DeFi’s Next Chapter - TOKEN2049 Singapore 2025

Hello everybody. So this is the Marquee DeFi panel. We have the three biggest names in DeFi here today, Hyperliquid, Athena, and Aave. Let's jump straight into it. So one of the big stories this year has been about the stablecoinization of everything.

Right? So we now have a few examples to for Hyperliquid recently launched USDH. We've got Athena working with Mega ETH to do uh MMUSD. And then of course for for Aave you guys have had GHO, which is the Aave native stablecoin. Um is this trend going to accelerate?

Are we going to see every single DeFi protocol have its own stablecoin? And if not, what makes an ecosystem big enough or self-contained enough to have its own stablecoin? What are we going to see? Are we going to see consolidation? Are we going to see the everythingization of stablecoins?

What what's your take, Jeff? So our take is pretty neutral. Like Hyperliquid is not one application, but it's rather a it's a network, it's a it's a community of people building. And so the motto is to house all the finance though. And so when you when you look around at finance, you know, the obvious the obvious bridge between TradFi and DeFi at this point seems to be stablecoins.

So there's a strong prioritization like we view we view infrastructure and application as a bit of a blurry line. Like maybe maybe we have core contributors are a bit opinionated on that. And to us stablecoins like building the best infrastructure for these stablecoins that ultimately like you say like consolidate liquidity and you know, play out that way. Uh we just want to make sure that Hyperliquid is uh you know, the natural platform on which these things are built. Okay.

Yeah. Guy, what's your take? Yeah, I do actually think that that week where we had the USDH proposal and the Mega ETH announcement that came out was actually a bit of a pre and post moment for this idea of where uh I can just say sitting in the outside we've spoken to pretty much every single major chain application wallet in the last 2 weeks or now thinking about this a lot more seriously than they were before. Um I think there is a question around is this the correct user driven outcome that actually makes sense, which is like do we actually need a thousand stablecoins for every single app wallet chain? I think the answer is no.

Uh but I do think there is an incentive structure that means that you do actually arrive at that end outcome, which is if you own the user, if you own distribution, why don't you get more of the economics for providing that service? So I do think we'll see a structural shift in you know, businesses like Circle for example being quite challenged where existing distribution platforms do want to internalize some of those economics. And uh I think this trend is going to accelerate in a pretty aggressive way in the next few weeks. Yeah. So you think right now we're sort of in this expansion phase where everybody wants to have their own stablecoin and then we'll see how many of them survive?

Yeah, correct. And I think um to the question that you had around what is an appropriate platform to actually do that? I think a chain and an application are actually very different in this sense because something like Hyperliquid does actually have the ability to have a big more of a captive audience within, you know, its application to say if we're denominating the pairs in this uh stablecoin, you have to use that stablecoin. So you have actually a pretty strong position to be able to force that outcome through. If you're a chain, you can't actually force applications or users to use a stablecoin because ultimately, you know, something that's built upon a chain uh which is an app that actually owns the user, they might be able to make that decision or instead their own stablecoin.

So I think there's different levels to the ability for these different layers within the stack to actually force that outcome through. And uh I think it might actually even create some tension between chains, apps, and wallets that that sort of exists within the same So easier for an app, harder for a chain. I think so. It's Okay.

distance to user I think is the kind of the the important variable there. Yeah. Got it. Stani, what's your take? I mean for from Aave's perspective, the uh GHO stablecoin was was created from more from user demand.

So typically the interest rates in in Aave markets are uh variable. So they fluctuate based on borrow demand. And um GHO was a way to actually give uh predictable borrowing cost for for the users. Um so that was the kind of like a user demand for for GHO. And now that GHO has been um used by by the Aave users, what we notice is actually uh Aave as a lending model uh DeFi lending model is is a very low margin business.

So we have currently um 70 billion worth of net deposits, 30 billion borrow volume. Um and with GHO outstanding uh supply for example, uh with 100 million GHO we're earning the same amount of 1 billion worth of external uh stablecoins. So it's a way for the um Aave protocol to transition a bit to a higher uh margin uh business. 10 times higher from from that perspective. And I kind of see um uh these stablecoins also being a way of capturing revenue outside of their kind of like a core application infrastructure and being integrated into um different types of uh financial applications and and and other uh infrastructures.

And um what we're focusing quite a lot is also in the ASKO. So bringing a savings products for for users. So all that's uh revenue that comes from the borrowing of of GHO um by the Aave users in in Aave protocol, part of that revenue is allocated for uh savings products for ASKO. And that further can be integrated into uh fintechs and and broader ecosystems uh beyond Aave. So it's a one kind of a tool to increase the margins within the Aave ecosystem and also export the the um earnings that the Aave protocol is is doing at the moment um to be captured by anyone who is holding ASKO where you don't have any lockups or cool down periods.

