DeFi: Past, Present, and Future - TOKEN2049 London 2022

let's get started uh thanks for coming over here guys we have a fantastic panel right here with a bunch of Legends really uh I'm not sure what we're doing here really it's not like there's much going on in the space last two days there's not much to discuss but we'll do our best to cover whatever's going on now um I don't think we need intros here but let's do it anyway just in case uh so shall we start with you Stanley sure so um I'm Stanley College of I'm the um and founder and CEO of rvm Ave is a team behind of the the other protocol effectively where you supply cryptographic assets into smart contracts and earn yield and then you can use those assets as a collateral to borrow liquidity and the other protocol is governed by the avidao and is deployed in multiple networks including ethereum uh polygon Avalanche and and layer two's arbitum and optimism and more recently the the other team I mean we've always been about building access so whereas other protocol is access to finance we've recently been building the lens protocol which is access to your social capital and ownership of your social media profile super excited to be here hi guys um my name is Julian butalu I'm the founder of state capital group we've been investing in a space we also have a Quant quantitative hedge fund type of style very important at the moment but we also build projects so I'm the founder of raked news the underlying investigative firm for everything that it exploits and whatever happens in a space so I'm sure you guys are all expecting a new piece coming in a few few hours about the recent things in the ecosystem also Blackpool Blackpool is an asset manager for nfts we are the leader in the space we manage for example biggest manager on surveyor comets all the different verticals uh and stacked out with the liquid lockers with an asset manager we have about 300 million US Dollars and we try to provide the best uh strategies for uh retail going from sport to David thieves options uh Futures and all types of things like that yeah hi everyone I'm Guinea founder and CEO of Internet uh wintermute is one of the largest well I guess it's the largest now crypto native Market maker in the space um basically we yeah we're doing a bunch of Market making activities growth across centralized decentralized exchanges how to see space there's a very big focus on G5 across all kinds of chains we also brought a company we started incubating our own protocols this year and uh well actually yesterday we just launched our own diff aggregate called Bebop so I'm yeah would be really cool if you guys look at that despite all the news cool yeah I'm seraphim from boiler Finance we're lending protocol similar to are they uh we bring certain Innovations to the space um but yeah let's before we talk about what's going on at the moment the topic is D5 past present in the future and perhaps you guys could tell us because you've been around for some time um like um how to have things change over the years into what's now and what is the future of D5 just shortly perhaps we can start with you Stanley yeah I mean um I've I've joined a space um in a moment where there really wasn't decent just Finance so it was very um early and and you said saw different developers teams creating experimentations uh basically Financial experimentations on on top of the blockchain so what's what's been interesting is that there's been an ecosystem that has has evolved over the time and Most Fascinating thing about it uh is that like coming from the past um there's been um kind of a compounding effect of of the tech and capital efficiency and and how these Protocols are being built to actually to to today um if you look about look into what decentralized Finance really uh does it's a very um um Global um liquidity Market where everyone has access into it and fair access so in one way for for me for the past couple of years it's it's been more of um uh you know something that went from a experimentation into building a protocol that um currently secures uh billions of words of value on various different networks has been definitely um unexpected unexpected part but at the same time um these interests Finance what it as its core does it really creates accessibility so any person any part of the world can actually access the same opportunity the same yield um and have that transparency it's basically what Finance should be today and I think looking at the events recently and you know over the past months and not just related to let's say centralized Finance but if you look at how the traditional Finance is being built um and the issues there too so you know um there's [ __ ] that [ __ ] that goes down in traditional Finance with things like creditors and there's a lot of problems so these interests Finance effectively it's a better technology and infrastructure and on top of that actually a public good um and creates that an environment where we avoid these issues that we have in in centralized Finance so I think all these events are just strengthening the position of of DFI and and how valuable uh it is yeah um I was I got involved in in um in a blockchain space in back in in days when mangocx was driving um 80 percent of the market of Bitcoin so it's been a long time ago and I experienced a few different collapse like mangoc so like centralized exchanges type of of behaviors for me like because the market is becoming more and more