How DeFi Goes Mainstrteam Bridging the Gap Between Degens and Regulators - Zaki Manian

and i think what we need to do as an industry is start communicating that like what our users are doing right now is they are sort of being the alpha testers of the financial infrastructure that we want the rest of the world to use um and the risks that they're taking are sometimes just sort of plain old financial risk but are frequently the risks of using like really complicated hard to use systems that will send your money into nowhere and nothing at any given moment um and i think we should do more like we need to sort of elevate this use case and these users as something more than just gamblers who are sort of speculating on all of our software um and if we don't do that we basically get you know we get pigeonholed into what have we built as nothing more than like elaborate gambling systems um and that would be i think a tragedy so i think regulators have a lot of blind spots when it comes to this space um they view everything as a casino um what when the reality is is software only really starts to work when people start to depend on it um you know we can build all of these things in sort of uh uh self-contained little laboratories um and they will never become reliable and useful um and what we need is a population of people uh who are willing to like break and battle test things so this is what i kind of view all the yield farming and air drops and all of these other things that we sort of have characterized the sort of rapid expansion of this space over the last uh uh two years as kind of basically paying people for testing software um this is like the world's largest most decentralized most chaotic like global beta test of a new financial system and i think that's the way in which it needs to be understood but we have not really ever made any attempt to communicate um to people outside of this space that that's what we're doing here um that there is this like beta test going on um of all of these new pieces of financial software um and that sort of uh uh sort of the success or failure of that beta test has like uh positive societal consequences because it like weaves this legacy of of open source infrastructure that people can depend on um we are unfortunately sort of still like the status quo has been regulation through enforcement which i think is an idea that like sort of circulates in crypto twitter um but what this regulation through enforcement does is it it means that like rather than as an industry we are engaging with the sort of regulatory infrastructure instead it means that we have like this piecemeal interaction between various projects in the space that are each trying to find their like own individualized regulatory solution um to whatever the perceived infraction is um and this is basically created like incredibly perverse effects um in sort of how our industry is being shaped like so like we get to we like we end up in this world where there is like exclusionary criteria to basically like exclude people that are perceived as bringing with them too much regulatory risk uh mostly americans but then those those mechanisms are incredibly porous um like so i mean i think everyone in this you know everyone in d5 is familiar with like using a vpn to like access uh a user interface that you're not able to get access to um with the usip address um what possible like it's not really clear that this accomplishes like anything um to try and like sort of just sort of like cut off americans from the internet um and but on the other in a way that is like also very easy to get around um and so i think like what we have seen like what continues to be the case is that like the regular like the interactions between uh regulators and the space in this sort of uh uh enforcement driven mechanism has only the effect of uh of like basically undermining the things that the space is trying to do which is like the good the good effects of the space which is trying to like expand inclusion in this like innovation process that we're all in and have like a coherent uh uh a sort of completely like sort of inclusive uh innovation process um while accomplishing like very little uh in terms of you know the the sort of uh um you know like comments have been made you know like so like you know as the ico model was sort of put out you know uh sort of sort of uh deprecated by regulatory action well what did that do it just created like a bunch of places for institutional investors to start participating in this space um on a sort of unequal and playing field which then which has like long-term uh sort of secondary and tertiary effects um in sort of how this space evolves so i would say the biggest sort of thing that uh uh i think we should be looking for in the space is we should be looking for incentives for regulators rather than punishments um and we you know to the extent that we are uh laying out a strategy of sort of resistance avoidance uh risk minimization towards regulators you know there should be an openness to when the model switches from enforcement to ins to like incentives to uh to participate um we like capital markets are not traditionally regulated through enforcement traditionally they're regulated through through like positive incentives we're complying with the regulations gives you access to like larger capital markets um and that is the sort of most effective strategy that has been sort of sketched out that has been like the dominant way in which capital markets have been regulated for all these years but we don't have that in d5 we have the opposite of that we have a sort of complex litigation intensive uh rule finding process where every settlement sort of unveils like a little piece of a picture but it's not very clear that that puzzle will ever form a coherent hole um and so i think the main thing is that like i'm trying to say here is there there is there are elements of the strategy that are like you know we should make ourselves hard to regulate um but we also need to as a figure out a way to like sort of approach a more positive form of regulation when it comes um yeah so we are not yet in this world where meaningful conversations are happening um it's we are still largely in a world where regulators don't understand what it is that we're building um and they have a very superficial