Trends in CeFi & DeFi

[Music] thank you thank you it's an absolute pleasure to be here and i'm truly hoping that next year we can all actually meet face to face um as it's been for everyone a little bit difficult with all the online conferences and all the zoom calls so looking forward to see some faces um next year around so thank you so much for having me around i will touch upon a subject that is extremely popular nowadays and it has to do with centralized and decentralized financial applications um so i'll take you through what my view is on cfi and d5 how do they develop and what are the key differences and ideally what should an investor choose when they look into investing in crypto should they go for a c5 solution or should they go for a d5 solution so if we look at the economy today and has been saturated with a lot of new and emerging forms of consumption right and these trends of consumption have resulted from the confluence of a number of factors technological economic social cultural and these factors are currently shifting the conventional forms of commercial exchanges and major developments in computer sciences and mathematics have led to the emergence of the blockchain technology in 2008 and this technology has led to the amplification of genuine peer-to-peer transactions and these transactions are done with limited intermediation um and with the rapid growth in cryptocurrencies the blockchain became an underlying technology that has attracted a lot of attention and while the blockchain technology is really known for its application in multiple sectors from governmental services to procurement i will of course focus this presentation today on the trending cases um use cases of the blockchain c5 so cryptocurrencies today exist solely in the digital world right and they are used to integrate and exchange digital information through a process facilitated by the principles of cryptography and they enable secure and verifiable transactions on the blockchain cryptocurrencies are traded on global platforms many of which you're very familiar with and they're based on the principles of peer-to-peer exchange and while some cryptocurrencies may be used as a means of payment right now they're actually not considered still a legal tender because they're not issued by government or by any central bank not at least until today and while the crypto market gap really increases by the day and it is rather sizable at the moment over 2 trillion worth of dollars it is still very negligible if you compare it to the global equity marketplace and then it is estimated that less than two and a half percent of the global population actually holds crypto uh but if we want to gauge the adoption of crypto and digital currencies how do we do it the pressure the present so we can measure it um using the very popular adoption s curve method and i'm really sorry that i don't have the adoption as first picture right now but if you imagine the letter s this would be our s-curve of adoption which we will try to use to gauge the adoption of cryptocurrency with and this method reflects the cumulative rate at which a population adopts a new technology or a product so the f-curve would break the global adoption into five stages along the growth cycle first you have at the bottom left-hand side of the letter s this is the innovator stage and then you have slowly moving up the s letter the early adopters the early majority late majority and the logarithms so if we take bitcoin as the first cryptocurrency out there and a very young asset actually 12 a little bit more than 12 years young it is much earlier along the curve than gold for example which has been in their lagard stage for over millennia and we believe bitcoin is in its early majority phase currently um as it is measured by the number of global investors and total amounts invested in bitcoin so far but um as we move through the early majority phase into the late majority phase the demands and the growth of bitcoin will continue to accelerate and in geographic terms if we look um let's say the european landscape since we're at the blockchain europe convention um it is evident that while western european countries continue to leave the chart in terms of total value invested in crypto and countries like the uk germany switzerland and france are actually topping up the charts in terms of amount of crypto invested um it is really important to make a notice about the emerging countries in eastern europe which actually take the first and the second rank um when it comes to number of people that have been investing in cryptocurrencies based on the total population of the country so ukraine and russia russia comes at number one and ukraine comes at number two our currency uh with high cryptocurrency usage across all the components of the cryptocurrency adoption index uh which indicates actually a larger share of residents that have shifted more of their financial activities into the cryptocurrency side um and that is compared to residents in other european countries and of course if we speak of crypto adoption we cannot not mention the role of institutions um in the s curve right in 2020 everybody was assuming that 2021 will be the year of institutions in crypto and that actually came to life um bitcoin and other cryptocurrencies have been drawing increasing attention from mainstream financial institutions and wall street players and that of course comes alongside the growth and focus from government and regulators as well as they enter into the hidden discussions about whether or not cryptocurrencies should exist in their current state and to which extent should we regulate the usage of crypto and just