So for us it's a uh more of a kind of like a strategic business decision and a way to actually export the economics of the protocol to beyond Aave. Well so a big part of the reason why the economics for stablecoins are so attractive is because of rates. Right? So you know, it's been reported Tether's raising at a $500 billion valuation cuz they're just taking the rates. They're they're taking the you know, Fed funds rate on top of all the assets that they have.

Um for stablecoins that's why they're compelling. But of course DeFi was initially created when rates were basically zero. Rates have shot up now and you Aave's lived through this of both low rates, high rates, and and and low rates again. Um but for you guys, you guys have only really lived in a high rate environment. Rates are supposedly coming down.

And now the dot plot says that okay, Fed is going to keep cutting for for some number of years. Um what does that do to your guys' protocol? If if we're going to a low rate environment, maybe not zero, but we're going down, um how does that change DeFi from the perspective of your guys' protocols? Yeah, so I think for us it's kind of the biggest differentiating factor versus normal fiat stablecoin issuers, which is uh rates within crypto DeFi and then funding rates within CeFi tend to exhibit a negative correlation to rates in the real world. So saw the same thing last cycle where Fed funds rates went zero, funding blew out to like 30 to 40% for 6 to 9 months in 2021.

And really what's important here is like what is the spread of DeFi rates to uh Fed funds rates in the real world. So for us that's actually one of the biggest macro tailwinds that could ever exist for us, which is our competitors are seeing their gross interest income decline, you know, very aggressively when rates come down. But we actually think the rates on Athena's product either stays flat or sort of increases as frost sort of picks up within the market. Uh so for us that's like either an opportunity to extract more margin because you don't have to pay as much on the on the uh product to keep the users in there. A grow more aggressively against people who can't afford to do do as much uh with with interest rate revenue that they're generating.

Um so for us I think that's one of the most uh powerful tailwind. And I think um Athena's probably one of the most reflexive assets to like a declining rate environment uh in crypto. So in other words, if you're getting yield from non-Fed funds rate sources, that's good for you. Yeah, and I think it applies as well to Stani's business. Yeah, Stani, what's how how do you think about that for Aave?

I mean um when we been looking at the data, so the the Aave rates on on average has been beating the the the T-bill rates. It's quite interesting for for like uh being able to do that in a higher environment, but especially in low environment. And I think um every single rate cut that happens um by central bank, whether it's by the Fed or ECB regarding euro or uh pounds in in uh in in Bank of England and and and so forth is basically additional arbitrage for these DeFi rates. So I think as rates are going to go down, we're going to see a really good bull market for DeFi yield. And what it actually means is that um we're going to have actually a a a situation where you can access to really compelling yield across globally um whether you are uh in the western world, whether you are in um Asia uh or or LATAM or Africa to that same kind of like a financial opportunity.

And I I think that's huge thing. Last time when we had this low rate environment, that was basically DeFi be before DeFi summer. And that's how the first adopters of DeFi came because you had uh practically zero rates uh in in in TradFi. And at the same time you had COVID. So people had a lot of time, you know, to gamble um to go to DeFi and and find these interesting opportunities if you're technically savvy.

So now, you know, we've built this really amazing DeFi infrastructure. Aave has been able to, you know, work being battle tested for years now. You have Athena, you have perps now with with Hyperliquid. Like all that infrastructure exist at the moment. And we're going to go to a phase where DeFi actually can be embedded into like the the broader financial and fintech system and distribute yields.

And I think especially for fintechs uh and more like a traditional finance, once they start to seeing these rates going down, they will be the first ones that are actually looking for where we can actually replace their yield source and get the business back and create more stickiness for for the users because otherwise they will leave those applications to other activities. So, I think it's fundamental for this kind of like a next really big cycle for for for DeFi yield. So, lower rates, more risk-taking, good for Ave. Yes, but I also would say that the the the the Fed rates or let's say that the crypto DeFi rates, they're not fully uncorrelated. So, there's some macro that really touches these rates.

So, Right. like all finance is is tied together for sure. I think just to build on Stani's point as well, I think when you saw the same dynamic last cycle, didn't really have any connective tissue between DeFi and TradFi in any meaningful sense. So, everyone was scrambling to you know, raise like a credit fund in 2021 to find some sort of conduit through which dollars could enter the system. I think to Stani's point, you just have so many different surface areas now where that money can actually flow in, whether it's like DATs raising raising debt to actually come into DeFi to create a spread for the vehicle, whether it's ETFs and ETPs for some of these products that you can actually put into them, whether it's uh Stani's products in the background of like a fintech web two app where you just like back end infrastructure for someone to like one click in.

