EN | DeFi 2 0 The Next Wave of Decentralized Financial Products | MERGE São Paulo

So, here at the merge stage, we have a DeFi 2.0, the next wave of decentralized financial products. Please welcome to the stage Xavi Arbingol, founder and CAAS committed. Welcome, guys. If you want to take a seat here, welcome.

Thank you. Thank you very much. How are you?

Thank you. Thank you. Great. Um

Sorry. First of all, I think I I hope you guys had a coffee. I hope everyone who's listening to us has had a has had a cup of coffee. Um we want to talk about DeFi. Uh I'm personally I'm a much fan of DeFi.

Um I teach other people how to invest in DeFi. So, for me it's a pleasure, first of all, to be to be um here right now speaking with you. I want to go straight to the point. Um I want to ask you guys, first of all, starting with with you, Diego Gutiérrez, CEO of Rootstock, what is Rootstock right now doing in order to get to this DeFi 2.0, in order to bring DeFi to a broader adoption, and make those products more accessible to retail users like everyone who's listening to us?

Well, uh Rootstock is the first DeFi layer for Bitcoin in existence, no? It has been running for 80 years now. Uh yeah, Rootstock entered production in January 2018. Mhm. Um and it's the safest DeFi network for for Bitcoin.

Now has 85 80% of the hashing power of Bitcoin protecting both Bitcoin and Rootstock. Wow. Um and over the years what we have been um helping is like bring entrepreneurs that would develop the core primitives of DeFi, no?

Mhm. Because when we talk about DeFi, DeFi is like a very ample, like very wide

Very wide. um topic. And actually, you know, DeFi when you put it in simple terms is like, I have Bitcoins and I want to get a loan against my Bitcoin because I don't want to sell them. My Bitcoin are my long-term store of value. How I do that without counterparty risk?

How how I do that in the in the safest way possible? And that's what we have been building in Rootstock uh over the years. Like, the safest environment to operate your Bitcoin with decentralized finance. So so the first step is like, how I get liquidity using my my Bitcoins? I'm building my house doing that.

So I put my Bitcoins as collateral, I get a loan, and then I I build my house with that. And this the logic is very simple. If Bitcoin over a period of 3-4 years multiply by three, and so that's 300-400% increase in value, and accumulated interest rate I pay is 40%, then basically the loan pays by itself. So so that's that's a very simple. So when we talk about DeFi, you have all these complexities that we had in the in the past, harvesting and you know, very complex topics.

But from a user perspective is very simple. It's like, how I do store of value and get the liquidity I need for my day-to-day needs. If I'm a corporation, a company, same thing. The other thing of course is, you know, exchanging assets. Saying, okay, I want I have this asset, I want to That is also already provided by DEXes.

We have Uniswap running on on Rootstock operated by Yoku. Um and then of course, once you have those basic primitives, we have a stable assets backed by Bitcoin as well. So interesting. Let me get to that later. Um and I even want to ask you if you think that the market is is is prepared enough.

But also, I'm Juan Jose Miranda from from NTT Data in Europe and in LatAm. I want to ask you as well, how do you guys are helping asset managers or funds get to those DeFi innovative products? Yes, of course. We are a consultancy company. Okay.

And our main clients is banking clients or financial institution clients. Mhm. And for me, the the key point here is we need a DeFi 2.0. Because normal DeFi is so difficult to put in in in institutional so or other type of of industries or CTOs or a big big corporates or family offices or banking.

And that's it. We are very agnostic to the to this all the ecosystem. For us, for example, using Morpho protocol in EVM for these vaults, amazing vaults, and getting very interesting APIs for for these new instruments is very interesting or using Kamino in Solana. We are trying to implement these middleware blockchain to connect to a lot of this ecosystem to big clients or or or corporate clients use these DeFi. And and for me, it's very interesting because we need two layers of trust.

