Hello everyone. I am Stan. I've been developing on Ethereum for, um, almost ten years. It started as a little, um, passion, um, musings about credit markets and loans. Before I started developing on Ethereum, I had a fintech startup specializing in accounts receivable.
And one of the things that was one of the things that was , um, quite exciting for me was that I realized was that I realized , um, how to actually combine, um, credits, um, around the world. And once you can combine credits, ahem, and develop them at the scale of the Internet, what can you actually achieve, and why developing credits, ahem developing credits, ahem , at the scale of the global Internet, ahem, is more important, especially today than ever before. So when we look at all the, um, internet, network technologies, you know, the internet has changed, um, almost everything. He changed our perception of information. Many of you, including me, grew up on the Internet, where the amount of information you had access to increased, um, um, and you had more sources.
You have commerce, you can order almost anything, shop, um, online today, um, globally, and it just increases, um, the possibilities, um, and a lot of communication, um, is done through these internet protocols. So everything, um, has been able to go global and connect people all over the world for trade, and what hasn't really worked as effectively is credit finance, um, is becoming more and more global. You can send funds all over the world funds all over the world . There are still a lot of challenges, um, and a lot of these technologies that we're building today. Um, and I know that Ethereum, um, is about to change that, um, on a permanent basis, credit–this is kind of the last chapter of that story.
Um, and the most important, um, um, reason why credit is hard to solve is because you have this, um, coordination problem, right? So credit today is very local. Um, you have, um, different participants. So, maybe you have lenders and borrowers, uh, intermediaries. Uh, you have localized regulation, uh, localized capital, and risk assessment and risk management.
Uh, and it's all about the concept of trust. So concept of trust. So , before I started working on Ethereum and starting when I was building, uh, a fintech startup, uh, before, one of the problems is that when you try to build for a global audience, you're kind of locked into these, uh, localized, uh, frameworks. Uh, and that obviously creates a more complex way of coordinating, uh, liquidity and lending on a kind of internet and global scale global scale . And if we think about why this problem actually exists, and why, uh, why really, how do we solve it and what does that give us?
I think one interesting point is that when you look, for example, at interest rates in different, uh, regions, whether it's business loans, consumer loans, uh, or in the institutional sector, you have different kinds of, uh, discrete divergences. And part of that is obviously part of that is obviously related to the cost of capital that arises from capital inefficiencies or, um, liquidity isolation and network effects that you, you, you, you could create, um, if the world were more, um, connected. In a way, I see Ethereum as something of a connective tissue and an operating system where you can actually build this, um, financial, um, infrastructure that can enable a lot of these, um, transactions, not just payments and not just, um, the movement of funds, but, um, and the exchange of value, um, but especially, um, loans and assets. So the biggest trade-off that we typically see is that, um, if you isolate a lot of these opportunities on a global scale global scale , um, you isolate, um, markets, um, and you get capital inefficiencies, and it's harder to finance opportunities, um, on a global scale global scale . And you can see this in, in, in different, um, um, regions, where, for example, um, credit has a certain, um, premium, um; There is a lack of liquidity, ahem, even in business even in business models that are very similar to each other and can be valued, ahem, more efficiently.
And when we actually fragment credit, um, what happens is that it creates, um, capital coordination costs , which is, um, we pay more, um, for liquidity, and with that liquidity and efficiency, um, we also, um, reduce and, um, lose opportunities at the same time opportunities at the same time . And the reason why this is, um, extremely important is because, um, credit supports almost a lot of these capabilities that we have, um, today, and historically did. If you look at any generation, um, in history, you'll see that credit supported, um, a significant part of the industrial revolution, um, the railroads, um, and even further back in history even further back in history , and I think also in the modern world, for example, artificial intelligence, um, and in infrastructure, so credit can be, um, a really valuable, um, creator of opportunity. Hmm, and when we think about, um, on-chain markets and how they empower, um, lending and financing in general financing in general , um, I approach the problem from a cost structure perspective. So today there is a certain cost structure for doing business.