None of that existed last cycle and so no one could really close that credit spread that we're describing. And so I think that this is actually like the largest macro tailwind for DeFi as a whole and you can actually do it at mega scale now where last cycle you hadn't really established that connective tissue between crypto and and TradFi. That makes sense. Jeff, how do you feel about rates affecting what you guys do at Hyperliquid? It's not directly relevant to Hyperliquid in the sense that it's not Hyperliquid is a set of protocols.

I think I think it's a good point. I remember in 2020 that I I feel like the reason the the reason for the spread is just that the capital can't flow, right? Like markets are efficient. So, um yeah, I'm curious to see what happens this time. I I guess I'd predict that the but like I said, the yeah, the connective tissue is there.

Like I mean I think Athena basically you kind of bootstrapped from this lack of ease, right? This lack of like you know, capital chasing yield and that kind of not understanding how to onboard onto these crypto rails to capture this like obviously good carry trade. So, um yeah, I expect it to scale up, but I expect the the rates to kind of converge probably. Um but that being said, I think like broader market like I don't think there's a strong correlation or correct me if I'm wrong, but like between you know, general financial activity and rates. It's really just like more relevant to specific, you know, lending businesses that have beta to the to the rates.

I think like trading volumes probably go up is is my guess as um volume and sort of asset prices generally correlated um like over longer time horizons and yeah, so I think it's I think it's I think finance happens regardless. Like there's genuine demand to allocate capital and yeah, I think Hyperliquid is you know, we're we're very like we build with a very neutral stance of just, you know, how can this just, you know, upgrade the financial system itself? Well, so Stani's claim is that demand for gambling, yoloing goes up. I would I would assume that that is going to be a a bully on any trading business. I think so.

I think so. Probably. All right. Um so, let let's talk about a little bit about what is coming next in in DeFi. So, right now you guys are the three big things in DeFi, trading, stablecoins, lending.

Um You know, I remember back in 2017 the dYdX white paper came out, which was the original white paper describing perp dexes. And I felt like when I read that white paper in 2017, it was obvious that perp dexes were going to be a big thing, but it took until a year ago for that to really get realized by Hyperliquid at true scale that we see that that's happening now. Um and so it was obvious then, but it took a long time to actually get there. What do you guys think is the next thing like that? The next sort of it's obvious that it's going to happen, but it's not yet here.

For me it's probably uh perpetual swaps on equities. Um I know you and I Perps on equities. Yeah, where uh Robinhood's business right is option flows on equities and I think a lot of that is just retail saying I want to get long leveraged on the underlying. I'm not actually trying to price volatility, price the Greeks of an option in doing so. And I think we can actually just look at the crypto's experience where I think like perp perp to options volumes are like 95% or even more in in terms of the ratio.

And so I think when given the option, retail users actually prefer perpetual swaps to actually express leverage views on the underlying. Uh so to me this just feels like a multi-hundred billion dollar type of opportunity where you think that this is actually the correct form factor. You know there's demand for this kind of product where you can see it on crypto and the asset base for US equities is 30 times the size of what we have within crypto. So, I think it's basically Hyperliquid for equities is the Do you have a theory why it's taken so long? Uh it was extremely unclear if it's like illegal thing to be doing within the US, I think.

Um and I think my view is that like perpetual swaps within the next 12 months will become legal within the US. I think seeing Coinbase sort of launch uh I think they called it perpetual style futures or something there in the US was a bit of a tap uh tip of the hat in terms of their um expectations for how quickly that does come within the US. So, I think it's really just waiting for a bit of clarity around the regulations that uh becomes a viable product. Yeah. Jeff, what's your take?

Yeah, I think perp's one of the great innovations to come out of crypto. I mean, maybe technically it was written in some paper before, but really was you know, like BitMEX and um the their sort of successors really pushing the technology and like refining it so that it's I think demonstrating that it's just uh in many cases a superior derivative instrument and um yeah, I think I think ultimately sort of regulation is lags, but is driven by you know, what is good and I think TradFi, you know, I I think sort of yeah, kind of ultimately is tipping the hat saying like, hey, like this is, you know, like we can all learn and just because the majority of the world's volume happens on dated futures now doesn't mean it's like set in stone or is a rule or anything. And so I think perps yeah, I think I think perps are um I think TradFi basically kind of coming on chain via, you know, maybe unexpected sort of routes of tokenization. Like I think perps can be one of those and it has a lot of benefits, right? Like I think tokenized RWAs like maybe haven't hit mainstream largely due to logistical issues.

