Thomas Scaria ~ DeFi 2019 and Beyond Panel

[Music] okay looks like we're up so next up is a panel on well Capital 3.0 and decentralized finance this has been a very growing theme over the last 12 months and we have the best people that represent that movement so without further ado please welcome Kyle from b0x Alex from Zeron Mike from wire felix from sap protocol and the panel will be moderated by thomas from wire as well awesome thank you so much everyone for joining us today and thank you for being here at the etherium hackathon those of you in the audience I don't know if you're slacking off right now or what's going on but thank you for being here I'm joined of course by fabulous panelists right so we already got some introductions going around but Kyle can you start by introducing yourself and how you're contributing to the decentralized finance ecosystem hi my name hi my name is Kyle Kistner I'm operating Slean a co-founder of bzx we're a margin lending protocol we're enabling you to get the full functionality that you would get out of exchanges except using smart contracts it's very important that the space moves away from using centralized exchanges and towards fulfilling the promise of cryptocurrency which is being in charge of your own money and that's something we're working towards suite my name is Felix and I'm the co-founder and CEO of set protocol we are a protocol that allows you to create a set token which is a token that represents a number of other tokens and in addition to that we allow the automated managed portfolios to be created from our technology as well awesome my name is Alex am I'm co-founder and the CTO at Siri on and we are trying to build a trust as Bank on top of defy protocols so pretty much what we are trying to do we want to provide our users with traditional financial services but not taking control over their assets my cool dumb earth co-founder and CEO of wire wire is connecting the bridge between fiat and crypto so we're fully regulated entity North America Hong Kong Australia and basically our job is to allow anyone who's building decentralized applications we work with centralized applications to address their total addressable market so not just crypto people but anyone with a bank account anyone with fiat that's the sort of the address like sorry the customer profile that we want people to be talking to yeah thanks everyone just to back up a second for those of who don't know about a decentralized finance aka defy it's as primitive financial ecosystem that's been popping up on etherium right that the whole narrative here is it to Bank the unbanked to have this financial services firm really in your pocket right so different protocols and apps are trying to bring this to fruition so whether that's different components like trading you can think about 0x and those kind of protocols adding adding some capability they're lending Dharma and compounds are doing some interesting work derivatives of course B Z X dy/dx ocker so on and so forth and then bundling of these things into potential investment products like what's set and and basket is doing so so the narrative is very very interesting and it's very early and it can have a lot of impact worldwide right but I'd love to hear from you guys first and feel free to jump in you know as you please and all I'll make sure every everything is tame over here but what do you think is the actual mission for d5 what does success look like to you in the future so to me there's two visions of what deep eyes success looks like the first skull which i think is completely attainable which is maybe the essential promise would be just replacing the current crypto cryptocurrency crypto exchange infrastructure with our own open finance tools the bigger goal is to get mainstream adoption and then pass that the banking of the unbanked and you know as I see defi into the future I I definitely see us being able to move some of these more established players with network effects like by dance and coinbase out and get some more adoption from sorry my phone just went off and I'm making it silent no worries but I do think that mainstream adoption will be tricky and I have dimmer hopes for the banking of the unbanked and inclusive finance I I just don't see that happening within the next few years given all the trouble we have just making our own true believers come over and use our own products but yeah that's what I think success looks like we're deep I sure for me I think part of it is like what do we not want to happen with the system and we've seen with the traditional financial system I think most of us have lived through 2008 and see the effects of that financial crisis we're also seeing the effects you know these large conglomerates and huge tech companies having total control over people's data privacy money etc and know people need you know an option a way to exit the current system if they can't influence or change it people don't have the power right now to change Facebook or change goldman sachs or the financial system so it works for them so that many people are out casted from our current financial system and people don't have no alternative so with open like finance a decentralized finance we want to provide these marginalize people like another option at the very least and we hope that using this new technology we can build an option that is more open fair transparent all these like kind of buzz worthy things that this industry says but I mean what success looks like is that you know we have a system that's more inclusive and one word that everyone can participate but at the same time like I think there's a lot of you know harm that we can also do like if we build a system an architect one that only know benefits like a few people you know the arbitrage is are people with capital that doesn't necessarily help Society a lot all right it's really hard to add anything to that what the guys already said but I think the main purpose of defy is just to build a financial service in you in you financial system where people actually own and own their excess have the excess over their assets and I think in the Fugit myself two different problems so first of all it may provide financial services to people who don't have access to traditional financial services because here in the says it's not such a big a problem but there are lots of countries that do not have access to traditional banking system so it might be easier for them to get access to open finance and the second problem that might be solved for the markets like the u.s. is that people will get