For our next session, we will have our first fireside chat today. And for this part, I'd like to invite Julian, the founder of Stake Capital. We will talk about how DeFi will change in the future and the evolution of DeFi over the past 7 years. So, please give Julian a big round of applause. Congratulations.
Julian, you've been in this field for quite some time. You have played a crucial role in the development of DeFi, from optimizing yield curves to creating many new protocols and composability tools. My first question to you is: observing all the changes, what do you think DeFi can be considered in 2026? Do you have a new definition, or is it all the same thing we saw 5 years ago, just a slightly different world, or is it a completely different story? This is a pretty interesting moment for decentralized finance because DeFi has completely transformed into a new concept.
Now, DeFi primitives are mostly used by traditional finance, whereas earlier we started in this area to completely move away from traditional finance to a new world where all financial products would be safer, more transparent, and more accessible. We realize that these technology solutions technology solutions that we have been building for over a decade are now being used by the same big players that the same big players that we were trying to replace. This is a big change, but we probably should have expected it. To some extent, it's even funny that everything has developed this way. But from your conversations with DeFi DeFi project founders or even institutional representatives, do you notice that they are truly striving for decentralization, or do they just need primitives to simplify engineering tasks, not decentralization itself or on-chain liquidity?
I believe that traditional financial players are not too concerned about decentralization as long as it allows them to reduce costs, increase operational efficiency, and enter new markets. That's essentially all they're looking for. And ultimately they can present it as, "Look, we're now decentralized and more transparent." This could very well be something they will try to promote. But what institutional players are looking for is to make more profits, increase market share, gain wider adoption, and try to compete in a vast ocean of rivals, right?
So, you need to cut margins, I mean, increase margins, you need to reach new player frontiers. And that's what we were trying to do, and be able to do it using the primitives of decentralized finance. You definitely have, I would say, much more prospects in the European market from the institutional side. And you definitely follow a lot of things happening in the US. And I wonder if institutions behave the same on both continents, or do European institutions care about something different compared to American ones, and do they have slightly different priorities?
How is Europe different in this world? Yes, I spend half of my time in the US and half here in Europe. Um, if I can summarize at a high level, the Europeans write the rules and also dictate the regulation dictate the regulation , but ultimately the Americans are the ones who do the distribution. I think the distribution. I think Europeans care a lot about values and trying to do things well and the right way, whereas in the US it doesn't matter whether it's good or not, as long as you can spread it and increase profits.
So I think Europeans really need to change their mindset, because at the end of the day, if you try to regulate something but don't stimulate innovation and don't try to bring it to market and solve real problems, then ultimately what problems, then ultimately what you regulate won't work regulate won't work . You're trying to stop something, but you still need you still need people to innovate and create value so you have something to regulate. And this is a big difference between the USA and Europe. But we see this essence of extremes in Asia, where Asia is actually an extreme. It's just opening the gates to everything.
Yes, I think it's more about the same thing. So, I guess what exactly is the Asian side of the market worried about, and is there a difference between the North American and Asian markets in that case? Well, it's...I think because we're also trying to be engaged and open to what I would call Asia, which is mostly represented by China. But China is interesting because they open the door to innovation, but you still don't feel like you 're working with a company.
You feel like you are doing business with the state. And this is completely different. The state dictates how innovation should be developed. And we see this, for example, in the cryptosphere or AI, where they are the founders. The state is the founder who dictates to startups how to act, and startups simply carry out this vision.
Whereas in the US, everything is mostly driven by private companies, and the state is trying to keep up with them. And in Europe, no one is creating serious infrastructure at all, so the state is just trying to stop everything, which is a bit disappointing. We have made significant progress. I don't think MiCA is necessarily bad, because you still need to regulate and understand what you're doing . We also need to accelerate and invest capital, resources, and energy into founders so they can build and regulation can come later.
Going back to DeFi as crypto enthusiasts know it, what protocols or primitives are you currently interested in in the DeFi space? In your opinion, is innovation still happening, or have you already stopped at what we have and nothing interesting is really emerging in DeFi ? Yes, the protocol creation stage is not quite complete yet, but for a new founder to create a new primitive or protocol, I would say, is extremely difficult. Now it mostly comes down to products that are built on top of existing protocols. I mean, if you look at Morpho, there are different financial results.