a few days ago news had it that goldman sachs for example have filed an application to the fcc for a new investment income producing product that would strap an etf exposed to b to bitcoin shares and while exchange trend traded funds um links to bitcoin are actually not existent in the us for example they're extremely popular in places like canada and in bermuda um citigroup for example recently published a rece a report where they have laid out a case for bitcoin to play a bigger role in the global financial system and they actually said that the cryptocurrency could become the currency of choice for international trade in the years to come and you know visa recently announced their partnership with circle and their first usdc some native stable entitlement system that would allow players or program managers and part issuers to settle usdc or use this disabled point directly to visa instead of using the normal fiat usd or euros for example um and you also have companies like paypal that have opened bitcoin payments to their us customer base so it's really evident with these large names coming into the plane that digital assets have entered the institutional portfolios and they're actually there to stay this is just the beginning of that trend and while banks and large firms have continued to dip their tones deeper into the world of digital assets there is a small group of corporations that are very busy to add coins to their balance sheet um notably microstrategy the company that is led by the famous proponents of crypto michael saylor they have announced recently that they've purchased purchased additional amounts of bitcoin and they've increased their crypto assets exposure to 91 57 79 000 bitcoins and that if you look at today's value i haven't looked how the bitcoin price changed in the last 16 minutes but it's around five and a half billion dollars worth of bitcoin that they have on their portfolio not to mention you have elon musk that made the one and a half billion investments in bitcoin and jack dorsey the ceo of both square and twitter who has invested 170 million bitcoin worth um dollars worth of bitcoin with square and they have also announced recently on twitter um that the company would be adding bitcoin to their portfolio so clearly a lot of institutional players entered into 20 in 2021 into the crypto space and this would actually have a huge effect on the adoption curve of cryptocurrencies so um if we have to easily define the crypto ecosystem and what kind of applications does it have i would like to kind of simplify uh the very technical explanations about the layers of the crypto ecosystem and bring it down to two to sorry to three components the first one i'm going to use the basis the underlying infrastructure which is the blockchain network that lays the foundation upon which the different layers are being added and different applications being built the second layer would be the digital asset layer this is the cryptocurrencies that are underlying the underlying utility of the network and then last but not least would be the application layer and this application there would offer the interface to the user and this interface would provide investors whether they're retail or institutional access to various products and services that address amongst other things or uses of traditional financial products but in a new and obviously very innovative way it does not involve intermediaries such as banks or clearing houses and currently there are two ways to offer financial services on the blockchain centralized and decentralized way so what are the differences between those while blockchains would operate in a decentralized manner the first financial applications that emergency group does face off for centralized financial products right and in cfi users would trust a centralized company an entity an institution that would store the funds and provide various services to the users currently the majority of c5 solutions are actually related to cryptocurrency trading and as you know when the industry first started emerging to the retail investors it was primarily cryptocurrency exchanges that were operational although currently there are many companies that offer other services as a layer on top of just cryptocurrency trading so cryptocurrency trading on centralized exchanges actually happens of chain right and it uses the blockchain to move the assets in and out of wallet so when you trade the transaction it is not reported to blockchain that's why it's called off chain so recently we have seen obviously the exceptional rise of c5 products and um they are likely to have a significant impact on how banks operate in the future and there are a lot of specialists that say that they have the potential to shift the structure of the whole financial system at a macro economic level defy in short is an umbrella term that encompasses the vision of a financial system that functions without any intermediaries and is operated just by the power of smart contracts defy applications are striving to fulfill the services of traditional finance but they're doing it in a permissionless global and transparent manner and later down the presentation we're going to talk about what exactly is a permissionless and transparent manner compared to the centralized financial applications um to visualize all of it defy is all about transforming traditional banking services to decentralized architectures that are managed by the communities instead of banks and governments and regulators so in the next few slides i'm going to attempt to go through the major features of both c5 and d5 and how do they compare to each other ultimately enticing you