DeFi: Composability, Adoption & What's Next – Panel Discussion

hey everyone thanks for coming so we're here at the latest panel we're gonna talk about Defy specifically focusing on composability adoption and what's coming next so I'm Wilson from I'm Wilson from Masari but I'll let everyone else on the panel introduce themselves here I'm the VP of strategy with radar very well known for radar relay but we also are working on a lot of different verticals such as infrastructure go deploy no tops sponsor of Denver I am Vic mish I'm the founder of Alan right and I'm also the chief architect I'm Noah I work at you know swath on the engineering made there we're launching a v2 version of the smart contracts quite soon and so I'm happy to talk about that and all the other fun things that come up please do and Felix on the co-founder CEO of set protocol we recently launched social trading which has been doing pretty awesome and we are all about kind of spreading Defy through kind of brands and institutions that people trust excellent thank you all right so let's get this started I think first I want to take a little bit of a retrospective look at the last year and we SWAT we recently passed $100 a billion dollars locked in defy or deposit in defy a pretty significant milestone for sure it definitely shows a lot of user confidence within the defy sector and so what I want to know is with all of your groups with some boots on the ground what were some of the catalysts that kind of led to this kind of growth and is there any sort of concern at the moment that a lot of this money is locked up in a single project at the moment right now can I take this first one go for it so you know a lot of times we hear about composability and then there's a reference to money Lego blocks and we think of it slightly differently the way that I would think about it is actually not Lego blocks it's money Jenga so it's great that we have pulled D by advocates really deeply into the ecosystem with new and interesting complex products but you know as you and I were talking about a little bit that 1 billion dollars 61 percent of it is actually locked up in in maker and that's great but oh boy doesn't that come that with you know a ton of risks and so that's something that we've had on our minds for a while Iceland I feel like we're still in this market where it's it's all driven by speculation right so most of the use case of of what why do you want alone and why would why would you want alone that's you're paying seven or eight percentage interest right as a borrower it's that you there are people who feel that the market is going to go up right so that kind of is still the case and I think that will be the case for a couple of years but by them I guess if if this market is going to be a less a little less speculative there could be a shift towards like lesser interest rates that also could be very interesting but today it's I feel like the major drivers to speculation interesting for UNICEF in particular is the long tail of assets that we have locked up so I'd say the vast majority of that 1 billion that's locked up is in a very select few assets and that's great that means those assets are very popular and widely you know demanded and supplied so that's the good news I'm the slightly bad news is that sometimes there are mid and small-cap assets that aren't you know fully supported by a lot of the major protocols and so that's one area in which you know swap shines we are completely agnostic to the collateral that comes to the table except insofar as we do you lock people in to eat but you know that kind of comes with comes with the territory but we've seen recently an explosion of growth in the liquidity of again small and mid-cap tokens on you know swap and often that's actually the only venue for trading and price discovery for these assets and so that's something that's very interesting that we're excited to see continue and also in the upcoming version that we have were we're going to be expanding the pool from eath only pairs to arbitrary pairs and so we're expecting this trend to continue and accelerate and we'll see where it goes well I mean these are good points they guys made on a really high level like where I see things is that a one building is very good like psychological kind of like milestone I mean if we really like think about it like a lot of it is like S&X as collateral and whatnot and it might not be legitimately like logged and whatnot but it's a good psychological milestone and for me I think it's essentially deeper is starting to cross the chasm right like deep fry historically has been used by very few people like today and I think that was when a lot of the technology had to had proving right make heard out like launched like a year ago and it proved itself over the course of that bear market that is something that has works many other projects have launched in 2019 and have to prove that no it's it's something that actually works and economically it's also something that is secure from a smart contract security perspective so I think like those things like kind of helps cement like defy as a protocol that like people can rely on and then the second half is I think is about education right people are starting to realize and understand the value proposition and use cases these protocols and I think that's why even though eath was no 300 something dollars like in a middle of 2019 the amount of locked in deep-fry was significantly lower than it is today in the same eath price so I think like we are able to see like kind of this maturity of the system and I believe that we're starting to try to reach the more mainstream now as we try to like get more people on board it into D fine we there's a number of different companies try and do that no no I appreciate all the answers and I'm glad you kind of brought up that last point there Felix about the billion dollar mile so may not being a perfect metric and so when you started talking about adoption you know what are some of the other metrics that you may use to kind of measure user growth on your platforms or adoption of your platforms and how do you take that and determine what are gonna be some of the next products or offerings that you're gonna put out there I feel like I'll start with you again I agree that most