Fireside Chat I Kartik Talwar and Sergey Nazarov I Pragma Cannes 2025

All [Music] right, with this we're going to jump right into our next session and that is a fireside chat with Sergey from Chainlink. Please give him a big round of applause.

Welcome back, Sergey. Great to be back. Um, see you. Good to see you, too. We always end up talking about a bunch of things.

So, I'm I'm going to guess it's going to end up being the same this time, which is great. The thing I want to start off by is asking you, um, how are you feeling about DeFi these days?

Yeah, I'm feeling very hopeful. It's well over 200 billion. Um, the interest rate, the Fed interest rate would ideally be going down by uh sometime next year. uh there's more and more creativity within DeFi about how to generate yield. So historically when DeFi is able to generate significantly more yield than the Fed interest rate, it does well and value flows into it.

There's also more and more compliant ways to interact with DeFi that I'm seeing show up. And we have stuff we've released around crosschain identity and compliance and the ability to make things more compatible with DeFi from the institutional world. So I'm seeing the ability for DeFi to lead to better yields. I'm seeing the yield environment being hopefully by sometime in the middle of next year more favorable for DeFi. And um and then I'm seeing institutional capital that is is looking at the the smart contract based financial products of DeFi more more seriously.

Uh those are all very positive sides. I can understand this for this. I can understand it slightly for the institutional side, but are people who are building these DeFi protocols really kind of building for potential next year's interest rate cuts and and they're baking in that far ahead or is this your best guess on like why this is happening? Uh, I guess I'm curious on like how would we see that this is kind of the reason why everybody's getting setted now without actually seeing any action on the the federal uh side of things?

Well, because they're finding ways to maintain high yield on on relatively safe assets like treasuries and and uh there's now tokenized private credit and other things. So I mean the the whole financial system is basically a a place where you get yield at a certain risk right and so if if the risk of of DeFi is even at its current level or it gets lower because of the security and the verification and all these you know properties cryptographic properties and the yield the the innovation around how to create yield on things keeps kind of stacking like they stack yield sources one after another on top of each other. Uh if the Fed interest rate goes down, that just accelerates it because when that happens, everyone starts searching for other other sources of yield. But even if that doesn't happen, um this community is just getting better and better at creating higher and higher levels of yield with lower and lower levels of risk. So it's kind of the difference between if if this is going to happen slowly or quickly,

but it's happening regardless.

But but it's Yeah, but it's happening regardless. I I think that the important thing is is is going to be what the interest rate is and the the the new Fed chair that you know they want to have in the US or at least the person who the people who decide that they want someone who's going to cut rates. So if if you do get someone who cuts rates you know regardless of what that does to inflation of the US economy it'll be beneficial to DeFi as long as DeFi continues to have those higher yields. And uh then once everyone looks at DeFi from the point of view of yields and they ask themselves like okay well you know it's great that it has higher yields but does it also have higher risk? That's the conversation that started happening you know the last cycle with DeFi is like is it is you know I I have higher yields but what risk am I taking?

There's a lot of crazy stuff going on but but now some of that stuff has been made to work significantly better. Uh so I think that plus institutional capital being more willing to go on chain my opinion could mean that DeFi goes to you know 500 billion a trillion that's all that's all very very feasible in my mind that's going to be a a an awesome uh time if that happens. um you talked to obviously a lot of financial institutions um and just in general you've been doing that for many years. Um the thing I'm curious about is like have you noticed any obvious change in how they're thinking about things this year versus the past few years? Um is there kind of something that really is making it easier for them to kind of play pay more attention?

Uh and then on that same note, is is yield still the only thing that matters to them or are they seeing any other opportunities here too for why they should care more and faster?

So traditional financial institutions have a different dimension of risk than than DeFi and and um kind of the web 3 folks have. They have this dimension that's compliance related risk. So people in DeFi don't even really know what this is because they don't verify their users. They don't comply with laws. They don't care.

It's just like it's a dimension of risk that they're just unfamiliar with.

What risk?

Yeah. What what what risk? Right. Exactly. Um but one of the biggest risks like there's counterparty risk and then there's compliance risk.

And the compliance risk is in is is sometimes equal to or greater than the counterparty risk in the mind of the institution. And so the compliance risk is heavily dependent on the laws and regulation and the ability for them to technically comply with regulation. And so that's what we are uh in the chain community placing a very big uh I would say focus on is we I'm I've been to DC a bunch Washington DC a bunch of times. I've talked to multiple central banks and uh the regulators assoc attached to those central banks and it's it's clear pretty clear to me that now with the US completely shifting their stance. The US is something called a super regulator, which means that because of the size of its financial system, everyone wants to be compatible with it.