These new trust because in this decentralized or non-centralized ecosystem, we need trust of anchors. And it's very very important. And we use the other layer, the blockchain layer, and this is a a distributed trust. So, in the past, like I'm thinking 3 years ago, probably institutions they didn't have this this key role play that they're playing right now. So, we were building probably products in D5 for for retail users.

But, my question here is is direct and simple. Are you guys now building for institutional players to enter to D5 rather than only retails as it has been in the past? I I think what we have been building is financial infrastructure, you know? And financial infrastructure that runs on new rails where you are removing counterparty risk and replacing it by platform risk. And that's that's basically the the key change in in how D5 operates.

Is that you are removing your trust in institutions or intermediaries and putting your trust in a platform, in a in a protocol, in a smart contract. And the interesting thing is that when you have So, so those are the foundations. Then, as Jose was saying, one of our realizations as well at Ruca Labs is that for institutions it's tough to interact directly with smart contracts, directly with blockchain networks. Because they don't understand the risk implied, you know? And and institutions are accustomed to interoperate to interact with another institution.

So, I think that layer that Jose was mentioning is key for getting the institutional adoption. So, creating that compliance layer that that in a way speaking the language that institutions will speak, you know? So, so if you present them a layer, a compliance layer, an institution, that's what we do at Ruca Labs with the Ruca institutional It's like, then you can interact with another institution. You you know if something goes wrong, who you have to call and how to sort it out. Uh but then on the back end everything we do, we operate with decentralized finance and with decentralized protocols.

So, and what that does is that our level of security doesn't change regard you know, regardless of the amount of of assets or amount of money involved because that's the key change. It's like protocols over the years with more value at stake become safer because the protocol, you know, is like in the open. Everything is in the open. So, if you have $10 million, that's a bounty for the hackers to to get $10 million if you have So, if they didn't hack it with 10 million, they didn't hack it with 50 million, they didn't hack it with 100 million is because they can't, not because they don't want to. With the counterparty risk is the opposite.

The more money in and the more concentration you have in an institution, the higher the risk. No, of course, you know, there's that's why you have regulations, that's why you have insurance and all sorts of things, but that also increase the cost of operation and the cost of services. So, our thesis is that he this hybrid models where you have a compliance layer and decentralized operation on the back will be the most efficient financial services in the world. So, eventually they will everything will be operated with DeFi protocols and also in another scale, we think this is what will create the long tail of of FinTechs. No, so So, we will remove that's what we are working on Rootstock Labs as well like for FinTechs to remove the barrier of entry.

So, providing, you know, basically the basic financial services, basic basic payment processing services. All protocol based, all open source, secure by Bitcoin and in a way that a FinTech needs only will focus on their customer audience and serving their customers and everything else, the back end is sorted out already. Okay, so I'm I'm I'm taking home with me this this division. It's not the same the back end and the front end. Um and also Juan I want to ask you as a consultant for uh as you mentioned, what do you see that institutions are demanding that is not here yet in the DeFi space and that they consider one of the first uh requisites for for for allowing them to enter?

Jota Jota or JJ please. In in in my experience and my understanding, really blockchain needs building a world worldwide banking public banking infrastructure and this is amazing. Mhm. Uh uh in in in my in my my experience, these institutional clients need a very clear compliance layer to for example do don't use MetaMask. You need to put a institutional custody with a very clear custody for that private keys for that for that client.

And for example, that front end connect to a to a IAM from that client to that identity access management for that client. And create roles and create flows for use the DeFi. And this is for me uh this trust layer we need to put in a DeFi DeFi tools. And this Web3 ecosystem is amazing because it's composable for nature. Absolutely.

And we need to use that all pieces and and compose all of them are very interesting things and put this layer to these institutional clients. This is our vision. And composability is one of the things that that I like the most and I'm even thinking about DeFi strategies. Uh I'm going to I'm going to mention a DeFi strategy that I personally apply and then I'd like to ask you how can this be applied in Rootstock uh nowadays or tell me some things about disruption. I'm thinking about real world assets, stablecoins also, and also what do you think and see from the consultancy firm.