mature we have stronger and stronger actors that are entering the space with experience of traditional market and understanding of really complex or sophisticated products and because we have built difa in such a way that everything is connected between each other it's compromised if something happened in one place for example on the landing Market protocol and then the correlation the direct collection correlation between traditional Finance in such a way that people can borrow liquidity in in trading deposit in defy leverage and D5 broad capital on some very high speculative asset and then go back in trading this is like fascinating but sometimes very dangerous and the reason why it's now possible in the mind the order of magnitude of those moments in divided we are having today for example like within the past 48 hours we lost 200 billion US Dollars it's huge wave with multiple different risk associated to those kind of behaviors such as people getting liquidity people losing a lot of money in the space well this is like this will increase over time but yeah for the if people experience this for the first time it's a little bit it must be really painful but this will happen again and again but at what we're experiencing today and this is the first time mom gox was 80 of all the supply of Bitcoin I mean it's not like liquid liquid supply of Bitcoin but today FTX is was the biggest one the biggest Exchange in the world and it's the same time in a big trouble so everything can happen in happen in D5 and this is what also makes the space really fascinating in 24 hours in 24 hours yeah I guess the meat it's mostly about the future of define basically what it's like basically what transpired of the last I would say not not just yesterday but for the past six months or so is basically all the failures that we've seen were driven by centralized institutions where it was big lenders that were repackaging Terror Guild whether it was three arrows borrowing from multiple centralized lenders who were again repackaging this yield and visit was FTX that also probably did something very dodgy and very wrong on the middle side um and also centralized entities and one like unifying feature about them as they are in transparent you have no idea what's going on like if you look at Alameda what was Alameda doing two days ago the D5 side of it was the only transparent site and you could see them liquidation across the board you could see them I know selling salon on a serum for example and that transparency part is I think what will yeah but but what will make make it readable for D5 to to actually survive not just survive but to survive in the long term so it's this transparency transparency is what separates it from well the current crisis from 2008 crisis from basically traditional Finance system as we know it and that that makes me very bullish on itself yeah I suppose in times like these where confidence encrypted decreasing a bit because of C5 blow-ups uh when you talk to people like your friends family Regulators you have to come up with a way to reason why is D5 better than this like how do you typically do that how do you reason that you know Defy is still fine even if this C5 FTX stuff is blowing up I think it's also like um what makes D5 very powerful is that you can set rules um that are based on Smart contracts which which means that once you set those rules it's very hard to change them like you need to overtake the network or you might have a formal governance process where you have to have the community to come together to change all of the rules or some of them and I think this is powerful because it reduces the need of trusting um people in general so you can set rules across globally and you don't have to worry that whether you actually get your funds back and I think the concrete example is is today is that uh there are lots of people that are trying to withdraw funds from an exchange um and it's not available or happening for them at this point and with decentralized Finance you can basically codify those rules so for example this is how an exchange should work on the blockchain or let's say this is how a landing protocol should Lo work on on the blockchain and here are the specific rules collateral requirements to ensure a actually a marketplace where you have healthy economics there now what's fascinating here is that when we go basic year after year and looking at these different D5 communities some of the interesting things there are is that it's it's a these are public communities where people come together and decide upon different kinds of risk parameters and that's very different what is happening for example in in Wall Street um in traditional Finance or centralized Finance what we saw for example with Celsius and and block fi um and and the reason well actually the reason when people come together across globally decide on those risk parameters and the information is available for them publicly they can actually make better decisions and when we look at the market fluctuations and these bigger Landing protocols and D5 protocols what is happening here is that um they are the ones that are holding up and what that means is first time ever we actually have Finance as a public infrastructure as a public good done in a way where uh they're resilient for uh various kind of attack vectors obviously there's another challenge with decent just Finance when it comes to hacks but hacks are everywhere and at the same