially, we provide the tools, while independent parties are responsible for creating and managing the vaults, incentivized to develop lucrative ventures using Mellow's infrastructure.

This method cultivates powerful network effects since, instead of a single team developing all aspects, countless teams can design their own products suited to different target audiences. It reflects a broader transition from the outdated term “decentralized finance” to the more accurate concept of “on-chain finance,” where sophisticated participants devise tailored strategies off-chain while sourcing liquidity on-chain.

Publishing strategies directly on-chain introduces front-running risks, which is why it’s crucial to keep strategy development off-chain, especially if we want to attract institutional players. This represents a significant growth opportunity for both DeFi and our organization.

What is the significance of curators in evaluating risks and managing selection processes within the Mellow Finance environment?

Mellow boasts one of the most varied ecosystems for curators. We collaborate with a broad array of skilled participants. Traditional players, like hedge funds and risk managers, are complemented by more innovative, Web3-native firms that not only curate vaults on our platform but also oversee market activities.

Our ecosystem also includes protocols and DAOs that leverage our infrastructure to tap into new yield and risk opportunities without the need to build everything from scratch. Node operators play a crucial role too, especially during the unique pre-deposit phases of Lido v3 that we facilitate. They can discover new on-chain yield prospects through our platform. Additionally, Layer 1 and Layer 2 networks, along with entire ecosystems, are starting to launch their vaults to deliver high-yield offerings to their communities.

The range of curators is broad, yet their primary functions are quite consistent: they draw in capital to vaults, assign it to strategies—whether that's engaging in Lido staking, restaking on Symbiotic or EigenLayer, refinancing on Aave, or basis trading—and manage the related risks to secure attractive, risk-adjusted returns for liquidity providers. Success for them means returns for LPs, and a share for the curators—leading to sustainable and thriving business models.

In what ways does Mellow Finance’s Automatic Liquidity Management (ALM) Toolkit enhance operations on automated market makers?

This part of our journey is quite intriguing. While Mellow isn’t primarily focused on ALM nowadays, we were among the pioneers in that space back in 2021. We developed vaults on Uniswap v3 to automate range management within concentrated liquidity settings. Our primary focus now lies with vault infrastructure, but our ALM toolkit remains actively integrated into Aerodrome and Velodrome, two prominent DEX platforms within the SuperChain.

For example, when users provide liquidity on Aerodrome, they can permit our ALM toolkit to manage the strategies. This toolkit automatically adjusts liquidity ranges to maximize returns and rewards in Aero tokens, simplifying the process for users while enhancing their potential yields.

How does Mellow Finance connect with various DeFi primitives and frameworks to boost the user experience?

There are generally two pathways for integration. First, curators managing vaults need to allocate capital to generate yield, utilizing DeFi yield primitives—such as lending markets or decentralized exchanges (DEXs)—that are embedded within our infrastructure. If your protocol is integrated with Mellow, curators can deploy substantial liquidity to it, sometimes reaching hundreds of millions of dollars.

Secondly, every vault on Mellow produces a receipt token that liquidity providers can hold in their wallets. These tokens can then serve as collateral in other DeFi protocols, including lending markets. We are also gearing up for a third integration approach. In stealth mode, we’ve been collaborating with LayerZero to launch a cross-chain interoperability solution, enabling Mellow vaults to be deployed across the EVM ecosystem, thereby linking ecosystems like BTCFi with Ethereum-based yield strategies through LayerZero.

How does Mellow Finance tackle the issue of liquidity fragmentation among DeFi protocols?

Recognizing that liquidity fragmentation in restaking is indeed a feature rather than a flaw is key. Effective restaking relies on diversified liquid restaking tokens, each presenting a unique risk profile managed by various curators, operators, and capital sources. Relying on a sole vault exposes networks excessively to the actions of a single entity.

Fragmentation fosters resilience and diversification. However, this fragmentation can present challenges for liquidity providers within secondary markets. Much of the total value locked in the liquid restaking sector today comes from leveraged restaking mechanisms via lending markets. To address this, we are building a central aggregation layer—an index of liquid restaking tokens that will be generously incentivized across DEXs and lending markets. This will simplify the complications tied to individual vaults and aid us in scaling up to compete with larger, more consolidated platforms.

As we're discussing future perspectives, could you elaborate on Mellow’s wider plans for this year and the next?

We transitioned our focus to vault infrastructure about a year ago, starting with restaking through Symbiotic. We’ll be announcing support for additional restaking platforms that can be accessed directly via Mellow Vaults. We also intend to broaden our reach into DeFi-native strategies such as lending loops, basis trading, and products surrounding stablecoins. A significant upcoming milestone is our integration with Lido v3, which is currently preparing for the pre-deposit phase.

Once operational, it will enable node operators to stake ETH through Mellow, mint stETH, and potentially restake or hedge it—offering structured financial products all within one vault. This will enhance the accessibility and profitability of staking for institutional participants. Beyond this, we’re striving for EVM compatibility and cross-chain deployment through LayerZero. There’s indeed a lot on our agenda.

Shifting focus to broader themes for future discussions—how are collaborations between DeFi platforms and conventional financial institutions shaping the landscape of decentralized finance?

Fintech applications and certain banks are emerging as vital entry points for users venturing into DeFi. While advanced users will always favor self-custody and total decentralization, the majority will utilize applications that simplify complexities. This concept of a 'DeFi mullet'—where the user interface is centralized, but the backend operates in a decentralized manner—is something I anticipate playing a dominant role. At Mellow, we empower institutions to devise sophisticated on-chain financial strategies within vaults while maintaining a user-friendly interface. This balance is essential for merging DeFi with traditional finance.

In what ways are regulatory developments influencing the expansion and innovation of DeFi platforms globally?

Under the new U.S. administration, a distinct indication suggests that institutional uptake is on the horizon. Currently, we’re witnessing two distinct markets: the retail side, featuring NFTs and meme tokens, which appears to be experiencing a downturn, and the thriving institutional market. Events catered to institutional players are bustling with interest, yet they’re holding off until regulatory uncertainties are cleared. Once we see clarity—potentially with a stablecoin legislation—we might anticipate substantial growth, as institutions seem poised to leap into the fray as soon as conditions allow.

How is the merging of AI and blockchain poised to transform DeFi in the years ahead?

How Mellow Finance Envisions Curators Playing a Pivotal Role in On-Chain Finance's Evolution