The Future of DEFI - Greg Carson, Lomesh Dutta Brandon Neal Yo Sub Kwon David Wachsman Matt Woodward

thank you [Music] thank you [Music] foreign [Music] foreign [Music] thank you [Music] foreign [Music] Christmas foreign [Music] thank you [Music] foreign [Music] thank you foreign [Music] foreign [Music] foreign [Music] thank you welcome to your Saturday evening D5 discussion where we're going to talk about a little thing called the future joining me today are five of the world experts on defy I'm Gonna Let each of them introduce themselves starting with yu-yo over there sir my name is Joseph Quan um I've been in the crypto space since 2010 uh mining Bitcoin and building stuff um and I'm currently working on a project called Dojo Network which is a decentralized data Commerce platform uh trying to make it easier for uh those who are experts at extracting data from places like you know blockchains that are very difficult to do that to bring it to a network and be able to monetize and sell that data well yo you also of course have built at one point what was the largest smart contract auditing firm in the world and also sold another security company so you could talk about some of the deficiencies we might have in D5 uh sorry deficiencies there might be one or two um let's see I well all right yeah so there's coin Center uh which was a um uh one of the first us-based Bitcoin exchanges uh I co-founded that and that was acquired by Kraken um and uh I mean we were just like uh very early on and uh didn't you know like we had to really uh deal with a lot of like legal and problems and stuff that uh like other people hadn't really figured out yet and uh so that was really difficult and hosho uh was one of the very first smart contract security analysis firms uh we you know protected billions of dollars in uh you know digital assets and you know a lot of the smart contracts are obviously still uh live and being used today uh but so let's dig into that a little bit more very soon yo but I just want to make sure that people know you have the basis to talk about that so Greg you have been funding the revolution for a number of years now uh tell us a little bit about you know what you do at xbto humla uh yeah so homeless fun uh xvideo homeless funds we've been investing in um the crypto space now since 2016 17. um I think we have maybe 49 49 investments in the space um a lot of it around uh financial markets infrastructure like um the Arabic Paradigm trading uh cradora um also um the various platforms that everybody uses um we were early in synthetics we were early and a couple other ones um we continue to invest in the kind of like emerging opportunities related to the infrastructure so mostly defy infrastructure stuff extra lemesh hi everyone uh this is uh Lo mesh I am the VP of growth at the definitive Foundation uh so we are a layer one blockchain called the internet computer protocol um I lead all of the developer Partnerships as well as ecosystem building um yeah so I've been in the crypto space since 2016. uh prior to this I was uh working with a startup called Abra um and so as a part of my role I mean we essentially have a lot of D5 entrepreneurs that are building on our chain leveraging some of the Cross chain capabilities that where our chain offers and we should definitely dig into improperably a little bit because this is about the future and tell us about your role at hedera sure thank you the head of developer relations at swells labs for hedera I've been a full stop developer for over 20 years I've run my own businesses run my own startups I'm now looking after the developer ecosystem for hedera to try and bring more developers over into our Network I cross paths regularly with developers most days in terms of building out in terms of the device space I look forward to contributing welcome to this talk excellent and Brandon yeah I'm Brandon Neal CEO of Euler Labs Euler is uh one of the permissionless borrowing lending markets on ethereum now um happy to be here so let's get straight into it um I think we can see say that pretty safely that in 2022 trust was lost in centralized Finance at least it was in crypto we saw of course the FTX disaster we saw lending platforms like block fi like Celsius meltdown we saw centralized hedge funds that perhaps some of their trading partners we should go into that didn't understand the counterparty risk like three arrows Capital meltdown and it has caused all sorts of Millions I guess I've been muted okay let me ask you this yo what can defy do about that uh I mean a massive amount I mean that's kind of like Defy is kind of the uh beginnings of what you know the dream that like all the crypto nerds have been talking about you know for the past like you know 10 plus years uh start to come to uh to fruition of you know uh these decentralized systems that don't rely on these Central uh centralized entities that are completely trustless that can uh provide comparable services like financial services that people traditionally had to go through you know banking institutions or centralized entities where you need a trusted counterparty and if you can take all that away and uh put it into a decentralized compute system with smart contracts where uh you don't have to trust anyone like you know it just makes the system uh the the future looks pretty bright I think with uh uh with defy and even though right now there's this kind of like a besmirchment that's happened with all the the issues that you just um uh highlighted uh I think once people kind of get past that and uh the the more applications and uh like real world use cases that come online for initially financial services and eventually other things uh the better it'll be for everyone well so we're going to talk about some of those so Greg you've been investing in things like synthetics I think synthetics is actually a really good thing to talk about just because at the very least it provides a snapshot of what the future could behold so why don't you tell us a little bit about what that is and kind of what your philosophy as an investor has been in putting