uh, whether it's, for example, uh, repo transactions, uh, in institutional departments, uh, or it's, uh departments, uh, or it's, uh , other types of transactions, uh, usually associated with, for example, back-office costs back-office costs , uh, negotiations and all sorts of capital, uh, inefficiencies. So what Ethereum, uh, effectively does is it creates this, uh, platform where platform where anyone can actually program a lot of these, uh, functions that were done, uh, or manually, uh, somehow digitally , but calculated, uh, with, like, a delay plus one or delay plus one or two, uh, days or more, uh, in the future. And it's quite interesting because, uh, we can actually create, uh can actually create, uh , use cases, and we can create a financial infrastructure that is calculated, uh, on a continuous basis, and, at the same time, uh, is able to actually provide full transparency, uh, of the system, and, at the same time, you also have, uh, actually full confidence in the execution. And then, once you have that base layer, you can create these protocols that actually work and provide the functionality of the financial system, whether it's, for example, lending and exchanging value, or moving value around the world. So markets and infrastructure become automatically global, without this discretionary, uh, view, and that creates, uh, efficiency, capital efficiency in the system.
And the access point here is very interesting because, uh, the special part of this is that if you have a complete view of the infrastructure in the market, uh, you can more accurately assess the risk, uh, and reward, and that should, uh, lead to greater cost savings. So, moving to an infrastructure that, uh, replaces a lot of the manual, uh, complex, uh, and multi-layered stack with a more programmable, uh, automated stack automated stack , provides that efficiency; and I think this is, uh, a solution for actually implementing, uh, on-chain lending and other, uh, utilities. This is, sort of, an interesting example, uh, from the side. We started a few years ago, and, uh, we've processed over a trillion in cumulative loans, uh cumulative loans, uh , currently over 3.5 trillion in cumulative deposits and a peak of 75 billion in net deposits.
So, it already operates on a fairly significant financial network or institutional scale. Uh, and this proves that you can actually use Ethereum and the protocols built on Ethereum at a significant scale, and this scaling has amplifying network effects as more nodes join the network. And in terms of lending, that means more integration, uh, using these same credit pools, which allows for increased liquidity, uh, reduced cost of capital, uh, and more opportunities to leverage the capital that is aggregated in decentralized finance, uh, in protocols like going back to the real world and funding opportunities, uh, whether in lending, uh whether in lending, uh , in institutional divisions, uh, or at the regional level. So over time, we've learned that what works now for a lot of these, uh, cryptoassets and our own , our own, cryptoassets, for example, uh, can also work for all the value that we have in finance. So we also think that the approach where you have one market, uh, is not going to be enough.
So typically in DeFi, a lot of these lending protocols are pull models pull models , where you can pool liquidity. Uh, enjoy the network effects of this, being able to withdraw liquidity from pools and create programmatic, uh, credit lines that, uh, any participant can join, uh, for example, by providing collateral. And in the future, when all the value is centered on the blockchain, and this is used in DeFi, we need to find a trade-off between how we manage, for example, this capital productivity capital productivity , which creates network effects on a global scale global scale , and how we manage, for example, risks and isolation, uh, at the same time. And here's the main, um, idea. The more we can share liquidity share liquidity , the more these network effects will grow globally globally , making capital cheaper, extremely competitive for market participants to participate in.
But at the same time, uh, we have to think about how we actually position ourselves on the spectrum of capital productivity and risk isolation in a way that we can ensure that what we do on the blockchain actually has good risk controls. So, uh, we created A v4, which effectively allows you to isolate risk, but at the same time, uh, distribute, uh, liquidity between different pools in a way that it's controllable. And why this is important is that in traditional finance, um, a lot of the risks and opportunities are isolated, um, also depending on the regions, um, different types, um, use cases and opportunities. And the network effects for the chain actually arise when you can start to aggregate capabilities, but in a way that you also have risk control functions where you can isolate risk while still being able to, um, leverage, on liquidity network effects. And what this means for new opportunities, a typical problem for many of these liquidity networks, um, in decentralized finance, is the problem of self-loading.