So, let's think about because I think many people would like this, right? Um nowadays, 2026, you can buy a tokenized bond in a blockchain, put that as a collateral, ask a loan. With this loan, you can even create a liquidity pool that has one token is the gold, tokenized gold, and the other token is USDT. And you provide liquidity to that market. This is just a plain example, but I tried to broaden stage real world assets, tokenization of of TradFi into DeFi.

Tell me a little bit about this that you see from your side. Uh Tell me narratives or or interesting topics like real world assets. I think the composability is a key thing and and as you say, it's like, well, real world assets is a very broad term, no? Because it can be the representation of a stock in a tokenized form, and it can be the representation of real estate in a tokenized form, gold. Um so, for me, is real world assets is the tokenization of assets that exist in the world.

And when you have that model, then you have a provenance uh issue, no? It's like it's those assets are as I think there's two things that are key for real world assets. It's like, one is provenance. It's like you need to know who's custodying that asset and how, you know, trustable that custodian is. So, and the other thing is you need to have liquidity, like a secondary market where you can trade it for it to really have value.

Once you have those two things, you know that there the real world asset is properly custodied by somebody that you trust and you have liquidity on the secondary market, then you can have that composability you were talking about. Then if I have this real world asset, then I can get a loan on that real world asset. So I can unlock more value from the same asset while I have exposure to the asset in the mid to long term. That's what we are doing with Bitcoin. The only thing is we don't need to do a real world asset of Bitcoin because we have the safest wrapper of Bitcoin in the world, no?

So Actually tell tell me tell me a use case, Diego, please. And and it could be this one that you just mentioned. Just if someone doesn't know the big value of Rootstock. Well, for me is is pretty simple. But let's pretend someone doesn't know what Rootstock is and and give us a a use case.

Rootstock is the first layer though to to Bitcoin. It's it's basically another blockchain that has all the capabilities of Ethereum. So you have all the full compatibility, any smart contract, any application that runs on Ethereum can run on Rootstock without modification. But is secured by the Bitcoin network. So 85 80 to 85% of the hashing power of Bitcoin is protecting Rootstock.

The native asset of Rootstock is Bitcoin. So so all the fees are paid in Bitcoin. But we are also creating systems where people can pay in their in their token and somebody will do the translation. So we abstract the user the end user from the complexity of using the network. Um so that's that's it.

It's like you have Ethereum capabilities secured by Bitcoin, no? By the safest network in the world. And with Bitcoin in the safest form to be used in decentralized finance. So that's our focus. It's like how we create the best financial services around Bitcoin because we have the safest environment to use Bitcoin in for DeFi.

But then of course it's not limited to that. There there are uh I don't know, Mercado Bitcoin is issuing real world assets in in Rootstock. So they are using Rootstock to mint the real world assets because they they like the security of the of the network. So So there are other use cases that are enabled but our focus from Rootstock Labs is on creating the the safest uh and best uh financial tool for Bitcoin, no? And I imagine that at the end of the day you don't have to to spend a lot of time clarifying how how Bitcoin is is is crucial for for securing the network.

Basically it's the the the the number one um crypto asset and

And that was always our thesis. It's like our thesis is like between 3% and 20% of the Bitcoins in existence Mhm. will decide they want to do more with their Bitcoins than just a store of value. They will be So that's the potential of Rootstock. It's like you are talking about like somewhere in the current value between 30 and 200 billion dollars worth of value but that will grow as Bitcoin grows, no?

So So that's the potential and now that you have treasury management treasury companies using Bitcoin and like the DATs what for Bitcoin, that use case is becoming widespread. It's like companies are saying, "Okay, I want to put 3 5% of my treasury in Bitcoin." Uh but then okay, if you have that 3 5% and you have a short-term liquidity need, what do you do? You need to enter into a counterparty risk. So with the Rootstock Labs value proposition, you don't need to do that.