money in some of these platforms early on yeah I'm and yeah close your face I think uh early on we we started investing in things that were a bit more speculative I think now I think it's critical to think about the the year that we're in um things are changing quite dramatically right now especially because the US is coming in so hard on uh enforcement on regulation I mean it's really like he said like yo said I think it's it's both the kind of like dark time for crypto in general but it's also a time where you're starting to see massive opportunities and massive amount of um Innovation happen synthetics was early but I think now we're seeing a lot more stuff especially with TK Roll-Ups stuff you know the ability to be like um to have multi-chain um tokens and be able to actually I think what we're seeing now is we're moving towards uh much more sophisticated dexes and we're gonna actually and then even in centralized exchanges you're going to have the ability to do self-custody so you'll have a centralized exchange I actually know of two that are launching this within like the next four months where you'll have your own wallet connected to the exchange you'll keep all of your tokens in in the in the in the so it feels like a hybrid Exchange I mean the exchange will still have centralized trading but they won't hold custody of your tokens and that's going to add a whole nother level when D5 starts to approach that as well all right well well maybe we should zoom out a bit perhaps Brandon you used to work at this thing called the Federal Reserve um so tell us kind of what you see are well maybe opportunities that may come let's get let's take the macro review of kind of where things were before defy so we can kind of figure out where D5 is going to go down the road yeah uh I don't so having worked at the fed and being pretty intimately involved with the financial Plumbing it hasn't changed much over the past hundred years there are too many intermediaries two many intermediaries and too few key intermediaries in the Legacy Financial system so what that means is like to clear if you trade to clear and settle a treasury security between a little old lady who would need to buy the treasury security and the treasury Department there could be 10 different intermediaries each of whom take a little cut a middlemen who take a cut and who evolve to do so for a particular reason it's really understandable why they evolved that way but now it's akin to a vestigital tale if you will if I can disintermediate and so I think like stepping back this intermediation is like one of the core it's the key key unlock that defy does and it's actually to your first question it's partly why everybody got in trouble last year was there were a lot of intermediated crypto parties out there and what was the specific risk look I I think we hear way too often at conferences like this that decentralization is the goal but why I mean I want to ask like that kind of axiomatic question what is the actual upside of decentralization I mean you mentioned a lot of intermediaries I mean do those make us safer so for the key intermediaries no and I I like to use the analogy of like uh an aging power plant that serves a town There's a long transmission line there's this one like Antiquated Power Plant versus like some sort of distributed grid like solar and um wind power that everybody can plug into and sort of get gain the benefits and there's these resiliency built in that's like inherent to decentralization so hedera has an incredibly decentralized kind of dag protocol um and it's well has a lot of centralized big players on your governance board as you've been talking to developers and about explaining why they should be building on hedera what have you told them especially ones that are trying to build decentralized Finance applications what have you told them is the power that hadera has okay so there's probably a few things around this that I can touch on um first of all you mentioned about centralization and I think everybody's got a different definition of what decentralization is um on a hedera yes we have some very big Brands some Fortune 500 companies that are represented on our governance Council to decide essentially what choices are being made um on the direction of the network for example um lower down at the actual technology level for developers there's some capability there that really talks to having fairness in the equation when we're talking about things like defy reducing the risk for front running those kind of capabilities so as they're building on our platform they have access to something that yes is massively scalable with with high performance yes it's lower energy that type of thing too but I think ultimately all Technologies are going to head in that direction sooner or later anyway but it's really the fairness to do with our consensus algorithm that it was really going to come into play so once people come into this industry once D5 starts growing we have more people in the mix we're going to really want to see Fair transactions as part of the equation as people are operating in this space and it's really that that I think feed them back to developers to make sure that as they're building their systems out they're understanding that while our platform gives them is that insurance that as customers are coming to use what they're building they're actually going to have a fair experience on that platform but I mean of course developers are always looking for choice and there's a lot of different ways to skin the cat and still arrive at that sort of decentralization at ICP there's kind of a really interesting kind of full technology stack in a container techno that's been built um what types of unique D5 applications are you seeing Prosper already on ICP and kind of where are things trending yeah so I think we're first thing that we should uh the question that you just asked is like what happened in 2022 right let's just take a deeper dive the reason why everything start to fall apart was essentially we started relying on Central parties assuming it was