We have now entered a phase where the market is extremely mature, because there are protocols that have been successfully operating billions for years. So the risk is not necessarily at the infrastructure level. Now the risk is shifting to the people who create the products. So, mostly on curators and strategies. So for anyone who wants to compete with Curve, Morpho compete with Curve, Morpho , Aave and other players, it is extremely difficult.
These protocols are now used by some of the biggest traditional players, such as Robinhood, which delivers 7% delivers 7% returns thanks to its Morpho-powered platform and use of the Steakhouse curator. So even for you to create a protocol yourself is very difficult today. But now, to build a strategy and create something with a return of over 7 return of over 7 %, it's possible, but without risk, I think it's really impossible, because, for example, Robinhood provides over 7% and deposit insurance up to 2 million, which we haven't seen in this space before . So, if you want to create something that will truly change the market, you need to implement things that traditional finance has done, like adding insurance products and providing privacy. Right now in the market, I would say the biggest opportunities are around privacy and confidentiality, because that's what's left.
Traditional players will not actively invest or contribute capital. They don't have a privacy aspect, and the privacy issue is still unresolved. While there are Zama and other protocols that are trying to do this, you still need players to build solutions based on them. When it comes to privacy, we hear it often, but what is the best way to meet this demand? If people want to continue using existing contracts or protocols, whether Aave or Morpho, their privacy requires forcing these protocols to migrate to new rails that support private transactions.
Is this more realistic? Should we use intermediate solutions, or does this open up opportunities for a private version of Aave or Morpho to emerge as a new project that can make a breakthrough and become the main choice for institutions? No, I believe that the protocol is like rails the protocol is like rails , and you should encourage or allow the creation of any products based on it. So whether you want complete privacy, partial privacy, or more speed and transparency—whatever. That was the goal of Ethereum, wasn't it?
To be composed. For example, you have Zama, Zama Steakhouse, and Morpho liquidity pools—50 million each. You can work and deposit funds completely confidentially. Your liquidity and deposits can generate profits without the risk of revealing your address. I consider this a big step, and that's why Fireblocks, while having the functionality of earning through Morpho, also implements privacy.
They are all moving in this direction. Soon, over 50% of the total volume of funds locked (TVL) in DeFi will be completely private. This does not mean that funds will move exclusively into private pools, it simply means that the share of hidden deposits will increase . So, TVL will increase, but at the same time, the transparency of what is behind these indicators will decrease. Concepts we previously opposed now, when implemented correctly, look feasible and safer for users: KYC, AML, liquidity pools, isolated liquidity, and fully private TVL fully private TVL .
This is an obvious path forward, and we will likely move in this direction because it makes sense. In your answer, you mentioned an interesting point about high returns and how they can only be achieved through structured products offered by institutions. My question is: how sustainable are the current returns in DeFi? Is this real organic demand for lending or just the result of token incentives that may depreciate over time? How should users assess profitability in this area in the future?
Yes. The profitability of Robinhood or Revolut is quite stable because they have large capital behind them. They have access to extremely deep liquidity. So 7% liquidity. So 7% is what I call intrinsic value intrinsic value .
It arises due to the processes of lending and borrowing. If you take Aave, there are currently about $11 billion in deposits and about a 36-40% utilization rate. So, this utilization rate of user deposits generates about $128 million in profit per year. It seems that Morpho has made about 20 million in net profit in the last 30 days. This happens because people make deposits.
Someone borrows dollars against assets and sells them because they believe the dollar will fall, or they want to buy or rent something. This is true profitability. The opportunity for DeFi participants then lies in creating exotic return strategies. Instead of seven percent, which is the basic risk-free rate, you can get much more. So, for you to provide a tool and, uh, a feature that people will use.
For example, for me to give up 7 give up 7 % risk, I think I would value it twice as much. So I will expect 14%. If you don't provide 14% on USDC, I won't make a deposit because the risk will be too high. And for you to be able to provide 14% or 15%, you will need to use different strategies, such as different strategies, such as pharming in different protocols. I also need to understand the risks because now you are the curator, you are the one building the strategy, and the risk is on your side.