time it's more about building a resilient software but as a software that actually works well um these different Protocols are actually very resilient and I think that's where the value is so you really don't need to trust people and just going back 24 hours a lot of public perception was that let's say FDX has you know they have enough funds um and you know 12 or 24 hours later they didn't so like why do you need to trust anyone when you you know you codify those rules and manage them together with a community so that's what I was tweeting today that I think the best even regulatory framework for crypto is they fine because you can remove all those risks and global economy needs this when you actually want to trade efficiently across the world uh with people uh you don't have business ongoing basis that kind of a base interest infrastructure works well well I'm I'm a little bit less optimistic than uh than standing on the subject if the question is how do you make confidence to retail I mean let's be honest retail use most of the people in the world they don't really need actually use Divine they use centralized exchanges because it's easier because you don't need to understand the concept the underlying technology so trying to like explain to retail that diva is the safe component compared to what happened in Sufi it's complicated it's like it's explained trying to explain a very difficult task uh with a lot of [ __ ] so in a space so what people do they go to binance they go to all these different centralized exchanges because it's easier the ux is easier the UI is easier so ask what we do we provide the very complex technology that cannot fail so that I agree with standing this is the most it's an incredible piece of of Technology but at the moment this technology is using by the bad guys what we should be able to provide a technology that is so simple to use for people that don't need to understand the underlying sophisticated piece of software for people to be able to use this this technology and serve a purpose I mean to help them help themselves on their daily life yeah so it's complicated I won't die it's really complex because when you say okay D5 hasn't failed it's like saying someone they see like a product being hacked and they say Okay ATM got hacked try to explain someone that the correlation between an Ethernet blockchain and the project running on a blockchain is completely different It's like mangocx got hacked so Bitcoin got hacked which is completely two different things but it's really complex to explain yeah it's kind of yeah I'm I'm in between I guess like on one hand yeah it's just all those things that failed they were ultimately arriving on trust like yeah you have to trust Alex machinski you have to trust SBF if you want to put money with them right you don't need to trust Stanley to put money on other that's great but then again even if I trust more stunning than as we have but then again yeah it's like you look at all the stories about I don't know uh both ape holders doing unfortunate things with their nfts yeah it's it's a lot to build for us in the space to make to make a trust like to make to make people trust the technology more yeah so we all talked about transparency basically being probably one of the biggest advantages of defy just knowing exactly what's going to happen to your money rather than C5 it's kind of funny how cze actually mentioned proof of results because that sounds like a very defy concept to me so it seems like C5 in order to be more legitimate is going to try to be a bit more like D5 at least act like that um I'm wondering what you guys think about just C5 versus D5 is it going to be like a hybrid is it going to stay the way it is that where it's completely siled off or we're going to see eventually everything merging into one like what's interesting with CFA you can do things that if I will never let you do so that's the power of those guys they are sitting and controlling some piece of uh like technology or connection with the tradie that all of them to borrow Capital without actually they will never be able to do so in defy because the Trust In default is mathematics is contract well here see that same proof of Treasury or something like that and it's kind of like telling you have a black box spreadsheet and then explaining and telling someone listen trust me the black box is audited but without actually seeing anything in the black box so again you have to rely rely on someone that tell you yeah sure this is actually safe I mean I think it's all [ __ ] but uh and it's sort of not only like a C5 problem it's it's like problem in in finance in general because you can really um adjust numbers depending on on accounting standards and I think um what's interesting about like I I think like CFI and service providers will exist because there's a lot of ways you can actually provide value on on top of the E5 and I think just like some pieces is good to be as decentralized and I think one of them is like trading but nothing stops you actually providing additional value on top of the ecosystem and I agree what Julian said that the the ultimate issue here is that you know like you can be an um try to be as good player as possible you know but at the end of the day there is that that big trust assumption so if you have that black black box you know you're you're still trusting that company and you know clearly there are people in the space where you know they can't be