crypto but it was not and we learned it the hard way so if you think about the current default stack on how even the protocols are built there's only a part of the application which is still built in a decentralization stack but if you look at all of the bridges all of the oracles there's there's a central party involved somewhere we are still to the we still haven't reached to a point where oh I want to double down on that so you're saying that today Fifi still has some hyper centralized touch points potentially I don't know places where there could be disaster oh absolutely look at look at the basically billions of dollars in hacks that every uh happened every year on just the bridges alone right so Bridges it's nothing but you essentially have a central intermediary that's like telling you that trust me I'm going to take your Bitcoin and I'm going to create a rap version of it and kind of give you for all of this D5 playing right but that is where the real bottleneck is so what we need to think about is like how can we solve this like mathematically right how can we create a protocol which has a formal proof that you can essentially solve this problem without relying on a central intermediary and that's what essentially uh we at the internet computer are trying to solve so would say that this is one of the primary things where you're kind of pushing developers within your ecosystem to solve some of these I'm going to call them the bridge problem uh correct so I think in in our world uh what we think about is like it's going to be a Christian World there will be assets that need to move from one chain to another uh people want to trade between like people want to earn yield on bitcoin or all the assets they have uh they will absolutely need a mechanism uh to trade crosstain so what we are trying to bring to the table is essentially how do you do this natively where you can use mathematics cryptography to essentially enable a real Bitcoin not a wrapped version of it to be basically uh like transferred over for into the D5 projects without any intermediary like the central Bridge that's fascinating Greg you know one of the things specific to D5 as opposed to other potential applications um on a decentralized network is of course that like you need to see liquidity and one of the arguments at least that I've heard for why we need to have these really slick interoperable protocols is we need to have enough liquidity for all sorts of exotic or well pretty boring applications that happens uh well on D5 are you investing in this space What are you seeing that's interesting in terms of interoperability meets defy are you seeing interoperability between chains or between well typically it is between chains it might be change or even between different platforms on the same chain like we've seen within ethereum for example the pooling of liquidity is allowed for there to be much better trading uh trading to exist yeah I mean the the whole problem the whole creation of D5 as a as a you know pooling staking system was the disarmination of of the Old Market making ways where you'd always have a centralized Market maker they would take all the it was like playing against the the casino you know at the house and we took all those fees and and pushed them into the pools um I think now with the the way that the regulations going stronger and stronger you know offshore stuff is getting more and more sophisticated and that's where the starting like the the ZK stuff is coming in I think it's very interesting um but it is nice to see the evolution you know we are looking for um more like companies that are integrating more security into the deep and more user experience those are the kind of two areas where I think there's a big need what we're looking for Investments Brandon would you agree do you think that user experience is a actual problem in D5 or an opportunity yeah actually I was thinking like about the future of D5 in particular um the well good um you're in the right place so much I feel like what has been built so far and this is not a criticism but it's just more I think natural and Defy is has mimicked or replicated parts that exist uh in the traditional Financial system Defy is sort of the interface now has been built for Wall Street not necessarily Main Street I know that sounds cliche but with the end user in mind I think that's one place it can go it's it's needlessly complex and at the same time um it serves a lot of functions but it just needlessly complex I guess well let's talk a little bit about that uh problem set there which is how do we get more retail people involved yes you were talking a little bit about the reason why to you D5 exists this is backstage you were saying that it's important for there to be a democratization of access to some of the financial instruments that before we're only maybe accessible to the elite are we actually seeing that happen in D5 because it's me to me it sounds like it could be a hollow promise I think uh like if you think about it right so I mean for example let's take a simple Dex like I mean uniswap started this what what they are bringing to the table is anybody with let's say five dollars worth of Ethan five dollars worth of usdc can actually come to the table and say I can be a market maker and I I command a piece of this like entire pie that historically only used to go to like big Banks and big market makers so yes there is democratization I think the keys that we need to still solve for as we're talking about the user experience is like how do we bring the the real Mass adoption of like basically millions of people who can just seamlessly interact with these protocols and yes I mean the protocols do enable even today uh for this democratization it's just that we need to really make it happen for millions of people Matt we were also talking about kind of the prerequisite information the developers might need to have to build some of these next Generation D5 applications I do wonder you know not every developer necessarily worked at a bank before or worked at the FED how are you helping coach some