alternative instruments so even though they can still use traditional financial services it's always nice when you have some alternative options and instead of going to a bank straight away you might consider doing some alternative investment options so I think that will be the goal for now they already set up it I'd say clearest North Star for defy is access accessibility every single person if it was twenty five dollars to build a Wells Fargo competitor there'd be a ton of Wells Fargo competitors basically and as the customers we're going to win the end users are going to win end users is this like in this market is planet earth and there's like six or eight billion of us I don't know but that's a pretty good like total addressable market to make happy so if it costs nothing to start a bank the competition in the market just gets insane similar sort of like yeah you guys are pretty much a bank it's a trustless bank if you think about PewDiePie on YouTube technically what he does cost 500 bucks camera internet connection and all that stuff he's getting more viewership which is important in media he's getting more viewership than the season finale of friends in North America back in the day like that's nuts that's awesome yeah I think you guys summed it up really well there's a couple key value propositions that defy is bringing to the table whether it's the non-custodial nature someone actually truly owning these assets and you know there's tons of people that have Android phones and and access to applications and data plans and things like that all over the world but they don't have access to SMP 500 stock right even if you're in a market like India or Vietnam you need a high-flying broker that has access to international securities account you also need a lot of money right these things aren't denominated they're denominated in hundreds of dollars not cents so it's just not accessible to the average citizen so that access story is also very important but what Kyle was getting at was success isn't exactly around the corner there's all these little things we have to solve to get there and I would actually argue the UX of defy is pretty good already compared to the UX of traditional finance like imagine that remember the first time you went and got a bank account you literally had to go to the branch I don't know if they were emailing you papers or faxing them at the time I used to be a banker at Citi and we used to use the fax machine all the time right so how is how is that plausible to be unbanked it's just it's just simply not but so so my argument is the defy UX is already pretty solid but how come the masses aren't just rushing towards us what are these incremental problems that need to be to be solved I guess I'll go for that one UX user experience if I use something I want to get a good experience like it's not about clicks it's not about design it's not about UI I mean it about that that's part of it but it's really really hard to tell me that I got to collateralize $1,500 worth of the theorem to draw down $1,000 worth of dye and you know while I'm changing websites Chase Bank is giving me pop up sort of like shoved in my face saying $2,000 credit card $2,000 credit card like that's a consideration that I don't think a lot of people talk about that'll get there eventually but yeah you X the this market like the developed world gotta beat that yeah any other thoughts I think the main problem right now it's not maybe the uniques in terms of design or whatever but it's just a number of steps that you usually need to go through to actually get access to services so imagine if you don't have any crypto yet so like how many stabs how many different websites you need to open to actually get access to the financial services and so I think with the work of those guys solving the problem with by encrypt of his credit cards and also different applications built on top of protocols we are getting to the goal but we are not there yet I think that dealing with gaps is scary for most people it's scary you have to know a private key like where are you sending your money do you know what you're doing what's happening when you're assigning a transaction am i sending it to the right place can I trust this website am I just sending it to like a black hole I think that we have a lot of the private ticket sold like what should I do if a it shall I keep it somewhere so the right to down yeah but on I mean I think a lot of progress is being made you're absolutely right for people who are crypto native its way easier to use the FI projects than actually going and meeting some one person going to a retail bank store and you know performing a transaction but most people aren't crypto native people don't understand these things and there's a high learning curve to get there and I think that there's a lot of good work being done by many many projects to kind of you know make things easier for people get started so I I want to push back a little bit the user experience of traditional finance maybe back in the day you had to go to a bank branch a bank branch and open up an account nowadays you got Charles Schwab Capital One 360 you can open up a bank account from your couch or on your smartphone without any big issue so I do have to question the premise of whether the user experience of defy is easier and also what what's your what you're thinking of when you're thinking of the starting point on onboarding like when you when you talk about using some data like auger or compound you know it's not just when you go to the website it starts at the moment that you get on board it on to aetherium itself and other currencies that are interoperable with it so you know you have to download browser extensions we have you know simpler solutions that involve your mobile phone and all kinds of complicated linking of different devices I think that you know as Felix said using defy products can be daunting even and he's somebody who builds defy products so you know the user experience for somebody who's already using crypto who's already on board an antic ripto maybe not so bad but the user experience for somebody who's not been onboarding onto crypto is far worse and there's these frictional costs associated with getting on boarded onto crypto and these massive network effects that benefit the user experience like if your boss gets all of his money in an electronic bank account and sends it to your electronic bank account that's really easy and it's because of these network effects and there's no need for these frictional costs yeah I think you guys are totally onto