trusted so why would you trust the next um owner or CEO of exchange I'm saying I'm not saying that's the case but I'm saying like because we have the tech available why not make that as the back end of some of the transactions we're doing in the space um well let's talk about the good things actually about some Innovation that's happening in this space I believe recently there was a transaction uh involving JP Morgan that also leveraged polygon and are they could you talk a bit about that exactly what like what was going on there Yeah so basically um I mean the the other protocol it's pretty much um open source public infrastructure so you can take that code and and deploy in your own needs you can use the you can use already a deployed protocol um what's what was interesting with the jpm's uh transaction is that they really wanted to explore the opportunity with decentralized finance and they wanted to do it in a way which could fit their vision of how a financial institution in the future could actually access this interest finance and trade on a uh infrastructure where they have this transparency smartphone check-based execution um amongst peers globally and create a market around that so what JP Morgan actually did um is that they they Fork one of the Ave Arc markets in our Arc Market is similar to the permissions of the market with the exception that you have this white Lister condition so whitelisters can be for example custodians Firebox is one of them um there's another white Lister banksiba figma regulated Bank from Switzerland that is a a new white Lister enrolling and effectively they can whitelist participants to the market so you can create a private Market uh to what already exists as a Public permissionless Market both are public obviously and you have all the transparency but what JPM did is they used verifiable credentials to basically attach identity to the participants and then execute the trade by using of Arc by depositing tokenized cash deposits Singaporean dollars uh Japanese yen into the market and do a live transaction amongst peers now for D5 regions like me it sounds a very simple transaction but for a financial institution that is actually you know going a few years back where the CEO has effectively said that you know I don't know Bitcoin is was it like rat poison or scams yeah so it's it's a big mind shift you know so like the the the Wall Street is already thinking about that you know D5 and this infrastructure has potential and I think navigating the way takes some time but I think it was a big milestone forward for financial institutions and I think um it's hard to say like how the future for institutions work in decent as Finance but uh as long as we see the infrastructure work well we get more and more adoption because there's more Comfort level to participate the same way as in some institutions already participate in participating in the decentralized networks why for example holding cryptographic assets uh similarly same idea and thesis could be applied to actually interacting with the layers on top things that are built on top of uh ethereum and I think that that will happen um slowly that was definitely a bright spot in Innovation I think I I at least I thought that way um what about you guys where have you seen recently tangible innovation in the space in spite of all this [ __ ] that's going on around um what do you think Julian oh you're getting okay right yeah I think in general I guess one one thing I am excited about it's not didn't necessarily happen but I'm very curious how basically for the next was next to the iteration of the ygx how that will go because they're planning to basically decentralize pretty much the whole stack this time I think that that would be a really interesting experiment to see because yeah we do need exchanges that can run fully in a fully decentralized way that that would be awesome to achieve um yeah I mean for me like more sophisticated Financial products uh but not like we believe in D5 space that what we've built is kind of like news uh piece of uh Financial products but they are mostly just the replication of what we add in tradi and we now use them in in decentralized finance well I think like um we have in the FX Market Six Trillion US Dollars volume per day in D5 I mean for example in curve we have something between 500 million up to 6 billion depending on the market situation uh it's really small compared to the world of uh Finance so it's a drop in the entire ocean so when we bring those asset real estate swaps bounce all type of different assets like this and then let the retail uh with like good education and content not so it's not uh unsafe or dangerous uh then we'll bring new type we'll be able to build new type of financial products that we never seen before and for now it didn't happen yet so now we have completely disrupted the uh infrastructure level like blockchain decentralization zero knowledge proof all those different walk in the space of the blockchain industry but the products built on top hasn't been really different from the traditional Finance that's what I'm looking into yeah I think another bright spot for me actually um is basically decentralized and collateralized lending uh because yeah if you look at uncoateralized lines and if I did do it very well yes if I did it super well as we all know um but if you look at protocols like Maple true fire clear pool like one big distinction and because we're basically coming