of these developers today as they're building and pioneering brand new things sure um so you know from the perspective of developers you know everybody has their own unique experiences they come into that role and like you said some of them are not necessarily going to come at it from a financial background um they might be immensely talented developers and that's great but it's really important when you're building out something that does have the impact that D5 does that you really know where to draw the line and where to stay in your lane with it and I've always been a big believer in terms of having both that coupling of excellence in development capability but also excellence and domain knowledge as well so that's really why you should be aware of where to draw the line when you're building out some of those Innovative products where you can kind of use perhaps some existing great standards that are out there that are available to you right now find use them that's good but let's not pretend that suddenly would become Financial experts when we're doing that we still need to have that domain expertise brought into the equation as they're building out those Solutions too so then let's talk exactly about that Brandon you know again coming from Wall Street we're actually about three blocks north as I recall um you have seen before that brand new applications or supposedly brand new applications have been uh come to D5 they're actually just facsimiles of mistakes of the past Savings and Loan crisis of the 80s of the financial crisis you know in the 2000s what do you see are things that have been kind of replicated from the mistakes of the past on Wall Street in D5 and where do you see kind of solutions to some of those problems well cynically quite a lot have has been replicated but if it's any consolation Wall Street also repeats its own mistakes every 10 to 15 years um so I I guess that's like everything is all relative um yeah it's hard nobody knows like where the next Crisis will come from but I think the core ethos of D5 being transparent eliminates at least the black box and the centralized risks whereby nobody knows where where certain risks do lie or whether where there are hazards um like inherently defy solves the problem that traditional Finance cannot solve one of the things of course we saw as a mechanism to adoption the past were these for a lot of D5 protocols overwhelmingly High initial apys it seemed like they wanted to go and get a few people really rich perhaps at the expense of people down the road Greg how are you seeing Mazel shift in tokenomics and D5 am I seeing what kind of shift bottles tokenomics models shift oh well I mean I'm not sure I mean like I'm not sure he's seeing the model shift and an ever like a revolutionary way right now I think things are like the user interface is very like at the ux we talked about earlier is is very debilitating and The Innovation although it's accelerating it it hasn't accelerated on that specific area yet um what I've what I've been looking at in this space is like future defy applications which is as collateralization and as debt come come onto the blockchain and as stable coins and cbdcs are used in a more like robust way we see a lot of real innovation in uh to go back to um Brandon what Brandon was talking about which is like um the evolution of like Wall Street stuff um I see that there's a um that there's a step that people have missed because we come out here at eat Denver and in crypto and we say we're going to revolutionize everything all at once and we're gonna like change every single thing and those are like essentially become like almost Ponzi pump and dump things whereas a lot of the stuff that we've been successful on and that we're looking at more things that take one step away from Wall Street or one step up from Pure defy towards this kind of Center and like for instance the digitizing of structured credit you know that is it's not it's not cool here but instruction credit is you know like we're talking all of credit is 100 trillion dollars instruction credits maybe what 40 like there's not a huge credit business on blockchain right now and it's coming and you know D5 was the first experiment where we could kind of like revolutionize that and that's where you say how are the models evolving I think b5's models are evolving but evolutionarily wise and then from the other side we're seeing traditional models actually start to get peeled away from Wall Street using AI tools using digitization tools um we have a couple portfolio companies that are digitizing structured credit and they're working on the institutional World Goldman City whatever to make these kind of like um Walled Garden blockchain Solutions yo one of the problems with very early Define I mean way before D5 summer was that the code was very in some of these smart contracts which is how these defy applications actually work usually it's a series of smart contracts was flawed however so it seems it does well hold on I'm a casual consumer here and it seems like more often than not they work as you say some of the code that you've approved in the past is still being used if that's if that's not as big a problem today um what do you see are the security issues in defy I mean there's so many security issues in defy it's it's like absolutely no I was wrong okay it's absolutely crazy um but I mean a lot of it so like when I'm looking at a D5 project and if I want to like put money into it I like look at it from uh you know cyber Security's perspective and I I analyze it from a bunch of different ways and one of those ways I look at is kind of like inherited risk right it's like okay it's on this blockchain you can only get money onto that blockchain through this bridge and you know how does that bridge work and then you know even if you get the money on there uh and you get in uh what does that token even look like on the original chain you know uh whether that's ethereum like you know usdc or one of these erc20s and then erc20s themselves have like fundamental problems with them because they were written for