So the US's stance on digital assets will get replicated across many other regulators through something called IASCO and a few other groups that the SEC has very strong uh influence over. In any case, what what that'll mean is now there will be clear laws and regulations for this capital to be allowed to flow on chain. And then their problem will be how do I technically prove things about my capital things like identity compliance that's kind of for us an additional dimension of data that now needs to be verified and placed on chain. So that that is definitely happening. Um, and before the compliance risk was like a hard no,

but now it's a

change that it's now easier for an institution to find providers to do compliance better or that they're okay with not deal dealing with this that they were it's that they can do it at all. It's because regulations themselves is prevented even trying.

Yeah. Not only have they presented prevented, but the stance of the regulator was very clearly it's a no and it's going to be a no for a while and therefore there was no reason to even look into it. Now the answer is it's

maybe.

No, it's not. It's not a maybe. It's it's like yes, but it's going to take us a little time to get out the the formalized guidance. But but the institutions deal with regulators also on an informal level where they just speak with them. And in speaking with the SEC, you know, I've met with them, our team has met with them multiple times.

Many of the institutions we work with and DeFi protocols we work with have met with them. And the answer is basically yes, we want to do this. We just need a little time to formalize it and to clear guidance. And so it's it's not like we went from a no to a maybe. We went from a no to a yes.

And now your question is not like am I going to be taking risk by building uh stable coins or tokenized funds like my question the question is how quickly do I want to do that so it's it's really really shifted and uh

a way better spot to be in

what yeah it's it's way way better and it opens up a lot of opportunity for the DeFi and the web 3 protocols because if if you're compatible basically the way I would think about it is like imagine Imagine if a chain with a few trillion dollars showed up casually. Like imagine if someone launched a chain and it had $4 trillion on it. Like would would we would would people be interested in in integrating into this chain and allowing the the users in this chain to to access their their application and send liquidity into it like or or would everyone just be like, "Oh, you know,

you're not decentralized enough." I don't I don't want to deal with you chain with $4 trillion. Like $4 trillion is is like one user. It's it's like one institution. We we work with multiple institutions that have multiple trillion dollars that either have a chain or are launching a chain to put their clients assets on that chain.

And then those assets are going to be looking for yield in DeFi. They're going to be looking to buy real world assets. And so we're creating the connectivity through CCIP. We're creating the data to value the assets and do the proof of reserves. And here at this conference, we've launched uh our compliance system, the automated compliance engine, which allows the institutional capital to flow into those assets and D5 protocols by proving things like identity and complying with those new regulations.

Um, so it's it's actually a very like I think people will look back at this and it'll be obvious like yes, you know, when $20 trillion shows up into your into your market, things fundamentally change. The problem is that people have heard it so many times, they're kind of like desensitized to it. And that's actually the problem of our industry. Our industry has these like two two things that happen. One thing is that like a new idea is hyper exciting and everybody loses their mind and they just go crazy.

like this is the best idea I ever heard and they hyper hyper sensationalize the idea. But then there are ideas that make logical sense that are repeated again and again and again and again like this. This is this is that idea and and then it's like you've heard it so many times that it's like well I heard all this before like yeah banks will come and ask institutions are finally coming in 2025. It's like same sentence every seven every every like few months every two every year or two. But that's like a I would think I think that's a massive um devaluation of that idea just like there's a hyper S sensiliz what the hell am I saying?

Sensationalization.

Hyper

sensitivity sens.

We get it. I think now you're getting me. Uh

whatever.

This is being recorded. I don't want this.

People I said it right a minute ago. The people go bonkers, right? So it's it's like very lopsided is what I'm saying. So everyone is like, "Oh yeah, the banks. I heard this before."

Like, okay, you heard it before, but just like think about it. Like look at what's going on. and and and the systems that are set up to deal with these with this capital will I think be very successful.

I don't think anybody will disagree with the capital argument here. Uh

that's why I make it. Yes. Yes. But I guess what I'm saying is the the second half of that sentence is as you talk to a lot of these institutions, how do you feel like the ethos of our ecosystem will change because of the capital they're bringing in? Like do they care about interability?

Do they care about being in a public network or is it going to be like, well, it's it's my chain and my universe and my rules and you're going to end up having now another bank with just better smart contract support. Um, do you fear us losing the the reason why we have public blockchains? Yeah. Yeah, I do fear that quite a bit. So, here's here's what I think is going to happen.