You You know you can operate your Bitcoin in a decentralized protocol. You can see your Bitcoins in real-time. So it's not a black box. You can see that your Bitcoins are there as collateral. So, it gives another level of transparency and safety that were never possible before, no?

We'll get to that. And Rootstock is amazing project. And it's Argentinian project. Of course. I've used I've used Rootstock, too.

Yeah, yeah. And And for me, Sergio Lerner is the the most important cryptographer these days as he is behind that. Yes, right. Sergio is a co-founder. Uh-huh.

I say he's very humble, but he's one of the top cryptographers in in the crypto space in the Rootstock area. Yeah. It's brilliant. He actually found nine uh vectors of attack to Bitcoin in the early days.

Wow. And he was the the core security developer for Bitcoin for a few years. Uh but he's very humble. Like, he created, for example, the data structure that is used by IOTA, by Avalanche. The tangle, the data tangle was created by Sergio Lerner in 2015 uh with Darkcoin.

And I can go on. Many, many things. You use the mining of Bitcoin to put in in Rootstock. Yeah, the merge mining capabilities. So, so, this model There were two inventions we created, like, two things that we created that were true innovations.

That was The first one, how to have a Bitcoin in a secondary network in this in an trust-minimized way. Mhm. And this The other one was how to secure two networks with the same uh security infrastructure, the merge mining of Rootstock. So, I really like it. The the the possibilities that in Rootstock you you develop and and it brings us to to different scenarios that in DeFi space we we're not that familiar, right?

We we only think about Ethereum and L2s and and and Rootstock is one of the L2s in Bitcoin that I I would say the number one. Um Juan José, I want to ask you about real cases that you find in asset managers and funds that come to NTT Data and want to know how to get inside the DeFi space. Give us some use cases that you have seen in the past. Yeah. For example, for me the the idea of Bloomberg terminal, for example.

A Bloomberg terminal is a terminal for Bloomberg to put all traditional finance to to these corporate clients. Okay. And in our mind, we we create a like a DFI terminal to put these layer of trust, these custodials, these compliances, these all of things. Connect to a identity access management for these big clients and put these terminal to using in these institutional. Okay.

And this is for us very interesting because it it it it it's amazing. It's to put a real front worldwide world-class front end with these all of these new things or new securities to these type of clients. Yeah, and I think JJ is doing is key. It's what I said. It's like for the institutional adoption.

But that doesn't go against the the end user adoption because that's the beauty of what we are building is like the users can go directly to the DFI protocols in Rootstock, use them, you know, in a decentralized way, and that's great. And the same infrastructure can be used for an institution if you add the compliance layer that JJ is building. So, so that's a good thing. And and then you have the synergistic you know, contributions because as more, you know, the compliant side of the business grows, that also helps support the infrastructure, the decentralized infrastructure that end users use. So, so it's like kind of like um Yeah, it's fully synergistic.

It's similar to how we design Rootstock. It's like we say, "Okay, we use the the core infrastructure of Bitcoin

are really like contributing to the Bitcoin security as well. We are not a parasite, not a parasite that is just using the infrastructure without contributing value. A a double effect. But, despite that, I need to think of what is people willing to ask you as I have the pleasure to ask you. And And let me tell you this.

And And it's a question. Um institutional integration in DeFi doesn't take a piece of the cake for end users? Like, let's think about um a liquidity pool. Um I want to put my 10K in a liquidity pool, but if I had if I have BlackRock putting 100 million, all fees go to BlackRock and there's no space for me to get a piece of that cake. Does that make sense?

I'm asking you then, is is it in the future, um won't institutional players take much of the yield that DeFi decentralized, democratized, and diversified around anyone? Uh but it's proportional. Yeah, I think DeFi will expand, no? DeFi will grow.

will DeFi will expand, okay.