And this is the same problem that, for example, was at the beginning, um. Every protocol has it. protocol has it. Any opportunity that comes up on Ethereum, um, has: where to get the initial, um, liquidity and how to turn that opportunity from a small, um, experiment, um, into a global, um, liquidity network. And the shared pool model, um, helps to actually, um, launch these capabilities by creating, um, a new market where liquidity can be distributed up to a certain point, um, and allowing more assets to be brought into, um, Ethereum.
And this, um, is particularly important for, um, RWAS, real assets, um, where we're introducing a new capability in blockchain, um, and actually have to incentivize their use, um. So things that can be built on, um, that kind of model, um, obviously allow, um, to bring new assets onto the blockchain and actually use them. So one of the main challenges for many institutions is understanding the, um, benefits of tokenization, as well as the next steps that follow . And for me, a big part of tokenization is actually the utility actually the utility it unlocks in an open, ahem, financial, ahem, system like Ethereum. And in this case, um, like, um, a lending protocol, it allows you to actually take advantage of this opportunity from tokenized assets, make them usable, um, and then, um, actually benefit those users.
And as this, uh, opportunity scales, the cost structure actually moves a lot of these assets up the chain. And the aggregation of liquidity reduces the cost of capital. And the cost of capital is really important. And as we know, many lenders typically want to get a lot of deposits from a wider audience, such as a retail audience, to gain access to a low cost of capital. I think this will change in the future.
In a model future. In a model where the really low cost of capital will always come from DeFi over time, because that's where capital is aggregated into the best financial opportunities in a risk-adjusted form, and that allows for very broad, uh, network effects for, uh, liquidity that can then be used to fund different use cases. And these network effects also benefit each individual, er, integrator. Because every integrator that integrates into these interest financing and lending networks increases capital in these pools in the future. We have one interesting example of integration with WO, an e-commerce platform e-commerce platform , where creators can actually use their balance from their revenue, ahem, and ahem, monetize that balance directly.
As for one, um, one big and interesting use case use case , how fintechs are already thinking about um, decentralized finance, and asset issuers are also already thinking about tokenizing assets and making those assets available for lending under, um, stablecoins, and creating utility for, um, RWAS utility for, um, RWAS . And I think that, um, one infrastructure, um, that fits all use cases is very difficult to build. But what we've created is, um, a modular infrastructure that fits different use cases depending on what they are. Um, and DeFi has shown that you can build a robust financial infrastructure for native, um, assets like Ethereum and Bitcoin, and that same infrastructure can then be used for virtually all assets that come onto the blockchain, and then empowering everyone and providing more transparency, more programmability, and more guaranteed execution for everyone. And I think the ability to borrow funds against securities, stocks securities, stocks , credit, and the ability to borrow securities directly on the blockchain will also demonstrate this efficiency and at some point provide a really good comparison to using traditional infrastructure.
Overall, I think credit will be a great opportunity. Credit opportunity. Credit is something that is already happening in decentralized finance. This is something we have been building on Ethereum for almost a decade, but we are still at the beginning of this spectrum. I think this is just the beginning of a new financial world where the infrastructure runs on a permissionless network that scales to the scale of the internet for billions of people.
And this will open up more opportunities. And I think that this infrastructure will also be used to fund the capabilities that we will need in the future from artificial intelligence, data centers, infrastructure, solar energy, and everything that the world will need in the future. And DeFi, uh, is in a good position to solve this problem because, uh, it's a network where anyone can come in, assess risk, create these markets, and ultimately create opportunities, uh, for everyone. So I think, uh, it's going to be a really, uh, exciting, uh, couple of years, uh, especially as we move into, uh, the phased implementation of Ethereum, where implementation of Ethereum, where uh, a lot of this technology is being integrated. Many institutions are looking at how to benefit from tokenization, uh, and in the future for DeFi as well.
So I would like to thank all of you for coming to this talk, and, uh, I was really happy to see the was really happy to see the conference taking place here in New taking place here in New York, and thank you very much.
Automatic transcript — names and jargon may be misspelled.