something that since we're already crypto hats copy-pasting addresses seat phrases things like that make a lot of sense to us but someone new coming to the space like what Felix is saying it's just it just doesn't inspire confidence right even after the financial crisis okay a little bit after the financial crisis people are still trusting banks because they want to point the finger at someone if they you know lose access to their money with defy with where we are with C phrases and private key management you you only have yourself to blame and that's not a solution that's acceptable yet it's not a narrative that people have just come to terms with quite yet yeah yep did I interrupt you no new going please so I think one thing that's really interesting is like that narrative of be your own Bank everyone used to talk about you know Bitcoin you can be your own bank and stuff it's not be your own bank vault it's be your own bank so right now if you think about D Phi right D Phi is this you know is it composability is the term or whatever the terms that you use you stitch all these things together and you've got a bank you've got somewhere you can park your money and earn interest on it you've got somewhere you can take out a loan you've got somewhere you can get stability you're your own bank and you know you secure it all through your my crypto keep ki whatever it is that the defy narrative if you if you still sort of math on it think of it like everyone getting AOL CDs in the cereal I'm from Australia we didn't have a o L but it's basically the equivalent of the Internet where people say hey welcome to the Internet do you want to look at sports do you want to look at entertainment you want to look at news you want to look at this of whatever horoscopes this is what defy is welcome to like a value network do you want to take a loan do you want to make money do you want to secure your money like that pardon language yeah do I keep talking I just want to chance that even like right now with all this product is quite overwhelming but for people even in preped like not for the screen in deep I already pad normal people call assay but if the your own couple of years ago and for them like there's so many protocols and they can do overhelmed with that and so that's I guess even for them so they know what private keys are but it's still kind of card to start using defy because they might not completely understand what's going on out there what exact services they need to use how Security's so we need some adoption in that regard as well I think yeah there's there's certainly a lot of issues right now for that quick adoption narrative I'd love to shift the the conversation to a new topic which is really trends for protocols and apps right so we have a couple protocol proprietors here as someone who's building on top of those protocols here Alex and the whole defy space came to fruition really in 2017 and 2018 you really saw a lot of people go to market and in 2017 the token model for generating funds and perhaps occurring value to protocol proprietors was the way to go but now the trend is more towards products and productizing on top of your protocol so you you see that with many examples right dy DX has Expo trading Dharma has lever but none of these guys have tokens and then even if people get 0 X who has a token they've even productized a little bit with the 0x instant as a DAP developer Alex how do you feel about this does do protocols are clearly in the best position to build a demonstration of their product right does does that alienate the app developers like like yourself well that's a really good question because it's really hard to tell and I feel like protocols have well position about the competition there is so high and since everyone is open-source it's pretty easy to create another protocol to solve the same problem but cheaper so that's why I feel protocols are trying to build products on top of their protocols and actually make money on the level of products rather than protocols so there's a nice example of kyburi you know swap for instance so Carberry exists in quite a while and then just unit swap came around and they created a very similar protocol that solved exactly the same problem but slightly cheaper so and a lot of users transfer to you nice lob but on the other hand little later Khyber said all right very protocol and can just integrate yoona swap liquidity pods into our system so now they're kind of sharing the same liquidity and it's really hard so the competition is really interesting and I feel the winner is going to be the one who is going to get the most of liquidity and it's like really hard to define very the line between them it's yours liquidity it's like a shared liquidity begin occurs easily connect all the protocols all together or built like more fancy protocols on top of existing like very one protocols but after all I think it's going to be a game of liquidity and like the ones called managed to aggregate the bigger liquidity around there whatever you call it product a protocol are going to be in this game so that's my vision on that so regarding whether projects are in the best position to build out a demonstration of their product I actually think that projects are in a position to build a better demonstration than most other teams would be so if a project puts out their own product product it's probably gonna be maybe in the 90th percentile of what could be done whereas there are some teams that are so good at user experience that they can actually outclass what the project would do themselves you know I I look at you know zero on they kind of work on user experience I like it instead app they're doing really interesting things that you know because they just think about user experience they're able to bring something a little bit extra to the product I think in terms of the trends what's gonna happen is that projects are gonna have kind of a hybrid two-pronged approach just like with 0 X coming out with their own product like our project b0x we're actually going we we have a protocol we have you know eight different relays building on top of us what we're also going to be productizing our I tokens are position tokens and all that and III think there's there's a relationship between the traction of product project has at the outset 0x could afford to let a whole bunch of different people build on them because they had so much excitement and developer traction when you have less in the way of developer mindshare you're more forced into productizing I think to some extent it's a reflection