protocols value locked is not a good metric for set it actually is a great metric because we are kind of a like kind of asset management is like the type of protocol and AUM is typically how you would measure progress of that but I think for other protocols like you know lending you might care more about like loans originated or how much interest has been paid if you're an exchange you might care more about volume that has been generated or no aggregate amount of yield so I think those are some other metrics or like if you're thinking about protocol you might want to normalize for the price in which you know users actually got into the lock started locking versus like also accounting for the price appreciation penis there are a variety of users that we have to kind of optimize around so there's retail traders there's arbitrage errs there's the quiddity providers so we're always playing this kind of delicate game of balance where we want to provide tools and analytics for all these types of users and so it is an interesting actually problem deciding as a company what you want to focus on you know we've spent a lot of time on our kind of retail trader interface but if the majority of volume isn't coming through there but it's instead coming through say arbitrage BOTS which are run on like a CLI or you know it's some type of automated environment or if they're coming through integrations you know other people who have wrote their own kind of plug-ins to the intercept store contracts then maybe it's not really that valuable actually to spend so much time on you know on this one particular interface and so we're excited to see the the ways that you can access you know stock liquidity and you know defy liquidity in general they expand to a variety of different use cases and really fragment in a good way you know use use cases across all these different areas today in the market right like we have interest rate that's usually based on utilization right like utilization on a specific pool and that one number which is which is advertised as the industry I don't believe just carries the interest rate of the currency it also carries the like the hidden risk of the system the the hidden risk of the collateral price suddenly collapsing etc so in in this year probably like what even what we are working on is is trying to split these things apart so metrics like understanding the actual interest rate or or the opportunity cost of a loan currency of it separately from what would it cost to say insures the collateral right so it's this year when we are going to have more like work done on how do we have a term based loan and and things like that so I I find that this year we'll talk more about interest payments being done as a as a good KPI because that's real money right like one is paying someone real money in order to hold a hold of borrowed position that's a much better metric compared to say how much is a total amount locked in the fight because it can just be locked so that so in the combination so we have the collecting insurance as a parameter on how much it's being paid and the interest rate that being interest amounts that's being paid is a great key player according to me and you know I think it's interesting a lot of the metrics that we've used demonstrate depth pulling a lot of previous advocates for defy further into the ecosystem but what I am really interested in is seeing breath I really appreciate how set protocol is trying to actually bring more in to the defy system and I think you know one of the issues with the use cases is that there's inherent complexity right you have to understand first finance and I would argue for many of these products really complex financial topics and then you have to figure out how blockchain and crypto work and I think that represents a real barrier so the more that we can do to actually bring and measure bringing new people into the D fight ecosystem I think is just as important as measuring a lot of the depths and the continuing interaction that we're starting to see so I gotta say it depends on the protocol it's really specific to what you're trying to do and but there are some more general ways that we can start making this a little bit simpler as we go along alright it's not not about you mentioned risk as well and so what I really wanted to also talk about is the idea of composability this idea that you know money Legos or money Jenga with that ability to integrate with multiple protocols it brings us added utility to each application that you build off of the contrast of that is it adds a substantial amount of risk as well so how do you approach analyzing risk of integrating with other apps and how do you protect against a situation where others can potentially exploit these cross app dependency differences no I'll start with you this is something we're very worried about always you know a smart contract architects it's kind of our number-one concern and you know it's easy it's easier I should say to take a bit of a siloed view and just say that you know we're only gonna care about you know shop Liberty providers they're our core clientele and if they are safe then we you know feel comfortable releasing what we what we made out into the wild but that does take a bit of a you know that's a bit of a kind of moister view and I think that you do sort of have to take into these into account these sort of broader ecosystem risks and you know Charter quantified what those are we saw one maybe earlier several hours ago that involved a variety of protocols and some margin lending attacks and you know leveraged attacks and things like that so I think the good news about all of this is that these these issues are very much in the open you know anyone can kind of come in and exploit these vulnerabilities that they do exist and unlike in existing financial infrastructure where issues are extremely a kind of system at like if there are issues they're extremely low-level and hard to hard to surface and you kind of see this bubbling and then the sudden explosion like you know in 2008 where there was this really very arcane combination of factors that that resulted in a very bad downturn but India at least you know we're seeing these these issues very early and we're able to design around them and think adversarially from the