DeFi will expand, yeah. I agree. I agree on that. I agree. And also, as I said, what we are seeing is that you have two separate markets.

So, even if it's the same protocol, if you are working with an institution, they need to get loans from money they know that has been you know, KYC'd or KYD'd that that has done the AML and CFT controls. So, at the end, I think those are pools of money that will be So, you will have the decentralized economy and and truly decentralized economy, and on the side you have the more like hybrid uh economy that is like a compliant because it's like doing the KY KYB or uh running side by side. So, he's sharing infrastructure but different markets, different liquidity markets. So, I think I don't see that as a competition. What I think is like when things like what happened with BlackRock recently that they they did kind of a small bail-in, they didn't allow people to get them their money out.

Um you know, happens, then people will say, "Okay, maybe I I rather go to the for the decentralized way, no?" It's like And I think that's an interesting thing. The things we build are you know, are really useful in the crisis environment. No? It's like it's like when a crisis hit is when people see the value of decentralization, of sovereignty, of neutrality in the network.

So, so it's a process. Yeah. And for me, this is the this ecosystem is very interesting because only exists one BlackRock. But exist millions of people to put $1,000 or $10,000. And this is amazing.

And and it's a For for me, the the best word is non-centralized technology. Non-decentralized decentralized non-decentralized technology non-decentralized technologies It's it's incredible for these type of things. Yeah. We've talked about real-world assets. And at the beginning Juan Jose, you mentioned the Morpho vault, right?

And and that's a good question I want to ask you cuz I'm as I said, I I I consider myself much into DeFi. And I can personally say that I see every time more vaults coming into play, more curators managing a vault. And and it seems to me that DeFi seems to be now all about just depositing into a vault and that's it. Yeah, for me we need more curators. For example, we have a very interesting in partnership with Gauntlet.

For me, Gauntlet is for example, the best vault curators. And we need more of these. These these trust these anchors of trust in a in a off-chain world because on-chain is is is trustless, but we need these anchors of trust in in a in a in a off-chain world like Bountiful and others. You agree on that, Diego? Yeah, I I think for me it was always and I have been saying this for many years now, no?

It's like for me it's not about decentralizing everything. Decentralization is a tool to to protect sovereignty and and you know neutrality, but it's about optionality. So, it's like Yeah, so so for me it's removing all intermediaries that are not providing value. And when you have that optionality, the intermediate because the problem is when you have intermediate that are in a monopolistic environment where they have the control the full control of the market, then the abuse comes. But if you have optionality, if you can what I said is like okay, BlackRock, you know, that's a villain.

I cannot get my money, but if I have an alternative, well, next time I will think twice maybe to go in. So, that will make BlackRock accountable. They will have to find a way to solve this problem and not do it again. But in the past we didn't have optionality. So, for me it's not about like saying no, we need to destroy the system and be fully centralized.

It's like as long as the decentralized option exists and it's more competitive and that's the where we are building our tools of glass. It's like through protocols, lower operational costs, increasing security, increasing scalability, but if you do that through protocols, you will have a financial infrastructure that, you know, will fuel the financial system of the future where you will have some offerings that will be with curator offerings that will be with a full intermediation and you will have a fully decentralized. And it's up to you what you want to use. And that optionality is what we are protecting. Yeah.

And we we need regulation. For for me, for example, Juan Carlos from El Salvador. Juan Carlos, I want to take a picture with you. Contigo. He had to He had to go back home.

Diego Gutierrez, CEO of Rootstock. Juan Jose Miranda, head of innovation in NTT Data. Thank you so much for this opportunity.

you.

Thank you. Thank you. Thank you very much.

Bye-bye. I'm I'm CEO of Rootstock Labs. Rootstock Labs.

Rootstock Chain is a decentralized network. My apologies on that. That's That's all true. That's true. Thank you so much.