So I have to assess this risk, and you have to provide a good return, otherwise I won't use it. So it becomes more difficult for curators and strategists because now there is a minimum bet that people understand. What is the minimum you can get? Previously, in private banking, you could get 2% get 2% or 3% from your bank. Now we are talking about 7%.
So, these guys are now playing in the DeFi world. But it is possible. For example, at InstaDApp we have a direction called Gaming Capital. And we provide 15, 16, 18, but you need to create partnerships, hold rounds and so on . Which is ultimately quite viable because you also increase efficiency.
Efficiency for the market. How do you do arbitration? How do you get the spread? All of these things ensure that when you trade in or lend on Curve , you get the best rate. Almost zero spread, zero slippage, all of that slippage, all of that .
So you need all these different participants. Of course, profits are also declining as more players emerge, and there are large players who can provide huge liquidity. Ultimately, this is beneficial for the end user, as they get better revenue, better access to liquidity, and fewer UX issues. Can you imagine that people who use Revolut or Robinhood don't even realize they are using DeFi. So as a DeFi ecosystem we need to understand that we have, to some extent, won this battle of narratives.
It is used, it exists, but now we also need to find and reinvent ourselves. What are we? What can we offer the ecosystem now that everything we have been building for the last decade is already being used by big players. So, this is a kind of victory in the fight that we won. How sustainable is it to offer 40 to 80% profitability and revenue, and for large volumes?
That's a good question. This is possible for a few million, but can it be scaled to eight figures or not? It seems very difficult. At this point, it's entirely possible, because I don't want to shoot myself in the foot, but all these different ecosystems and blockchains are trying to survive against Ethereum. And they either move from L1 to L2, or their L2 becomes a product for L1, that is, for Ethereum, and they incentivize people to create liquidity in their networks.
So they distribute incentives distribute incentives . For example, through Merkle from Angle or Vote Market from Stake DAO, we distributed over 200 million incentives last year. This year we are planning about 150 or 200 million. The amount of incentives to keep users in their ecosystems is enormous. So, in the end, the users are the winners.
Here's what's happening. So now you have maybe 15 major networks. Is this what we did as 15 or 50? Sorry? 15 or 50?
We have 15. 15, okay. I would say yes, I think there are no 50 networks. I just want to make sure I'm not mistaken. A few years ago, we knew that networks would gradually but surely disappear.
And now the speed is getting quite high. It is growing, so for users with liquidity, now is the time as you get incentives to generate income. Of course, you need to make sure you are assessing the risk correctly. I think that's very true. I'm glad to hear that the possibilities are still there .
Maybe my last question for you is: for the founders in the room who are thinking about getting started in DeFi or taking advantage of DeFi, what is your advice for building a really good product given how DeFi is evolving? What do you think they should focus on and what not if they are trying to build in this area? Yes, we've seen all these different stages. Previously, I'm not sure if you've been in this field for a long time, but someone created a landing page, held an ICO and raised 100 or 50 million. There was a kind of high level of naivety, and then we moved on to creating real products that could potentially change the entire world of traditional finance traditional finance .
We are now moving away from that as well. Then we moved on to the actual products. And the reason why DeFi has also changed dramatically in the last few years is that any software or technology today becomes a commodity thanks to AI. Almost anyone can create all these different products. So there are two big aspects that are important for a developer right now, and that's what we at Stay Capital are always looking for—is distribution.
If you have access to distribution channels that no one else has access to, this can apply to any business. And also your own data. So, if you have access to information that no one else has access to, that is also very valuable. So if you have those two things, and you have an idea where it's not about the principles or the cost, but whether it solves a real problem, then I would... If I were you, I would spend more time implementing it, because it could be extremely valuable.
But on the other hand, if you're thinking about creating a good product, landing page, or something like that, it won't work right now , because anyone can make a landing page. Anyone can create any technology now, I mean software. So you really have to think, "Okay, what exactly am I creating that solves a real problem?" And if you have such a thing, you can present it and attract the attention of people interested in financing it or something like that. Distribution is king, it seems...
it's a huge thing, yes. Surprisingly. Julian, thank you very much for this wonderful conversation. Please give him a round of applause.
Automatic transcript — names and jargon may be misspelled.