So, this is like the cryptocurrency industry, right? because it's it's three and a half trillion mostly cryptocurrency. But at some point the internet was the email system, right? Like it did email. And if you talk to people about the internet in like 1992 93 and you say the internet, they'll tell you email just like when we talk about blockchain technology, people say cryptocurrency, right?

Because that's the main first use case. But then a lot of other stuff happened in the internet, right? Like you had search engines and web pages.

E-commerce is now Yeah. E, right? e-commerce, the mobile internet, voice over IP, video over IP, all these all these things, right? And so now the internet by definition is something else, right? It's not an it's not an email system between, you know, email clients, which is what it was seen as at some point, right?

It was like what is the internet? It's a system that's going to replace the US postal service, right? It's like it's the system for sending messages to each other. Um, that's I think where we're going from. We're going for like cryptocurrency is the email use case of of our industry and now we're entering a whole new world and and the way that world is going to work is based on uh the numbers right so you know varys and numerous like great vary numerous time guys and and the varys and numerous now is going to be that there's more real world assets and tokenized funds than there is cryptocurrency.

So instead of our industry being about three and a half trillion or five trillion or 10 trillion in cryptocurrencies, it's going to be about 10 20 30 40 50 trillion in stable coins, tokenized funds, tokenized equities, tokenized commodities, tokenized real estate and that's going to change what defines this industry. So my view is that cryptocurrencies will become a subset of this industry and there will be other subsets like think about all the fiat currency that can be tokenized.

All of it,

right? All of it. Ex. Exactly. Right.

That that alone will surpass the cryptocurrency industry. Then think about all the equities that can be tokenized, all the commodities that can be tokenized, all the funds that can be tokenized. Just that right. So when that happens then yeah this this whole thing will change. there will be uh an even greater financialization of this industry.

Uh regulation will become a enabling force rather than like a disabling force. Um I mean I hope the industry retains its whole decentralized ethos like I'm totally into that. It's one of the reasons I joined the industry and you know replacing institutions with mathematics and cryptographically guaranteed you agents called smart contracts. I'm super into that. I big big believer on that and that's super exciting.

But at the end of the day when we look at what actually drives our industry, it's the money, right? So like when the money says I want DeFi protocols, everyone builds DeFi protocols. When the money says give me more NFTs about random stuff that I can flip, people make NFTs about random stuff that they can flip. Now what the money is going to be about is institutional grade tokenized assets. That's that's what I'm I'm seeing.

And that that's going to change the character of the industry. Just like you had like this NFT boom and you had a bunch of artsy NFT people show up. Remember that? They all kind of showed up and they were like trying to explain to you why JPEG JPEG was a piece of art, right? This JPEG is like my god blown.

Like this JPEG is wow. like yeah it you know I I I didn't really understand personally unless it's like a really good JPEG which a lot of them were eight bit pixel JPEGs like wow holy moly with eight bits that's like real serious there um but is it going to be the it's going to be like that but like a thousand times more because those people had 8bit JPEGs and these people have the global financial system that make sense so it's going to be more this this whole place is going to change uh you know for better or for worse. I hope for better. I hope what happens is that the decentralized ethos and the ability of this industry to create and force transparency and reliability is something that forces that group to build things a certain way. That's kind that's how we're building you know the chain link set of standards and protocols and the the the ecosystem that supports this transition of the global financial system into web 3 is is that they have to build things in a transparent highly reliable way.

That's probably the best that we can hope for. What we the best that we can hope for is we can take our ethos of decentralization and transparency and reliability and as they enter here we can teach them those principles and get them to adopt those principles and the way that they do things. Um but you know they will they they will very very very naturally influence this place because of all the money that they bring. It's it's it's going to be it's an inevitable ines and escapable fact in my opinion.

How far out do you think that world is? Is that two years from now or five years from now? 20.

It's right now.

Right now.

Yeah, it's right now. You go go ask anybody out there on in the DeFi thing. How much How would you like to work with Black Rockck?

Oh. Oh, no. Sorry. I guess I mean like them the institutional side being ready to actually put the money in at that scale. Not not testing like actually seeing $4 trillion somewhere.

Um

I think you're definitely seeing the beginning over the next uh

I guess one to three years.

Okay. I think that's that's when that that capital Did you say four trillion or one trillion?

Like four trillion. Yeah, I guess just just like exceeding the exceeding the count of the current market cap of crypto. Oh. When do I think it'll flip the current market cap? Uh I think stable coins I think that could happen within three years.

Bless you. I I think that could happen within three years. I think sta stable coins as as a group could flip uh cryptocurrency at its current market cap within three years. How do you think that'll change what chain link will be in that same time period compared to what it is now?