It's just it's just tough. Like it sounds simple on paper, but every little every little step you need to do um off-chain, on-chain, it just adds friction and uh and perps kind of also bridge a lot of that or make a lot of that um not as necessary. Okay, so two votes for perps on equities. I think just one to add to one thing that Jeff said. So, I think one interesting feature of this as well is thinking about what happens when you move markets from 24/5 to 24/7.

What what's like the actual user behavior that you sort of um uh create out of that? So, if you think about like old data that exists on equities where maybe you're an equity analyst and you're checking if Jeff Bezos is going to like a club on Sunday night, which means you want to be short Amazon going into the week. Obviously uh uh made up example there. Um you almost have a fiduciary duty to actually trade that information on the weekend when you have it, which is like, where can I actually access the instrument to put on that position? You have a fiduciary duty to hedge that risk or or take a view.

And so I think the interesting thing here is that if you actually force that outcome with perps to make this a 24/7 market, you're almost forcing demand to come into the market as well, which is you have to be expressing a view over those days that TradFi isn't actually um serving a market. So, I think that's actually very interesting wedge for why TradFi would actually come and have to interact with this product rather than it even being a choice. You know, it's it's not even specific to any asset class, right? Like it's really like the most efficient way to express a delta one view on on anything. on a number.

Yeah. So, it's really like a core primitive. It's just like uh it's it's to me it's like a it's like a mathematical thing almost. It's like yeah, like you know, markets should be efficient and should you know, should allow for efficient price discovery. And so Very Jeff answer.

This is a mathematical pristine. I mean, I think we need to zoom out of it, right? It's not it's not all about, you know, at the end of the day like finance is a lot bigger than any specific thing we see now like like hot pockets of of money or something. Like broadly speaking, it's like human coordination, price discovery, um allowing for liquidity providers to efficiently provide liquidity to to the people who need it. Sounds beautiful.

Stani, what's your take? Yeah, I I think yeah, I agree that the perps for everything might be interesting and it's going to be growing the same way as derivatives are growing in in traditional finance. I I think tokenized assets also will have its place and grow as long as uh I think some of the kind of like restrictions could be more loosen. Uh so, I think that both of these form factors will live and obviously derivatives will be like much much bigger share of that. And I I think that's how it's it's happened in the past in in in TradFi.

And and these are really great for especially like that kind of like a um advanced prosumer audience. Um I think what's going to be also really big is is just like taking what we have, all this technology and trying to get it to the mainstream uh consumers. Um and I think um uh what's going to be really big is is to take yield actually to everyday people. Um and and and I think uh yield as a also kind of uh a product is easy to approach. And we probably see more of these um ideas of uh um what Athena has been able to do where you you take some sort of strategy that is happening um natively on chain or on combination of uh crypto primitives and and being able to offer that to wider audience as a uh uh as a kind of economical opportunity.

So, I I think like this this transition part of like producing yields uh on chain and taking that to mainstream uh in a very like a simple form uh is going to be really big thing. Um on the lending side, I think uh where we're kind of focusing also is to create more predictability. Um fixed loans is a one big topic that we're researching and and and working on. Um and also credit in general like how do you go beyond the over collateralized lending model that that uses some sort of uh asset as a collateral and how you kind of like go beyond that and extend credits beyond cryptographic collaterals. I think tokenized assets is one direction there but going more towards that direction.

And I think being able to to provide fixed loans is very interesting because you can create predictability both for the lender side fixed income and that is a really big market to actually bring on chain. And then on the borrower side you can actually create a really good ways to hedge your interest rates at the same time. So I think that's really fun area to to to focus on and I think it's going to grow significantly and in previously in DeFi I think fixed loans haven't been able to really grow because the the actual variable pool models have been so efficient so pretty much the the pools on Aave are operating at roughly like 88 92% efficiency. So there's very little optimization that that happens there. But once you introduce fixed income and fixed borrowing you actually are able to construct a very interesting credit products and investment products on top of this infrastructure.

Okay so I want to switch gears a little bit. Um So the three of you normally you know you're building trading you're building stablecoin you're building lending but each of you also step a little bit into each other's lanes. Where Aave has a stablecoin you guys are backing Athena powered exchanges DEXes and you guys have you know USDH as well as lending protocols within the Hyperliquid ecosystem. Um Are you guys becoming the new DeFi conglomerates? Like I remember once upon a time people talked about Sushi and and YFI being like these DeFi conglomerates but never quite worked.