back to these transparency side like you can exactly see how much Alameda of intermitted folk while Amber borrowing from each of those protocols you can see it in real time you see how we repay you can see a repayment history and you can see basically our liability is live and you cannot see it on centralized yeah the central icelanders so they maybe if I can add there are two different things I'm looking into like there's a product called back Finance for example they do like tokenized ETF to the SPV type of thing so it's a mix between Lego framework and Define fascinating and also like but this is a little bit dangerous at the moment but fully algorithmic stablecoin so what Ave curve and angle and other products are working on so being able to build a stable coin that is not necessarily attached to Fiat or in a real world asset so you have something at the end of the day that is purely based on mathematics and cannot be manipulated outside in C from the C5 guys or from some pseudo influencers in a D5 space and this is very very fascinating like adding all these type of Futures options to trying to maintain the pack or using the virtual price of curve at the auto market make your level or like what a goal is doing on the other side those type of things will completely change because the reason why we have defied today people tend to forget is because of maker Dao with the dyer at the beginning when they launch now maker is a little bit less less there because of I think Dao style but yeah we have a trend and the new one that is opening to us this kind of new access to stable coin fully algorithmic stable coin and then new type of products like ATF swap bonds will make like a huge strong bases and pillars for the next uh phase of defy to conquer C5 and not let C5 guys enter the space to to Farmers because at the moment we feel like we are farming and helping us at no C5 guys are farming us at the end days like the guy looking at the Earth or the always been C5 yes we are the D5 guys looking around they farmed they're deformed so we almost almost like on the floor like and now we have to tell some guys how beautiful and nice and good they are for us to not be completely uh crushed and I think the point here is that also that the people who are like working and building D5 are the True Believers so like we we believe what we're doing long-term Builders long-term Builders and that's why I think like the stablecoin examples are fascinating because definitely before stable it was very hard to create anything financial and I think stable coins aren't really even we're very early because you know we we still use infrastructure for the internet money um something that could be replaced easily with stable coins especially with layer twos um you know I came couple of months ago from Argentina in from Buenos Aires and the inflation is almost skyrocketed to 100 meaning that you have less purchasing power one year after of your earnings and I think like there's sort of places you can do a lot of uh impact and with the underclass loans I also think that the way we structure currently like a lot of these loans are going to like funds and and folks that are trading in crypto um no offense Afghani but so what's interesting here is that taking this concept but obviously starting taking this concept of like underclass landing and bringing it where it can Empower quite a lot because what's interesting about underclass loans is that especially like the the liquidity D5 at the moment is relatively cheap so you could take that liquidity out of the centralized Finance with different kinds of Credit Systems and and pull it back to the economy and you'll see this happen that interest rates are going to just go higher and higher and that's where like we start to think and shift our minds towards like okay how we can actually take this stablecoin liquidity or fund opportunities in uh real life as well outside of our like um like a crypto space and I think that's that's where a lot of empowerment will happen in terms of innovation that has not happened yet what do you think needs to happen for us to get to that future defy situation what is lacking that should be happening soon one key is censorship resistant being able to build something that cannot be turned off in multiple different ways for example you can have a blockchain that is fully running can at the moment we don't have fully decentralized blockchain we have like we aiming for fully decentralized blockchain but AWS like all these cloud and all the different things it's complicated yes you can run adapt node at home very expensive and you shouldn't I think because it's you will lose money or you need like a setup that's so huge doesn't make sense so we need fully decentralized Network it will come with the technology that evolved in iot devices of being able to run a node from the smartphone even if your phone goes down for 8 hours 10 hours it doesn't you don't get slash all these different things and then the second one is the um uh was there for one Central Street resistant and the other one was I said something I've completed you only said that that's it I think yeah but I don't know yet that was the point about the uh even if you build a fully decentralized blockchain then you have to be careful about the products that are using the fully decentralized blockchain and because blockchain can be fully decentralized and censorship resistant if for example you have a tornado cash