of the market the market being in a weak state there's less expected profits from going out and building projects there's less developers the space gets a little bit weaker in that sense and that's where projects have to kind of fill in but I think as we look through market cycles projects will you know go through times where the productizing go through times where they try to have protocol like the developers work through it so I think it's something that'll change with time and it's it's gonna be kind of not one or the other I think there's three things that any protocol like cares about now the first is liquidity the second is liquidity and the third guess what it is liquidity that's all that matters right now and how a protocol achieves that like that's all that like they just need to make that happen whether it's building their own DAP on top to initially bootstrap adoption or if the fastest way is to get other developers to build great debts and get distribution through them like that's all that matters and like liquidity is basically a proxy for utility in your protocol like how useful is it to the end users and if you don't have liquidity like your protocol is probably going to just slowly like disappear like honestly yeah and you're gonna have to just build for that like you have to do whatever you can to get liquidity this is a great segue into one of the topics I have for discussion the question I had was and I think you really answered this already is whose responsibility is it is it the protocols responsibility to bootstrap liquidity or is it the daps who are trying to create great products the great products of course need to be frictionless with great liquidity there's there's lots of there will be lots of protocols to choose from especially when they all go to market Alex I'd love to hear your thoughts on this do you think the the onus completely lies with the with the protocol layer I think it should look at the collaboration between both because Geoff's and interfaces they can't exist without protocols and at the same time it's really hard for users to access protocols directly so I think it shall be some sort of shared beneficial model that benefits both protocols and applications on top of that and I guess it's the only way to survive because applications can integrate multiple protocols at the same time but at the same time it also gives you users to every protocol out there and as long as protocol is competitive enough it's a beneficial for everyone for applications and protocols together users and to share the profit somehow yeah liquidity is extremely important this year if you've been following any of the projects in this space 0ax is theme this whole year's liquidity right and you've seen that with hydro and DDX Mike I'd love to love this question up to you why is a big market maker there are programs that we can participate in at the protocol layer to to bootstrap liquidity how do you think about which protocols to partner with to to help them with their go to market strategy how do I which ones to partner with yes which which how do you create a great market making program where institutional market makers actually want to come and participate in in liquidity bootstrapping yeah okay so market making liquidity 100% agree I think the quiddity is a number one thing it's a network all the all this is decentralized networks ooh barking uber is a network Hoover has liquidity rider driver by our seller it's exactly the same thing distribution is the only thing that matters so when you look at that if I am a protocol and I'm gonna say right we're gonna pay three million dollars to list on by Nance and a lot of people paid three million dollars to list on by Nance which is great if you're holding the bag and the bag goes up like 150 percent if you are aiming for everyone to basically by users give them hurry like you you'll pay them to come but you need an incentive model to make them stay so I can acquire a user for like and I know this is actually going to get to the answer you I mean the question you ask but basically market making is bootstrapping liquidity so whether that is offering incentives like hey you can get some tokens from 0x to build on top of 0x to encourage liquidity that's amazing but it's amazing if the LTV of anyone coming to my protocol is going to stay like there needs to be stickiness so when we look at that how are we going to like proxy and liquidity or it's things like that I think that's really important like all they're gonna do is waste money by doing market making strategies and rebates and stuff if it's very obvious that the token model doesn't make sense people come exploit it and then leave yeah it's like a the shittiest customer ever a group if I'm running a like cupcake shop I've got a Groupon deal I get sixty trillion people through my door one day they all want seventy-five percent off and then I they off and I never see them again I'd be like well that was great yeah you want to get them in the store but like the equivalent would probably be putting heroine in the cupcake or something where now they're gonna come back every single day very McCobb example but i think it gets the point across yeah have an incentive model before you buying liquidity because there's no point people are gonna leave sorry absolutely I mean I'm just want to add on to that there's only one thing that market makers care about and it's can they make money and there's multiple ways to do that as he has described and you know you want good wait I mean you want natural kind of reasons for that not like artificial reasons that give them money yeah thanks for answering those questions guys last sort of topic of discussion certain protocols have sacrificed a degree of decentralization for better user experience idec's comes to mind you know they're they're very decentralized in the settlement process but some of the matching of the orders for instance happens on their servers they've compromised a little bit of decentralization for user experience is the future of defy in making these sort of compromised is to go to market more quickly get the user experience in bootstrap liquidity more quickly or is it about sticking to the grain of pure decentralization so what I think is that a lot of people in the crypto space massively overrate how much people care about decentralization even even other people who talk all day about decentralization don't care about decentralization all anybody cares about is user experience that like if at any point you have to make even the slightest compromises on user experience