to make a decision which one of these financial services is better for you as an investor so let's start with accessibility how would you access a c5 or a d5 solution and what would be the difference with c5 you have a nice user interface um which prompts you usually and um i have to say a personal advice if you are going for a c5 solution make sure you go for one that adheres to many laundering rules or is regulated or both and if you do that you would be prompted to go through the so-called know your customer the kyc process to access the services uh which means that you have to share your personal information typically your id card the selfie of yourself some information about yourself the intended nature of your business with that company uh so before you are allowed to enter the premises of um or the products of the company that the company offers you have to provide certain information about yourself and this information is typically collected because of regulatory obligations of the cfi entity that offers you the trading or the custody of funds you named whatever service you want to sign up for how about d5 so d5 as opposed to c5 is permissionless what does it mean you don't require a permission by someone to get access to these services so defy users can actually directly access the services using a wallet a non-custodial wallet which can be a software or a hardware wallet and you don't have to provide personal information you just need to collect to connect your non-custodial wallet to the defy application this means that defy is practically openly accessible to all parties without any barrier or without any discrimination based on your jurisdiction or the country that has issued your passport for example moreover individuals who plan to build on top of the centralized platform can actually do that freely uh because dfi platform provides a high degree of accessibility and support collaboration within the community and any product developed within the d5 ecosystem is designed to benefit from other products and vice versa if we look um into how do these products differ in terms of convenience you would notice the following as i said c5 products normally come with a very user-friendly interface that looks familiar right it looks like the sign-up process for any new bank or even traditional banking services that you may currently be using so you would provide your names regular information nothing that you're not familiar with or not comfortable providing especially in europe or very used to the typical onboard process that banks would have to accept new customers so user-friendly interface if you ever get stuck you have customer support to rely on so you can ask questions the company is going to help you get you on board it they're going to help you start using the products etc etc so it's very familiar very a process that is very close to what we're used to defy on the other hand can be a little bit challenging if you're not an experienced user um or if you're just a crypto tourist or a cryptocurious let's say um so it's a little bit it requires a little bit of knowledge on blockchains and on cryptocurrencies some degree of technicality and it's not very intuitive for a large number of users if we if we have to look at relatable terms right and if you think about your parents or your grandparents if you want to introduce them to crypto would you go for a centralized solution or would you ask them to let's say set up a letter wallet and connect it to a defining quality pool um i think that would give you the answer in terms of convenience of usage of c5 and d5 products so how do we use c5 and d5 as a bridge to traditional money as you know a lot of the crypto curios or the um let's say the early majority and late majority users would actually not be native crypto users so typically such users would need to exchange their fiat currencies for cryptocurrencies so that they can start tapping into the industry and normally centralized financial services would actually always offer you some sort of fiat on-run and fiat off-ramp so if you decide to go out um from your crypto investment you can actually take your money to your bank account um and that would be it and there is something else apart from the ability to buy crypto um easily with the app c5 exchanges and c5 providers would actually support the trading of litecoin bitcoin ripple you name it any other kind of frequently traded high market cap coins that are issued on independent blockchains um whereas such coins are typically not available to centralized applications and of course the majority of the centralized applications actually have no bridge whatsoever in terms of real in terms of fiat money um and that obviously may not be a blocker for anyone who is who has been a crypto native and has been trading in crypto for a number of years however if you're a new market entrant you may actually benefit greatly from the ability to add your bank account to deposit funds to be able to invest in cryptocurrencies um so how do these two applications differ in terms of privacy in europe um we have become largely aware where our privacy rights of the rights to protect our data and our identity and our personal information the right to control how our personal information is used by third parties um who do they share it with do they use it for marketing person um purposes etc etc so um with the introduction of gdpr we clearly have become let's say experienced users of data privacy rights then cfi would allow you to place trust in a single centralized entity so you're placing trust in the company that you're contracting which controls your money as a custodian um it and it both