We're going to provide a lot more proof of reserves and um crosschain will become a lot more about payments and um integration into into traditional systems will become also really important. Basically the sta the stable coin boom is going to reignite the whole thing about payments. So how do payments work? Is a stable coin a better form of payment than a payments network? Uh I mean it's kind of mind-blowing, right?

Because because you turn on uh the the YouTube clip and it's like the Visa CEO explaining why Visa is better than a stable coin and the the host of the show is like well explain to us why Visa is superior to stable coins. That's that's not an that's not a question that the Visa CEO has to answer like a year ago, right? But now people want to know.

So

now they're actually asking them directly.

They're asking them directly on on live television like

this stable coin thing. Yeah. I mean stable coins are in many ways an obviously better form of payment, right? So it's just like I I think it'll the whole the whole industry the whole crypto industry since the very first days of of Bitcoin and even before the first chains appeared that weren't Bitcoin um were very payments right the I mean the first thesis of Bitcoin was micro

money yeah it's it's always been money as the introduction

yeah money and and microp payments right

when when the Bitcoin price is is below you know a th000 bucks it's a great microp payment system when it's when it's above 20,000 it's digital gold, you know, that's kind of how it has this amazing dual property depending on on the on the price of the asset. Um, but but in the beginning of the industry, it it it it was seen as as as a reliable crossber microp payments and uh and remittances solution. So payments is a very like deeply ingrained thing that in to answer your question, I think chain link would be very heavily involved in. Um, so maybe my my final question here would be seems like this is a new world we're we're heading towards and there's nothing we can do about it other than enforce not enforce like overcommunicate what the ethos has been for this ecosystem and hope that it retains as as the new capital and the new players come in. Um if you were a developer or a founder, how should you think about what you can do in this space in terms of the opportunities available to you and uh what's a good way to think about being take take advantage of the situation?

That's a difficult question. I guess maybe what do you think is missing that people can absolutely think about building that should be ready and available in a few years? Um and uh how much I guess do you think building on smart contracts matter over the next few years and and uh potentially advice around it? I

I think finding categories of financial products um or making stable coins that you that do yield sharing and and and work really reliably and you can get distribution for th those are the two things that are that are going to take off now. I think if you have a stable coin that works well, you can get a good custodian now much much much easier than you could a few years ago. That'll give you significant legitimacy. So making stable coins that do creative strategies on yield sharing, that type of stuff. And being involved in the stable coin payments boom, that's a good category.

On the other side of the equation is the real world asset um asset issuance trend, right? So I I would look at what what is going to be the industry's role in payments and what is going to be the industry's role in asset issuance and and in the payments world it's like how do I fit into payments?

Do you think that's a hierarchy like is is asset issuance the layer below payments or do you treat them separately entirely? It's just two sides of a market, right? It's it's the the payments are the buy side and so you're enabling uh liquidity to flow towards things and you can make money on that not by charging fees but by keeping the yield on the treasuries that back the stable coin or or whatever creative financial engineering you can do on the underlying uh kind of collateral behind the stable coin. But it's a it's fundamentally a payments mechanism. And then on the tokenized uh asset issuance side there it's like what can I issue that there will be demand for and you know what if I tokenize real estate what if I tokenize gold what if I tokenize some kind of uh strategy to trade

we haven't even gone to the derivative market yet

right the derivative market I I think vaults are going to be a big thing you know they're going to be basically uh a new version of asset management where you can you can implement all kinds strategies and vaults. So, you know, maybe go build a vault and become a curator and and get a yield or a fee off of that. That's a that's a lighter way to do issuance that doesn't require to make a company. You can become part of someone's ecosystem and do issuance that way. That that's not a bad idea.

Um, on the other end, it's stable coins. And that's those those are the two categories, but but these are not like highly speculative memecoin things, right? These are, you know, let's do payments, let's make assets. That's that's kind of the the the basic thing that the financial system does, right? It lets you pay for things or or you can generate assets that provide yield and return at a certain rate of risk.

And so those are those are the two I'd be choosing from at at the at the moment. And if you if you want to work on making great infrastructure and oracles and Oracle networks and you're really smart and want to work a lot like a lot and you love work and you want to do it a lot, then you should contact the Chain Link Labs team and and uh and and tell them your ideas. That's that's my that's that's the first thing I would do.

Great advice. That's my first advice. That's my first and best advice.

Sergey, always a pleasure having this amazing conversation. Please give Sergey a big round of applause.

Thank you. [Music]