to bring about some more decentralization don't do it you've made a terrible mistake people only want to do what's easy they'll go down the path of least resistance that will get the network effects that will get the liquidity and you we can see the pattern time and time again in all these projects you know you look at something like zero X yes the liquidity is picked up it's it's done pretty well but something like Ida X had massive volume massive success it Mex still has some of the biggest volumes in the space when we have plenty of decentralized alternatives and you can go down the list there's pretty much not a single instance in which something that made this sort of trade-off came out better for it anything to add there yeah so I think at the end of the day the users like care about two things can they make money same as market makers or can you save them money or make their lives like significantly easier and I think no diva I mean we as product like protocol companies or companies billing apps like have to be we're very aware of that and like what is the Batna that these users have which is like the best alternative right or sorry not bad about alternative like what else can they use and it's I think that you're only really gonna get really widespread adoption of defy when you build something that they can't get like otherwise so I mean the marginalize people are good know to start with the already crypto native you make their lives a lot easier and I think a lot of crypto protocols our focus on what can you do with our protocol that you can't do elsewhere I think in addition to two things that users care about that Felix just mentioned there is a third thing the third thing called do they made sure that they don't lose their money because they put it to somewhere on protocol and just stole it from them and there is like I think there is a certain degree we're like decentralisation might be compromised so for example if you're talking about decentralized exchanges I feel it's perfectly fine to have all chain order Brooks because in spite of user experience because it's much faster you still need to trust your layer but at the same time you still make sure that the visceral layers they can keep your order potentially it's a risk but they can just take and steal your money so I believe as long as it's like below some degree you can compromise the centralization but at the very base level there still should be some certain aspect that should be kept all the time so that users using our choices banker directly any protocols want to make sure that that protocol is not able to just take their money way buy-in it in no case yeah same stuff but basically like I feel like this was almost the argument that another argument but the post from the etherium developer of Vlad and Nick Szabo talking about Bitcoin you know decentralization there's only matters and there was but the other side was sort of a more pragmatic approach I feel like the best example I've seen of that is a very slow a very gradual pragmatic like kind of hand-holding approach which it's it's trust minimized but it's also like you know they're a great team and they're working together I'm but like make it out not shilling make it out but I'm a big fan of them but you know they're taking a balanced pragmatic approach which is you know they're not keys to the kingdom when it comes to their smart contracts but you know it's give and take so I think depends how hard core it is and how significant and impactful what you're doing is there's a place for both of them yeah what I'm hearing around the table is defy is not gonna be an overnight success especially in 2019 when these market forces are with us as they are but incremental steps are being made right and in 2019 what incremental steps from either your own project or someone else's project are you guys most excited about I'll start with Kyle so I think the thing I'm most excited about in 2019 is the decentralized exchange ecosystem in general becoming more liquid right like getting to the point of liquidity where it's actually considered a viable alternative I don't I don't see the end of this year having a tipping point where people's the network effects get great enough that people start leaving the centralized exchanges in mass but I see ourselves getting set up for that where projects could actually be viable because they have liquidity to draw from and they're not just all kind of cloistered in this this hollow area where nobody's really using it but they've built all this neat stuff I'm really excited about the prospect of basically turning all of the crypto wallets into interest-bearing accounts and getting people on boarded like in a massive way like in the lending market and by extension giving liquidity to the exchange market so that's that's what I'm looking forward to in 2019 I'm gonna jump back to the question before that's also related to this question is I'm excited about I mean it's we're gonna cerium community but centralization I'm excited about no better user experiences I'm excited about hosted wallets and better ways to onboard new users that may start you know more centralized than not you know they're hosted while like kind of private keys but eventually as users get smarter and are on-boarded they can used to like handle their own private keys over time so I'm excited about those new kind of onboarding technologies and techniques yeah I agree that important right now is one of the main challenges that stops adoption and I'm really excited to see more users starting using tip I because right now we have a lot of protocols that are already working and but we still have the same 10,000 people working around dpi and like the absent general so I really hope as soon as some of their onboarding problems are solved we will see more users using all those protocols maybe not users who don't have any grapes yet but at least users who have Bitcoin or theorem so the ones can know a little bit about crypt in general but still did not understand how they can take take all of the defy and start using it say vault or collateral dies the most exciting thing and waiting to hit it's gonna be Brad best of luck deploy and I hope it all goes smoothly yeah that and then it'll be awesome i productizing the oracle which is battle-tested then rent-seeking off that instead of having to try new Oracle systems so wishlist how BIG's that bag Mike it's really heavy well thank you all for joining and thank you for sharing your thoughts with the audience and thank you everyone for for being here happy hacking [Applause]