But it feels like maybe now it is starting to work under you guys. How do you guys think about this and what's the end game? My mind like DeFi conglomerate is a bit of an oxymoron like it's you know DeFi is meant to be what is it like Legos right like building blocks. People people doing one thing perfecting it very well and exposing an API that lets others plug into it and compose right. And I think that was it was a bit of a meme maybe like last cycle it was more of an idea but that's how these things go but I think it it really is playing out in real time.

So like when you say maybe maybe some people disagree here on the on the vision but for Hyperliquid at least I think you know we we really value kind of core financial primitives being built on a incredibly neutral platform. So for for example if you take spot trading you know tokenization of crypto assets right that like any other conglomerate which you might consider like centralized exchanges to be right they they will view it as a core part of the business a core part of the the the product offering and build it in-house and on Hyperliquid actually you know it's people doubted initially that that this was possible and that it would work but I think you know I think it's early days but I think we've kind of as a community proven that wrong and I think this will just happen again and again and I really think the original ethos of DeFi is the correct way to build finance. It's a lot more resilient it's less you know there there just fewer when risks are isolated to self-contained components it's just you get less systemic failure and I think that's just like you know that resonates with everyone like TradFi or DeFi. Yeah I think part of the issue is that there's not that many business models within crypto that kind of make sense at multi-billion dollar scale and I think the three that you outlined here is kind of it basically and so if you're going to be expanding and trying to drive new revenue you're naturally going to be stepping on the toes of people who are operating within those segments. I think from our perspective uh we try to stay a bit disciplined around uh being the best at one thing for sure and then like trying to think about these other things like after that and I think sometimes you have the temptation to try to be everything to everyone and try to do a bunch of different things and there's actually a long graveyard of history of you know DeFi super apps which are just kind of like the fifth best at everything they do and no one cares about them like in in totality.

Uh so our view is like we want to try to one thing extremely well I don't think we've even you know scratched the surface of where we can take that one product. And I think uh we're not quite a platform like Hyperliquid in the sense of like an L1 but we do have like apps building on our core product and we're not trying to internalize an exchange in terms of what we do it's more giving our product and saying you want to build on this is a product to empower your own business and and use that to build a product one of them being on Hyperliquid itself. Uh so I think it's just a slightly different direction which is like USDH is sitting in Hyperliquid but that's not their product right it's someone else's but there's obviously some economic relationship between them building on top of of Hyperliquid as a platform and I think it's just us in reverse doing the same thing in a different direction and actually one of those teams is sitting there um on Hyperliquid to do that now. So I think to your question part of the problem is that there's not that many places to make money in crypto like at scale and naturally the biggest entities in the space all sort of converge to doing a bit of everything whether it's a centralized exchange trying to do their own stablecoin trying to do their own chain and stuff you kind of see this pattern repeats across pieces of the industry. Yeah.

But to Jess's point the delta then is that okay the CFi conglomerates they benefit specifically themselves. They're not necessarily open they don't allow that connectivity they don't allow that composability. In DeFi we have that but there's still going to be this cross ecosystem competition. Sure. Yeah.

Yeah. Aave sorry Stani how do you think about that for Aave? Yeah yeah I I kind of think in in a way that actually Aave grows quite a lot because of you know because of these guys and what what they're building and I think that's a really big part of the the Aave story as well the the composability and I think uh collateralization is a is a big part of whole kind of like DeFi offering. So the collateralization and yield opportunity happens somewhere else there's some sort of uh like additional collateralization happening in the Aave protocol and the need for liquidity and I think that Aave kind of like is a is a place where to serve all these different types of innovation and I think uh we probably will never see like Aave doing um things that these guys do because we benefit from that composability and that's the kind of like a value proposition of DeFi and why a lot of people love to build in the space because you don't need to call different kinds of APIs you can come just and build something really interesting and integrate all these protocols and you know you have a product and I think that's the really exciting part of uh the space. So I think we're going to focus and double down more on lending and just like figuring out how to manage it more efficiently the collateral how to tap into different opportunities and doing that safely and securely and and that's a lot of work by itself.

So I I want to build on that. Um If you remember back to the early days of DeFi people thought DeFi meant like they take MakerDAO V0 right. People thought that DeFi meant that everything is completely endogenous on chain and there's no connection to the outside world of fiat or whatever. Oh yeah we we're past that. Yeah we're very past that we're very past that.