applies to your fiat transfers and to your crypto transfers so the centralized entity would hold custody of any deposits that you place within their accounts and of course they would be collecting personal information for from you so any personally identifiable information actually coded would be owned or accessed and owned by the data controller which will be the c5 entity offering the services so as a user of these services you're trusting the good governance and the control practices of the firm that you have chosen to safeguard those for you so as such you are facing the third party the counterparty risk of this company either leaking your data or being hacked and somebody stealing your data or um you know they have been negligent with the information you have provided which has led uh to exposure of your data or god forbid to loss of any funds um so this is how privacy is addressed by cfi applications so what you have to do as an investor is clearly looking into who these companies are do they adhere to international benchmark standards for privacy and for security like the isil standards out there um do they have at adequate processes um if something happened if there is an account with a compromised event do they have enough support team uh to be able to address quickly any issues that you may have are they regulated is there a higher instance that you can go to do you know which country are they located and do you know who the regulator is do you know the ombudsman details in that country so that you can contact them if anything happens so you are putting your trust into an institution just as you would be putting your trust into the bank let's say safeguards your fiat money in d5 it's um completely different so users you as a user will have full control of your data your money and your identity because you don't have to share personal information for you when you're creating your non-testo wallet you would be asked to memorize and normally not by heart but more like write it down somewhere um 12 phrases which would allow you access further to your wallet if you need to access it again so if you lose the key to your wallet you are losing your money and you're losing anything that goes with it so you have full control of your funds you have full control of your data but you also have the full responsibility over the way you are using this data so it all depends on you and how careful you are to safeguard your own money um and your own information [Music] speaking about regulation um there is no regulation in the centralized finance right because it is a peer-to-peer exchange that has no intermediaries um and users with the depositing funds and what practically is a smart contract and while regulators and government are now looking into the defy networks and the solutions and they're trying to get their head around how to regulate such industry and is it even possible to regulate such um such an ecosystem um is it normal or let's say is it safe for the investors to put funds in it we have to say that especially in europe micah the centralized financial institutions are going to be very soon regulated and even at present the majority of the european union countries have actually adopted the fifth anti-money laundering directive which um actually mandates that crypto providers are registered within the territory of each european union country for the purposes of ml and cfc regulation and then further down the road um any crypto provider that operates from territory of europe would actually have to obtain a license under the mica regime and this is maybe a couple of years down the road but as you know there are certain european countries like malta for example where i reside that already regulate cryptocurrency firms um so there is definitely a lot being done and in this aspect and it's not just europe that is pushing down legislation it's also the u.s and other countries following suit and in centralized finance this is the world that we're looking at further down the road it will not remain unregulated uh but more likely the crypto services industry would be fully regulated um and it is likely that these regulations would actually be reminiscent to the markets directly for example that is currently active in europe um so what are the risks um i've mentioned on a couple of instances what you should be aware of as an investor or just as someone who wants to maybe hold crypto um in a centralized or in a decentralized product so centralized exchanges are subject to an increased amount of cyber attacks because they hold custody of user funds and obviously any funds are as safe as the safeguarding measures that the centralized financial services provider is able to secure so you are putting a lot of trust in the ability of a single entity to safeguard your funds and obviously um it is only a matter of time if a provider becomes big enough if they have enough assets under management that somebody would try to steal the stunts it's only a matter of time so you have to be very carefully making a very thorough research about the security practices and the data privacy practices of the centralized provider that you have decided to trust your funds with because it's not just about let's say the ceo of that entity ensuring you that your funds will be safe you have to make sure that you do your own so to speak audit of that platform to make sure that if something happens your funds would actually be safe whether it's going to be an insurance that they have in place for customer funds or um you know publicly available information that the customer funds are stored in cold storage which is not connected to the internet meaning that it's not