very beginning and I think that's a really powerful tool that we should take advantage of and you know not just boom own the fact that you know it's kind of easy to attack defy in some ways but um let that make us kind of stronger and more resilient I'm a big fan of antifragility right so when we when these systems are being built and these have complex very complex components right so one of the things that developers as as a protocol developers can make sure that understand exactly what what impact or the disk impact each of these components are doing and and we have to re-engineer so that the comp has the kind of competence of building can can be even more smaller and thus even little things so that within those components at least the risk is well-defined and the boundaries of the risk of well-defined right so this this specific here probably they'll be evolution towards having more tokenization like be we are also working on something called a MFT we call it the multi fungible token which is which actually captures a pacific portion of the risk separately individually right so written within that component the risk boundaries are well-defined so but if we start building components like that I feel like instead of me making a more central centralized kind of a design we move away from a time and as we tokenize more and more they'll be they'll be less risks in protocols working with each other you know I want it I'd actually like to build a little bit off of it what everyone has talked about here and I think at least in the way that we're thinking about the way forward I think the best way to harden this system and and you know speaking to you know what you talked about a little bit earlier is to bring more competition into the system is to bring more players to enable them to have really great infrastructure to stand up get going and be a meaningful part of the ecosystem it's obviously a huge part of our roadmap because we see infrastructure as a barrier we want to lower that barrier and let more people in so that we can you know think about hardening a lot of the governance infrastructure that is so important to making sure that we can scale this and head off a lot of those mistakes really early yeah looks good well if I were to add anything it's that I mean if you were building a new project today that's gonna use a lot of these different building blocks like I think there's two things that you need to really be aware of I mean especially for financial like protocols that you're using I think one is it gets like smart contract security like are there any like very obvious bugs and typically if you're gonna seriously be seriously building on top of a protocol you'd want it to be audited the second is the economic security as well right I think is the economics is kind of what you're relying on like sound and I think that's where know there's a number of companies they're actually starting to do economic modeling for companies such as like gauntlet or whatnot so like how much research and modeling have you done in kind of the and how much stress testing have you done on your protocols which is where really why I like like compound and the report recently that they did what gauntlet to try to understand those risks and I think on a smart contract security side like I would expect there to be multiple audits done like even formal verification is would give a lot more comfort for kind of our protocol before you decide to seriously use it otherwise I think you should reserve you know any using any other protocol more for like a hackathon project or whatnot I think the point that you make is really sound just you know testing out and pressure testing not only from a infrastructure perspective but or smart contract perspective but from a economic and game theory perspective the tough part is that you know you can only really pressure test incentives by letting it into the ecosystem and seeing how it plays out right it's kind of the catch-22 yeah exactly do you uh as a follow-up question do you think one of the things maybe not holding it back but that could take this to another level is providing some sort of a han-shan insurance for a lot of these uh potential vulnerabilities I could pop up I mean on chain Insurance certainly can help but I think even on chain insurance hasn't been tested yet yes on to insurance right like without understanding the actual risks like even if you take a in the traditional world right like if you want an insurance policy that is there is a well defined risk understanding of risk and it covers this and does not cover this right now with a lot of things we are building we don't know what how much we can lose right like and and what do we do if we have insurance do we do we stop after a specific volume and things like that right like maybe like we should have limits on what each like contracts can do probably and things like that so that's another whole topic to discuss about like on change insurance on smart contracts but insurance on on specific items like say again the collateral there could be a collateral insurance rate like around the price fluctuation of the collateral and small things like that can happen but on chain insurance is a huge huge yeah agreed very much in its very early days still speculative but um I think moving on one thing that we've been paying attention to has been the growth of sample coins with Don aetherium and then within the DPI ecosystem and you know throughout the course of the year it started to realize that the transfer value of sample coins actually surpassed that of beep and so it's definitely an incredible achievement you're starting to see a lot of people that want to come on and utilize this by paying with an actual stable asset but what are what could be some of the other implications like for instance could you see this impacting the security of the network say if there are more dollars that are existing above etherium then etherium total market cap I mean that's that's exactly one of our big worries which is like cool let's look at the incentive systems what if a stable coin comes on has a far larger market cap than what what happens with that shift in incentives and I'd actually like to hear what you guys think about that like when the incentives start to really meaningfully change