Like so you look today you look today at Aave Aave has Horizon which is a permissioned RWA protocol. You guys literally have a product in partnership with BlackRock and you know you guys have USDH being issued by by Stripe / Bridge which is a big fintech. Like DeFi now very much is continuous with CFi. Right? This idea that like okay DeFi's over here CFi's over here or not CFi but you know whatever the the the external centralized world it's very clear now there's a there's a continuum that you guys are constantly navigating.

How do you think about that and is that are we are we going more in that direction where there's going to be more and more of this interplay between the centralized offline world and the DeFi world? Is like is that vision of DeFi just over? I think DeFi is fundamentally a technology I don't view it as a different world like maybe it you know by nature of previous years it kind of feels like that but I I think ultimately like what what is a blockchain if not just a way for everyone in the world to agree on some state and this is just a better technology for something so important and critical to human coordination as as money and you know financial assets right. So in my view it's like it's not like two worlds converging or like staying separate or competing or cooperating but rather it's just the financial world updating their technology to something better and I think uh you know better technology always wins I guess speaks for itself. So Yeah I think the version of DeFi that you're describing there doesn't really exist out of like maybe a handful of apps like still to the today and I think it's the issue is that like do you want to sort of two user bases there's one who really cares about those qualities of like pure decentralization and I think that that was like a very early user within crypto and then everyone who's sort of come after that I think is just a bit more pragmatic and practical to say yes there are qualities of decentralization that we find interesting or important you don't have to do all of them or we actually want this product to scale or have good UX and all these different pieces.

And I think most of the successful apps that have actually come out this cycle have made some sort of compromise on that axis to say it's not going to be fully decentralized but there is something else that we're trying to solve for here which is scale usability or whatever it is. So yeah I think naturally that trend and direction that you're describing there will accelerate because like if you're ambitious and you want to scale these things to like global scale rather than like serving 2,000 users who care about something being like you know Uniswap X X times Y equals quick pay level of like decentralization and purity. I just think the market for that is extremely small and new people who come into the space have ambitions to build things that are sort of bigger and address the whole world. Yeah. I think the DeFi I think the decentralization is kind of like uh somewhat what wrong terminology to use these days.

I think what really matters is resiliency and I the reason people like cared about decentralization in the first place because it was able to bring resiliency. So, being able to mitigate different kinds of single point of failures and and I I think that's the kind of like a key behind of why we, you know, care about decentralization and and governance is also part of that. You know, you can construct governance in a in a resilient way. So, I think that's the key point and when you look at just purely like what happened in the past few years, we had lending didn't really kick off in decentralized way. Like in DeFi, we started with Ethlend in 2017 and at the same time you had a lot of decentralized lending businesses, Celsius, BlockFi, Genesis Lending raising hundreds of millions worth of funds and building the the the kind of like a crypto back lending model in a completely centralized way.

And what happened obviously is that because these models were working as a like a black box, unclear how the risk management was done. Pretty much on the market cycle when it was all these centralized lending businesses pretty much exploded at that point. And if you look at today, the very few that are left that are doing from balance sheet lending or connecting peers, they're doing centralized lending let's say crypto back lending at a 9 to 12% rates. Maybe you can find seven. Whereas DeFi is actually doing the lending at 5% borrow cost.

So, what's actually happened is that virtually all that lending has moved mostly into on chain and you get a better efficiency on the on the pricing and you have less actually operational expenses to run a lending business. So, the conclusion here is that it's actually much much easier for let's say a more like a C5 or a fintech or a traditional market participant to to offer this service just plugging in Ave for example and offering that to the users instead of building this business from scratch and managing risk. And I think the reason the DeFi lending and DeFi in general did did so well is because of the nature of of the transparency, you know, the the smart contract based execution and all these properties that actually create better finance and that is the kind of like a outcome. So, I think what will happen is that we're going to go towards that direction and we're going to obviously And when you think about like these like centralized points, stable coins weights itself already are already based and we kind of like across that path. So, we don't have necessarily all the properties of decentralized finance the same way as we had in in 2020 but we have some of them that actually create better financial products.

And I think that's

Decentralization then is is a means not an end. And the thing you really want is resilience, reliability, dependability. And with these new systems we have that. Yeah, no no no one no one wants like basically like decentralization for the sake of like having a financial product where you have, I don't know, 10 20 people arguing in in in governance. People want to actually like ensure that things work, it's resilient and you know, like like you you know, you mitigate the risk.

And if you can mitigate the risk and if if it's transparent, you can make better financial decisions.