at risk for being attacked by hackers of course there are no such risks in the centralized exchanges right because the platform does not store user funds you are the holder of your own funds but this doesn't mean that there are no risks um in d5 and actually d5 users should pay attention to a lot of things such as the code um of the application the consensus algorithm that is used by the d5 projects and etc so these are always things that you need technicality to be able to assess and to monitor right because the underlying technology sometimes comes with bugs and it's only normal every technology comes with bugs and other issues and due to the nature of d5 many protocols are actually being built by smaller companies limited teams that have limited budgets and this can really increase the risk of smart contract bugs and even in the case of bigger protocols let's say protocols that are being used audited by reputable auditing firms there are still vulnerabilities and bugs discovered all the time and due to the immutable nature of blockchain this can actually lead to the loss of user funds and if you need to take this into account um please make sure that you know the project before you lock your funds into a smart contract and remember that it's a smart contract that you're sending your funds to it's not a company there are no people that can help you there is no customer support no regulators no higher instance to complain if you lose your money in addition i have to mention one of the biggest advantages of d5 is also its greatest risk and this is the idea of composability composability is a design principle that allows various different components within the system to be combined together to meet any specific use case requirements and um defy is very unique in that developers can actually leverage the combination of d5 protocols so something that they have developed with something that already exists on the network and they don't require any specific permissions to use these components right it's permissionless and it's um open code it's frictionless and very innovative and there is nothing like this that is currently seen in traditional or centralized finance but that of course exposes all the products to certain risks and you can define those in like four general categories so category number one would be the inherent protocol level risk of the blockchain network right so if the base layer if the network isn't able to come to consensus or gets attacked by um nefarious players by hackers then everything that runs on top of that network would actually be vulnerable to the manipulation of the hackers the second one would be the unique implementation risks of each smart contract application so every application is based on its own design and operational specifications and to mitigate these vulnerabilities the network has to perform or can perform in certain cases smart contract audits they can offer bug bounties they can open the code and just invite everybody to review the code and and to point out bugs and to fix them but there is still that smart contract risk um and the code that has to be reviewed the third risk involves the expansion of the attack surface when you are composing multiple smart contracts together so that composability expands the surface and while two particular decentralized applications can be secure in isolation the combination of a two or three or more may not be secure anymore and last but not least the fourth risk involves the user knowledge and accessibility a user who does not understand the application they're utilizing is much more likely to take more risk than what they realize it is for that reason that education and transparency about the risk of using device is extremely necessary for a healthy deviation system because the d5 composability can actually quickly get highly complex um and it can definitely be a barrier to a lot of users understanding what they're putting their money into i see i'm getting a hand raised for attention hello mariana hi yeah i mean i would love to to be here for another hour it was very interesting the presentation but unfortunately we're running out of time we have also a few interesting questions already sure yeah i mean we we're two minutes out of time but if you want we can answer a couple of questions quickly absolutely okay um for example i'll send you a couple of questions first question does crypto.com plan an ipo that's one question and then another question is do you think that by 2025 you will see crypto wallet in every pocket uh on the first topic um it's very difficult for me to um assess that information and it's not something that i can actually tell out loud before it has been planned or the management has decided to put this information out there so i would choose not to answer uh so the second one was whether we will see um cryptocurrency in every pocket by 2025. that's a very uh definite prediction i'd say and maybe by 2030 we would see cryptocurrencies in the majority of pockets um mainly because of the rise of cbdc's as well and of bigger banks warming up to the idea of accepting digital currencies thank you for those questions and then we have the another question we have several but for example does crypto.com plan to offer ethereum 2.

0 staking um i'm actually not aware if we are planning to do it but that's something i'm going to check internally and if you give me the details of the person who asked that question i'll be happy to reply after right thank you so much unfortunately we'll have to leave it here we are a bit late and i have we have the next session here opening the next room next to me [Music] thank you so much mariana for putting