Bringing Institutional Grade Finance Onchain I Jan Gorzny

We are ready for our next talk. So, for this one, I'd like to bring on Jan to tell you all about bringing institutional grade finance on chain. Please give him a big round of applause. Hello. Hey, everyone.

Uh I am going to talk to you today about bringing institutional finance on chain. Uh so, I'm from Zerqa. I'm going to talk to you about Zerqa finance, but I'm going to take it from a point of view that I think uh makes it very interesting. So, I think there's uh a lot of reasons why this might be interesting, but uh we'll start in just a second here. Here we go.

All right. So, um I'm very interested to talk about this project because uh we're here at Pragma, which um as Kartik said, is a call for pragmatism. And I think at Zerqa, we're nothing if not pragmatic. I think what we've always tried to do is build out solutions and products that can really make an impact even if um they aren't necessarily, you know, going to be super decentralized or, you know, have some very idealistic properties. But, they are going to be practical, they're going to be useful, and they're going to be very pragmatic.

Um that was true when we built a L2. We had security built into the sequencer. And uh now when we turn to other areas like finance, we also want to be very pragmatic. And so, when I think about pragmatic um DeFi, I think about sensible and realistic DeFi. Uh I've been in the space for 8 years.

I've seen DeFi summer, it was really cool. Uh people got a lot of money through airdrops, people, you know, are still talking about it. Uh but, a lot of these yields that were very high uh or the airdrops were not necessarily pragmatic. They weren't realistic, they weren't sensible, they're probably not going to be very easy to repeat. It's unlikely that we're going to see a cycle like that, I think uh personally.

I don't know. Um again, uh obviously I hope the markets go up and things like this, but um the idea that high yield should go away, I think it is not the right one. We just have to do it in a more pragmatic way to do it. And so, if we look at high yield DeFi right now, I think there's two sort of big problems with it. A lot of it is either risky or inaccessible.

And when I say inaccessible, you know, sometimes you just need a large amount of capital, sometimes you need to be accredited. There's DeFi protocols that'll say, you know, get 2 to 4% over here, but also if you can prove that you're accredited, I can give you 6% or or or something else like this. Or there's just bad UX, or there's high capital requirements even if you don't have regulation or anything like this. There's there's not an opportunity for you to probably leave this room very easily and say I'm going to get 12%. We're trying to change that.

I'll tell you more. But the other side of the problem that I see with high yield DeFi is is risk. Risk comes in a lot of forms in DeFi. Some of it is technical, some of it is, you know, financial, some of it is just related to how protocols evolve in this space over time. But you don't necessarily want to come into this area, especially as a new user, and try to figure out what it means to loop a bunch of tokens to get a bunch of yield, and then be really worried about contagion spreading if something goes wrong.

So, I think risk and inaccessibility is a barrier to mass DeFi adoption. And I think when I entered the the space, there was a narrative that said, "We're going to bank the unbanked." And I think one of the pragmatic approaches to doing that, or reasons to do that, is to give them all give those unbanked people all the possible features of a bank. Now, that doesn't mean banks are good and don't do anything wrong, but I think one of the benefits of going to a big institution is saying, "Oh, you actually can do really good things with capital. You have become really good at it.

This is how you got so big." And if we're going to really push the mission uh banking the unbanked, which I think is still a valid narrative now, especially as stable coins have become very popular, especially as the blockchain technology has gotten a lot better, um then we have to also solve this problem as well. We need to bring all the good aspects on. Obviously, we need to improve on all the bad aspects as well, but let's focus on the good for now. It might be a little bit easier.

And so, we identified one opportunity that we'd really like to see pushed to the masses, and that is bringing institutional capital online, right? Um this space has really grown in terms of, you know, the amount of volume and and capital in the blockchain ecosystem, but the institutions out there still manage considerably more, right? There's a lot of big players out there, and it would be really great if we could take some of that opportunity and give it to people on chain. This will give them a reason to actually stay on chain and not say, "I don't want to put my capital on chain. I still need a bank."

And I think that's really, really important. So, we're not going to necessarily replace all of DeFi. I don't think that's the approach. I think, you know, collateralized lending and all the protocols that have made the ecosystem great so far still have a place, but we can augment that. Augment that with more um opportunities for stable and predictable yield, and uh opportunities for people to get higher yield based on professional, you know, trading backgrounds.

So, why can't we do that now? Uh well, a lot of it is not technical, but it's still problematic, right? You have people um trying to go into their own banks. Obviously, they can't necessarily get the highest yield. Sometimes you need to have some some sort of net worth before they do that.

Um sometimes, in order to trade certain assets, you do need to overcome regulatory issues or prove yourself in some some capacity. Other times, you may have the the sort of ability, but not the capital. Sometimes you need to lock it up for too long. There's a whole bunch of reasons why institutional capital is very difficult to sort of get access to for the average user. So, maybe we can do something about that getting it on chain.

Cuz obviously, the rest of this ecosystem is very good at turning things that were permissioned into things that are permissionless. So, let's try to do the same thing. And so, another opportunity though, when we start to do that, if we can do that, right? If we can say all of a sudden anyone in this room has access to this type of um investment opportunities or strategies, well, what we can do is say those higher yields that the professionals have gotten really good at building are now accessible to you, right? There are opportunities to augment the DeFi native strategies in order to bring sort of bigger players into the space and generate higher yields.