like absolute uh efficiency they were not made for user experience and so that's why you have so many problems with wallets today and why it's so difficult for a lot of these wallet providers to create these like you know uh like understandable um you know trustworthy like flows for users to be able to move money around is because there's inherent problems uh with kind of like these bad practices that we got into early on some of which I think will eventually uh turn around like kind of even though lomesh was saying about like instead of uh it being like Oh a wrapped coin maybe eventually it'll be you know uh verifiably uh you know backed or you know like decentralized keys or something will will emerge and then that kind of Technology will move things forward but uh as it stands today I think like security is better than it was and it keeps improving but it's still bad and I mean but it's been it's bad on the internet anyway if you look at like DNS which has obviously been around forever like DNS is absolutely atrocious so like I mean uh sorry I'm rambling but no no I think you're going somewhere with this which is simply to say that maybe I shouldn't trust D5 I mean Brandon why should I if there are these huge holes why should I be putting any of my usdc or my Bitcoin in defy well I think there's this animal called a tardigrade which is has been around since prehistoric times right and it's essentially can Thrive like next to Sea events like at crazy temperatures um on mountains pretty much everywhere D5 has been battle tested like very much over the past year and I think that that alone is like a proof that um speaks above any narrative that anything I could say I mean well I guess to your point we have seen many billions of dollars flow from some of those centralized entities Matt to defy over the last year or so um but where are things going to go from here what do you see are the kind of killer applications for 2023 in D5 oh big talk okay um it's going to be really interesting to be honest with you because I've kind of see um as we were talking through some of those responses before um I think there's going to be a big shift towards the way that networks are being interoperable with one another in terms of when those transactions for different currencies are coming across chain I'd really love to see that moving from being kind of like you know Bitcoin and one chain to erupt Bitcoin on another there should really be a shift towards that kind of being something we can burn and Min and have kind of proper interoperability between the trains full stop so I kind of see a shift that could move towards that and then given us more of a liquidity mesh rather than liquidity pools on each Network um I think there's really a fascinating opportunity here as we move forward as well as we more tokenize at different assets as we move forward as well we've seen a lot of on-chain kind of currencies and we've talked about stable coins and cdbcs what happens as we move forward and perhaps you want to start tokenizing some of the different aspects of wealth that aren't represented on chain at the moment we can only see a fraction of that right now so I'm quite interested to see how that might play out in terms of bringing some of those different liquid and liquidity into the market and perhaps what that might look like for some of the applications so I think we'll see a bit more of that coming into play well if I'm I've got to bring Brandon in what do you guys think about real world assets on chain do you think there exists a future for that in D5 um things like mortgages um like real estate at no time soon like not anywhere in the near future I think the more likely near-term future would be digital native crypto adjacent folks like uh YouTube um influencers only fans um you know producers people that are and and in many cases people are unbanked also who could put their asset on a blockchain or at least maybe get royalties you know like uh if you think about some of these um people they essentially have a big platform attack company between them and their revenues they have a revenue stream Revenue stream could have a Net Present Value Net Present Value can be borrowed traded um borrowed against things like that so essentially the financialization of well almost everything starting with things that are adjacent enough or more purely digital I think so yeah it just seems like other things are too far you've got to jump in here Greg what do you think uh I disagree I don't know I mean I I think I kind of always go back to the only things that I've seen that have been like real killer apps or things that are Financial related um I'm sure everything will end up defy or crypto-ish in the future maybe but the the next steps I think are going to be even more um Financial adjacent Solutions um it'd be nice to see more institutions start to adopt some of this kind of defy type stuff but I'll go back to like real world that's naturally ending up on on crypto should be collateral collateralization lending and um credit massive what do you think about real world uh collateral for defy so I think uh I I I think it's going to take a lot of time for before that happens because again you are trusting a central party to take the equilateral and then essentially like give you a replica of that on chain right so it is inherently more trust uh what my view of D5 is like I mean I think of this as a Sandbox for experimentation uh since the internet came in like I mean early or late 90s every every industry has gone through a transformation except for traditional finance and financial services D5 is just basically creating a ground for experimentation and I think it's it's only limited by human creativity it will only start initially with things that they can completely play with and eventually start to eat every aspect of the world like the internet has well I would say just one thing I don't think it's limited by human creativity now that we've got AI well thank you panelists this has been fantastic and I guess I ended perfectly on time thanks everyone thank you okay [Music]