against another asset and away from aetherium hello yes sorry so the stable coins itself it's it's a nice it's been a nice there were multiple good models that that back these table coins right so it's not it's not one model that that has worked and one model that has been tried there is also lists in in all of those models right and the one stable coin is not equal to another stable column and we have not solved that also like so we should have markets where like there are there are list markets are against each stable coin so that we we can understand the risks involved in these stable coins also for example tether has a fairly different risk model compared to say USD C even though they are very similar in in terms of how how they are architected and die obviously has a very very different model and Die is more exposed to say a black swan even and and we've not seen a Black Swan even happen either so with these things around around the block I think ethelia more like the more hard like the other standard assets like a tyrion bitcoin all these being the collateral I feel like that's that's a better system even though they are volatile that's a much better system than just depending on these table coins because we are we are building like right now it's like a house of card and so I I'm not a great fan of building like another system on top of the stable crime and we don't know where it's going so see he's come over to the Jenga side of the house he's on drugs with me now yeah we're gonna be interestingly moving away from this kind of a paradigm in the unislope v1 contracts we're gonna be yeah opening up for any to any pairs and it is sort of a it was a shift for us for sure you know I think it's a testament to aetherium that we can feel comfortable you know kind of opening the floodgates to some extent and not privileged in this unique way in our system and I think that that you know it's just kind of like an easy to the world story there which is great but it is also on the flip side a bit scary and of course I would just love to see as a user of etherium for there to be more you know as projects with uncorrelated risks and so you know if you are using stable coins and they are the predominant means of exchange you know you'd love weed you know we'd all love to see some diversity in what those stable coins are and I think we actually have done a fairly reasonable job with that so far I think the risk characteristics of dye versus us DC versus tether are all fairly different you know of course there's there is some underlying similarity there but you know I I think this is this is gonna be a problem solved by you know over time as more projects you know come out and there's you know metrics on you know the average prices of bundles of these stable coins and things like that and so I'm not gonna be able to speak to the like that you know security considerations as we move to Perth mistake and the price of Ethan all that you know I'm no expert there but I do think that there is I'm not too scared about it right now and I think that there the potential for these things to get better over time is definitely there as well yeah echoing was symptom I think that's too early to start thinking about these risks I think that defy and stable coin use this probably still should 10 or 100x volume and usage before it becomes a meaningful risk so I think that's where at least focus would be or I think the deep eyes focus should be is just like increasing growth edge and then kind of kicking the can down the road if you will is a part of increasing that growth exploring new maybe like crypto collateralized stable coins so for instance we recently had the proposal for medical a potential alternative to make her and I system feel like I mean certainly certainly so I think that right now like we need to run as many experiments as try many like different products while things are still early I think this kind of goes ashen of like risk like no we should be making mistakes now rather than when things have a thousand necks in in size and is touching and influencing the whole come like eventual system if you if if there are those in the audience who want to explore some of the alternatives to the current maker governance structure at least for a risk standpoint I think medico an actually has put a proposal out there and it's it's worth taking a look and starting to see how other people are starting to consider really developing the system to be a little more hardened died also one of the interesting issues they have to solve our time is how how do we do the interest rate that smart like kind of market driven right because that could be governance and this can continue but that that something should happen there so obviously there are there are a lot of things that we can explore in the stable coin made and there's going to be these other stable coins I think which which would have these good interesting experiments and more market driven market driven decision making that affects the stable coin directly very far apart then very quickly we're all about market driven things you know softened so one thing that we're looking forward to exploring in the future is decentralized price Oracle's so obviously the fundamental component of basically any stable coin system is an Oracle Network and we've seen actually to be fair a variety approaches there we've got makers approach we've got this new M stable proposal we have you know people using divert for Oracle's you know we've had the chain link Oracle's you know stop is going to be putting out and you know kind of a slightly new design in the coming weeks and months and that is again just gonna add to the diversity of options when we're thinking about how to build these systems in a robust decentralized permissionless way excellent thank you and know you brought this up earlier talking about the potential switch to a theorem 2.0 just out of curiosity where where does this fit into how does this impact your thoughts as far as short term and long term goals or roadmap thing now we use software very sensitive to the user experience and so one thing that we did at DEFCON is we had this demo of an optimistic roll-up chain that used you know swap to exchange to assets and it is a pretty radical reimagining of what the user experience