And when we say higher we and safer, this means more predictable and this means that more people are more likely to take, you know, the opportunity to put their capital on chain and actually put some money into the ecosystem. And then once we're, you know, got them in the ecosystem, we can do other things and they can play around with things. But, you know, to do that there's still risk you have to overcome. DeFi is not a safe space. There's, you know, a number of exploits that probably reported over the last week, certainly many over the last years.

Uh and everyone has a horror story about oh my god, I got wiped out or or something happened to this this smart contract or you know, there's there's reasons why people are scared about using DeFi. Uh but one way to overcome that is to involve these big players. These regulated players, uh they are often in a better position to take on some of this risk. Um because they are A regulated and B they have proven track records. And to get there, you really need to do things very, very carefully and very, very rigorously.

And I think that's another thing we're very good at at Circuit is being very rigorous. And so, um when you look to de-risking DeFi, obviously you're going to need technical stuff um to solve that. Formal methods, audits, all of these things. But even beyond that, the strategies that you employ in order to generate yield, and you know, the liquidity you need to to get all the stuff, and all these other uh factors actually make a really big difference. So, if you start bringing in investors who are experienced with doing this, they are very good at understanding, you know, what the strategies look like, uh even if you yourself are not, right?

If you go on to a a lending pool platform, you maybe don't know what it's doing, you don't understand the looping. But if you have someone who's worked in the space for 8 years or longer, you know, or if it's from a bank, even longer, um they really understand what all of that means. And now, they're going to be generating yields, and if you can get in on, you know, that platform with them, you can get some of that. And I think that's really nice because we start growing the pie together for everyone. So, uh what we wanted to do was solve these two problems.

This problem of inaccessibility, and this problem of DeFi being risky. And so, for the inaccessibility, it's very easy. The solution is there uh in this space. It always has been. It's to become permissionless.

We want anyone to be able to deposit funds, immediately join, you know, some strategy, and you're done. None of this fancy work of KYC or KYB. Um you just connect your wallet, deposit things, and things just work. That's what it means to be permissionless on on on this ecosystem. And for risky, well, we can't necessarily remove all smart contract risk in all, you know, areas of of of Ethereum or elsewhere, we can certainly offer predictable yields on smart contracts that have fairly uh simple architectures, and therefore easy to secure.

So, if we can get um the risk and the inaccessibility out of this uh DeFi ecosystem, we're going to get more people into the ecosystem, which is very, very nice. And to do that, we launched a new product just about a month ago at ETHDenver, and that's called Circuit Finance. And essentially, this is a platform where we can give everyone on the Ethereum blockchain or Base access to institutional-grade investment opportunities. So, depositors can deposit in our protocol, and we will lend it out to regulated investors who know what they're doing and who are sort of mandated to do good things because they're regulated. If they they don't do good things, things are going to be problematic for them.

And they have proven track records with really high yields, and we can pass that back to you. So, I'll tell you a little bit more about that now in the few minutes I have left. So, what we're targeting is about 8 to 11% on USDC or USDT. We want to have 0% management fee, that's what we have. And we'll take 20% of a performance fee in order to, you know, make sure we can maintain the system and to onboard new strategies and get new liquidity and things like this.

But you don't need deposits, and there's no minimum lockup time. There is a withdrawal delay because when we lend out your money, we may need to get that money back from from the asset manager, but that's it. So, not too bad. And it's multichain. We're Layer 0 app, so we can support multiple chains.

We went live on on Ethereum and Base to start, but more chains will surely come. And I don't want to be vague about, you know, what it means to have an institutional-grade partner, right? That is something that's probably a very easy buzzword. As everyone was saying, I want something to be repeatable in order for the strategy of of of sharing this to work, and that's to be concrete. And so, we're actually working with partners like Monarch, 40 S, Fidelity, and the other ones listed here, but also some DeFi ones because it's not necessarily the case that we want to go full CeFi.

That's that's not the goal, but you know, we can augment the yields or provide flexibility depending on what you want by involving other on chain solutions [snorts] like Ave or Morpha into the mix. And how it works is fairly straightforward. It's actually very very simple. All we're going to do is ask you to deposit again no KYC just hit the button connect and deposit some funds and then we'll take the funds we'll loan them out to these asset managers who have proven track records with funds like Monarch which have funds like this Delta neutral quant fund and they will give us 11% we'll pass that back to you minus the performance fee and it's really that simple. So um the name of the game here is actually just making sure that things work it's predictable it's 11% is something that you know is targeted with ease and um that's it.

So the key takeaway I really went through this talk quite fast I'm sorry is that predictable DeFi is supposed to be I think safer DeFi. I think if we can get to a point where people are not concerned about the technical risks but also their yield they're more likely to put it in an on chain solution rather than go off chain and rather than you know take some chances with um looping and weird strategies that don't necessarily you know work for for everyone. And so if we really want to bank or the unbanked then we really need to start you know somehow treating them like they're going to get something that is just as good as if they did go to a bank and one way to do that is predictability and Zerqa Finance is going to do that. So um that's actually the end of my talk which is good because I think we're a little over time anyways uh but thank you and please come chat if you have any questions. Okay.