Okay, well, let's let's talk about risks. I think it's a good it's a good transition. So, if you look at some of the things that are now happening in DeFi, we have huge amounts of farming, looping. We have all these complicated pendle strategies, yield stripping, LST LRT trades. All of these things and then of course there's good old stuff like, you know, smart contract risks and forced liquidations and all this other shenanigans that sometimes happens in DeFi.

What is the risk that you worry about for your own protocol? And if I mean, it's crypto. There's always going to be a next blow up, a next big crazy thing that we all have to, you know, shield ourselves from. Where do you expect that next big sort of uncharted risk to come from in DeFi? Jeff, what what what do you do?

What do you worry about the most for the hyper liquid ecosystem? It's hard to single out It's hard to single out just one. I'm trying to think. Like I think the biggest thing is in my mind like execution risk. It's not I think like it's I mean like a risk I'm I'm being serious here.

Like the it's it's easy to have like flowery images of kind of like black swan events but if you really think about why things die in the real world it's like It's like It's like why do why do you know, not to be not to be too morbid but like by and large there there are crazy accidents and what whatever but like by and large people people suffer from you know, just like like bad health. It's like really boring but it's like if you look at statistically what happens like it's it's kind of like a slow painful death and like I think I think that is that is in my mind the biggest risk. And obviously there there kind of like you said there are kind of like blow up risks and like from from that perspective I think I think we we try to guarantee like mathematical solvency and how the protocol works as opposed to some under underlying sort of off chain assumption about something having backing or having some price or something like that. Like I don't think the solvency of any system any well designed system should depend on things like that. So, in that kind of points back to the like DeFi or like on chain vision being something that's like relatively self contained and mathematically consistent.

And so you should there's that side but I think like by and large like if like if hyper liquid fails, I think it will not be I I think like by and large it will likely be because you know, that we we didn't we as a community like didn't build something of of real value for the world and I think like as things grow it's easy to you know, it's it's it's easy to kind of either rest on your laurels and think we just got to protect what is here or or think you've kind of made it and like this kind of get get You know, that kind of hubris is very is a very human thing to feel but I I think that's that in that's in my mind the biggest risk. And maybe that's not really specific to hyper liquid. That's more like for DeFi as a whole. I think there's like a super long road ahead. Like we've come a long way but there's there's so much more to build and it's not clear to me that like, you know, the the space is is going to ultimately like convince the existing financial system that it's that it's worth taking seriously.

Right. Okay, so the sort of complacency and not taking your your your hand off the wheel. How do you think about that for Athena? I think uh generally things are actually quite a lot safer than they were last cycle in many different axes. So, I think even Vitalik was speaking about this two weeks ago where he was talking about like smart contract hacks as a percentage of TVL basically being in a straight line down since last cycle.

So, I think like from an engineering technical perspective things are actually getting safer on chain than they were last cycle. I think the other piece around that is just around like systemic leverage that sits within the system is just not the same as it was last cycle where you had a lot of opaque balance sheets that no one really knew how much was sitting in there. A lot of the Genesis and stuff that Danny was talking about, the three arrows, all these different places. And I think this cycle is just very unclear where that type of leverage would actually be sitting in the system. And in a sense actually Terra Luna was a form of like leverage where UST was kind of like unbacked liabilities that were sitting within the system.

So, I think like everything across the system from like a technical engineering and like leverage perspective I think is actually safer than it was before. The one counterpoint to that is kind of we've seen sort of power law distributions in terms of how big these things can start to get. I think Stani is the best example of this where I think they're up 10x in terms of the size of where they were in 2021 from like a balance sheet perspective. And these businesses and balance sheets on chain now are actually growing to like you're the 39th largest bank or something, right? Or what's the number in the US?

33rd. 33rd, sorry. Who's in third? But like these are like big numbers now and yes, I think like as a percentage or like probability of like default and those kind of things trending down through time these are just like very big numbers now where if something goes wrong it's actually pretty ugly. So, I think it's just more of the scale that sort of gives people pause to be concerned.

But it's also like why we're here, right? Like no one's here trying to build things which aren't systemically important. You like you should be excited to build something that's systemically important. But just doing it in the right way and in responsible way. So, I think yeah, that's a general comment and then maybe one other is just I think Athena kind of we got a lot of when we came out if you remember in terms of like the risk people being very concerned around how, you know, Athena would fit into the system.

I think what we do now is almost like the safest version of what you could potentially be doing in a dollar format for this type of construction. But I think it's also opened up the Overton window for like anyone to just call like a loan to Kenyan bicycle company like a stable coin now and like we're just throwing anything into a dollar and just saying like this is equivalent. So, I think I'll just maybe it just asks people to sort of pause and think about things where we're starting to like push the boundaries quite far in terms of what we're putting into dollars and and calling, you know, in in the format of stable coin basically. Yeah. Stani, what do you think about biggest risk for Ave?