is like in etherium and of course you know you know ease 2.0 that is gonna be coming in a year or two isn't going to be quite it's not gonna be quite at the layer or two level of scalability and speed and all of that but I think it is gonna be a chance for a lot of these projects to kind of put on a fresh face and start thinking about how they're gonna be attracting you know the next wave of users because I think that we're going to be finally removing one of the last kind of vestiges of maybe the slightly more legacy version of crypto and moving into something that you know could theoretically be around for for the very long-term future and so I think it's it's exciting and it's a it's definitely a risk but you know I think it's an opportunity as well you know when we think about that I see a lot of infrastructure pain coming down the road right the clients that support it are really nascent I think they're gonna require constant updating I think that's going to create friction for a lot of folks in the eCos so you know I don't wanna I don't want to glance over that as a barrier to to making things go smoothly you know another thing that happens is like what what if what happens if some people don't adopt it and I hate to throw more of those like thought questions and at the very end but that's something that I also have been thinking a lot about absolutely yeah I think the initial question very asked about the metrics right so I have the feeling that with EPOC each 2.0 an interesting metric would be to look at the average size of transactions so as these scalings starts kicking in I I think that we'll have more smaller smaller long smaller transaction sizes because a lot of these loans today a small alone might not be a Kaname Kuran like taking a $100 loan might not be possible today because it's it's just too cost-prohibitive so those kind of things could happen and the average size of loans could come down and that will be very interesting and that'll be maybe the first step to get to a get to the mainstream where there could be people who who have whole like just the etherium on on the wallet probably and they can and and instead of going to a payday loan they might take a 20-day loan on through through these protocols right so that they would be really interesting thoughts doing final thoughts I mean frankly like it feels like a lifetime away before youth 2.0 will launch and I think that similar to your point there's gonna be a very very long migration period as well I mean look at maker down like it's on the same chain but even the migration from single cloud will die to multi-cloud will die now there's no clear timeline for how that's happening it's been a huge like effort on its own and it's unclear like how much more time will it takes and I think this will be another one of those kind of like huge migrations that will probably take years actually to to fully kind of realize so as of now my head is mostly in 1.

0 which you know is kind of where all this activities living today and I that no this will be a lot of good kind of like experiment blueprint for work how things could be in future but my that's it feels like too far like a way for from things right now agree it's gonna be a gradual process it's not gonna happen right away so run it up on time here I'll start with feelings going around just final thoughts what are some of the the latest changes are things that are coming out on your project and then what are some things that we can look for in the d5 space within the next year short-term so recently we just launched social trading which is essentially kind of a decentralized like platform where someone can get followers and if they're particularly skilled and monetize them and if you're kind of a new trader you can implement some sort of like you can follow a trader and implement a fun strategy really easily right so it democratizes essentially kind of hedge funds an extent so we are pretty excited about kind of growing the dphi user base by not from product familiarity which is like for example what Dharma is doing where they're offering a product that people are familiar with with enhanced capabilities and functionality but instead we think that people are actually inherently interested in dphi products and instead the way to reach them is through people they're already familiar with right like dough is inherently a social phenomenon like most people trade or invest when someone else they know invests or they watch someone on YouTube and that they trust already and they'll make a decision based on that so I think that going forward we're gonna like this has already proven the case in the in the past few weeks with social trading and we're gonna try to expand no more internationally we're going to try to reach kind of more users via kind of social media via YouTube in addition we're gonna be continue to enhanced experience by adding more assets by making the the process much more easy and we're pretty excited about that and I think that like this is one of the ways that defy is gonna break out of the 40 or 50 thousand people just a day to the next hundred thousand or the next million awesome thank you uh we got like two minutes so the thirty forties like I've done enough promotion of yunusov follow us on Twitter we're gonna be announcing things about our v2 very soon code blog posts lots of info so see you there from our side as I mentioned we are working on something called MFDs multi printable tokens I would really like to hear from the community on looking at the specs and seeing how how it's interesting I feel like we cannot keep creating tokens for for each of the things we are trying to build so something like having a single contract and representing multiple tokens is a very interesting idea so I'd like to talk to you guys about that perfect Shayla we will be working on two big things which is bring more people into defy and make that experience fluid and easy and simple so you can expect that to radiate across radar products excellent well I want everyone to thank all of our guests this is an excellent panel I really appreciate them coming up and spending time with us and unfortunately don't think we have any time for questions but I'm sure they'll all be down there if you want to talk to anyone here so thank you [Music] you