understanding like they don't understand like the difference between the a user interface to a smart contract and like the ledger in which it runs on but somehow we're going to have to get we have to deal with this so one of the things that i think is sort of important and is part of like sort of the guiding philosophy of sommelier is that reducing trust is skill is still key to managing regulatory surface area i think it's important to go back to the like sort of origin of the space and bitcoin um where bitcoin was really you know one of the things that was you know so important about bitcoin and why it was unable to unlock so much innovation is the way in which it was able to it like rigorously tried to to like reduce the surface area for trust because everywhere there's trust there's an opportunity for regulators to like regulators have like a deep sense of like where these trusted things are and those are the places in which they intervene and certainly we've seen this at the like you know evolved regulatory apparatus around uh like centralized exchanges but as we try to move beyond centralized exchanges we still have to kind of go back to this idea of what could we do uh to rely that like relies on trust um and so things that i think rely quite a bit on trust still are the user interface layer um we have to we when we're using all of these new tools that are existing we are very reliant on sort of this this like implicit software supply chain between like the original project creators and the website that they use to distribute the software that we use to interface with it most of us would not be comp uh comfortable just signing a transaction that came from some any random place on the internet um we'd all realize that that would put us all our you know our money at an enormous amount of risk um and so i think that like one of the biggest pieces of sort of like one of the big missing pieces beyond these like kind of uh uh uh sort of like measures that we like you know various legal counsels for various d5 projects will recommend oh block all us ip addresses and stuff like that is trying to figure out what our collaboration between wallets and d5 protocols are going to be needed to really reduce the trust in the software supply chain um and so this is a little bit about sort of now like what is how is similar approaching this problem um so similar is infrastructure for medium frequency d5 strategies we call sellers um so you can imagine uh you can imagine a smart contract that is doing something there are examples later on um so sommelier is a platform for running complex defy strategies um uh targeting ethereum as our initial target initially eventually other blockchains our goal is to move away from trust in the protocol and trust like trust in the protocol trust in me uh trust in you know the similar finance website um and into the brand into like like strategists as like the representatives of our protocol um and we are trying to build a world in which users of similier um are both on the strategy side the validator side and then the end users who are putting funds into the protocol are kind of focused on sort of interacting with each other and not interacting with this thing that is similar and so this approach to trust minimization is sort of uh sort of sort of how we sort of are representing this vision that we have of like d5 should rely west on trust um similar can be perceived in many ways as an alternative to multi-sig um you could have a multi-sig that was like running your d5 protocol and adjusting various parameters in your protocol or you could have something like similar a which is um which has this like balance between strategists and validators that are acting as checks and balances on each other and uh sort of enabling less trust in any one sort of single par and static set of parties um so as an example of like the kinds of strategies that you might be able to build on top of sommelier um borrowed strategies that dynamically optimize assets lent for yield um trend following strategies to uh to hold assets based on social media and other metrics um stable coin liquidity providing strategies that move between different stable coins based on yield um these are the kinds of strategies that we're trying to make possible uh inside of the sommelier system and our approach to trust minimization is really to say hey there are validators who are running on who are who are running the cosmos blockchain um who are uh who are who are sort of acting as gatekeepers between anyone who is managing any one of these strategies and uh the the actual execution of trades um and those the validators can you know can be can like make decisions like switching the strategist that is controlling any given smart contract um and so as you know this is sort of not entirely a similarity talk um but as you learn more about sommelier like we are trying to follow this this practice of of of sort of reducing trust and defund so i take questions last five minutes if anyone has any yeah absolutely so the way sommelier works is we have a this is like four different pieces so sommelier has about uh uh has smart contracts on ethereum um the smart contracts and ethereum are controlled by uh the gravity bridge like the cosmos ethereum gravity bridge then we have a cosmos chain which is sort of managing who the validators are what are the strategies that are sort of registered et cetera and then we have these strategists and so essentially that cosmos chain is the multi-sig and then we have strategists that are sending to the validators um strat like sort of updates to different sellers um and those sellers can uh those sellers will uh uh so like if the val if the validator set sort of authenticates that data feed then the validator set like signs off and updates the system and then we write the state back to it theory that's a great question alex yep the main purpose of the validator set is to like sort of regulate the sellers i mean the multisig is like so the gravity bottle is like you have a multi-stick that like follows the cosmos validator set it was like automatically updated as that is like people stake in and out of that validators we'll wait and see yeah right now it's just multisig it could be a threshold signature in the future cool their governance thank you very much this thing on okay