Yeah, I think I worry of all all the risks so that you don't have to but but mainly because of there's just so many pieces in in DeFi that you kind of like you have to manage and and keep an eye on. I think in over the past years uh certain risk categories have been decreasing significantly. I think smart contract risk is is something that is especially like all these protocols that have been kind of like a proven after like year and so forth, they that is maturing quite well and I think more on the asset type of risk levels, that space is also maturing quite well and there's really good risk service providers that are managing a lot of these parameters across lending protocols have been doing really great job. So, I think from that perspective I'm kind of like a little less worried about as of today. I do think that's especially when it comes to lending that lending side, these protocols are actually tested out uh when the market cycle is going down.

So, it's really easy to get excited to list different kinds of assets on a uh market that is relatively stable or going upwards. Uh but, the true nature of of the risk management is tested when actually the market side cycle is going down and the liquidations are going to get into effect. And we saw over now over the past 5 years over 300,000 uh liquidation events in Aave and 3.3 billion uh in total liquidations and largest uh liquidations has been between 300 to 200 million. So, it shows the resiliency that you can actually build in DeFi.

And now I'm focusing a lot on the corner counterparty risk. So, trying to figure out that if a certain asset is integrated into Aave, what is that counterparty uh protocol or asset risk? How How is it managed uh specifically there? What kind of a privileges there might be on on that asset? And that goes to your point uh also towards that there's certain certain centralization elements involved, which might be on the smart contract basis, um some sort of control functions, or centralized uh functions.

And I'm more worried actually about the centralized stuff because I in in kind of like a pure smart contract uh universe, you can actually like see everything and and how things are codified and the processes. But then, when it comes to these uh more centralized assets, you know, there's something where we need a lot of visibility. I think actually uh credit to to uh Guy and and their team, they've been working a lot on for example transparency and you can see a lot into what is actually happening under under the hood. And I do think that this this is one of the key key kind of uh uh uh benefits of DeFi is that you really see how the sausage is made. Right.

Right. Okay, so we're running up on time. We're going to end with the speed round. Going to get quick responses from each of you on a few questions, okay? So, first one-word response, who do you see as your biggest competitor?

Stani. The banks. The banks. Circle. Circle.

We're not building something that anyone

Okay, abstaining. Abstaining. Um okay. Uh one one-word or sorry, one-sentence answer, what do you see most DeFi founders get wrong? One sentence.

Oh, one sentence, not one word. I was trying to build something one word. Focusing on infrastructure too early. Too focused Too much focus on infrastructure, yeah. I think being too inward-focused on on the small user base that exists just in DeFi and not thinking about all the users.

All user bases. I think composability, basically. Not not focusing enough on Not composable enough. Yeah, and focusing on composability.

little composability. Okay. Now, we're going to do overrated/underrated. I'm going to go down the list. You tell me if you think this thing is overrated or underrated, okay?

No abstaining this time. All right? That's You got that, Jeff? All right, first, tokenized stocks, overrated or underrated? Jeff.

Overrated. It's like spot uh spot tokenized Uh yeah, to spot spot. Overrated. Overrated. Underrated.

Underrated. Okay. Uh liquidity mining. Um underrated. Underrated, okay.

Fairly rated. Overrated. Yeah. Overrated.

Overrated. Overrated, okay, interesting. Um intense. Intense. I'd say underrated.

Underrated, okay. Overrated. Overrated. Overrated. Overrated.

Okay, a lot of lot of contingencies here. Um we're we're running up on time. We got I got a few more. Stablecoin chains. Overrated or underrated?

Overrated. Overrated, okay. Uh overrated. Overrated. Overrated.

Overrated, okay. You hear that? You know, take that home. Uh non-EVM chains. Overrated or underrated?

No opinion. The The The tech doesn't matter. Neutral. Okay, doesn't matter. That's even below underrated, okay.

Uh underrated. Underrated. Underrated. Underrated. Underrated, okay, interesting.

Um and lastly, Arthur Hayes macro calls, underrated or overrated? Absolutely underrated. Absolutely underrated, okay. Absolutely underrated. Overrated.

Was that overrated?

Yeah, I'm sorry. Okay. Overrated. Overrated. Okay, does does hype count as a macro call?

That's what I was thinking. Okay, that's what you were thinking about. All right, that's it. Thank you to our three panelists. Appreciate you, everybody.