product that is completely running safe of course offering a service that might put people in risk or whatever but what happened is like if you have a true austrojan Trojan house it's like for example usdc anyone that interact with tornado cash even if tonado cash is still running now they have their found stop from their wallet so it depends on what we want to build as a future for our society do we want to have a system where everyone can interact with each other in a fully decentralized way and completely private although we still want to have people because of the fact that saying or to maintain people from Bad activities we still need to know who's doing what this is really dangerous and the moment we're aiming for fully decentralized products but we're still using very centralized activities that can impact the use of those different products that we're using what about you can yeah I think it's yeah I guess I guess I'm a lot lost and thought like kind of like pros and all this um the light is very strong and the comfy chairs it's like we all uh yeah like culture out here but anyway yeah the new year is upon us really 2023 what are you do you have any predictions some of you excited about next year what do you think there's so much still going gonna happen probably this year it's two months of uh 2022 so um I I think once we get past of this next couple of months I will do some predictions [Laughter] well I see it's um it's fascinating and at the same time it's also like uh quite uh stressing uh because before like us we also have like huge companies and we have people walking in those different products and companies so we have at the end of the day people they they have to hit and pay the rent you know so but I think like what's doesn't like doesn't kill us make us no pain no gain and what doesn't kill us make us stronger and what's happening I think it's better to happen now than later when you're actually bigger because everything that we can take from now will be used as a lesson for future and what's it's clear that this is the biggest thing that happened in defy guess what not even a month later boom even bigger but order of magnitude and this within 24 hours so anything can happen and the reason why anything can happen is because we haven't built the technology strong enough for those things not to happen so it's not because people are using us or we don't let people use our software they should be able to use it anyone because it's permissionless but at the end the technology should be so strong that those type of behaviors they cannot actually destroy us if they destroy us it means that we were not good enough so we should always ask questions virtual strictly ask questions yourself are we building the correct piece of software that will change the World of Tomorrow and this is very important otherwise this technology will not be able to use and you cannot go to a government or nation state say okay you need to use a blockchain you need to use stablecoin you need to use all those type of things they will look at past history and they will probably look into direct news and then go through those type of past and say oh [ __ ] this is like this is not possible we prefer staying in like isolated uh item world no yeah I think I'm very much aligned here it's sort of like cleansing fire what happened to the last six months and it just like cleaned the way so many things that we can't I think a lot of people collectively kind of started compromising on like all those discussions that SBF had super recently about well with Avic yeah yeah which kind of Drew the battle lines for a lot of people but yeah we started discussing can we actually compromise on controlling front-ends can we compromised on this can can they compromise on how D5 can be accessed and now it I think we're back to square one and are saying it's good and I think it's good that we I think next year like coming here is just going to be here of building it's going to be like 2019 or something so it's going to be pretty tough but I'm quite pumped about it to be honest I'm like yeah so if you're excited that they are back they're back to the roots yeah yeah what I usually say like whatever happens if defy collapse it blockchain like it's not something that will drive Society of tomorrow this space I think has been the biggest school in the world educational wise like in terms of concept Financial concept like learning about Landing Market borrowing like being able to leverage to hedge options Futures in a diff in additional Financial Concepts but also outside non-forcible asset like all those type products this is not something you learn at school or you need to have like access to one of the biggest school in the world you need to go we're born in a very specific location so this space was I'm not sure what's the intention of South toshinakamoto people they're like oh yeah creating a token and but actually this is the biggest school that we have never had before and this is fascinating so whatever happened I think we can all be proud of ourselves in a way the the access to knowledge that this space was able to provide to people zero knowledge proof mathematical wise economic microeconomy and also the fact that we need to be aware and always whatever happens that you always have for the chest and we're seeing this at the moment like CZ buying FTX or whatever and saying tell me on Earth what you will tell the world that you are planning to dump multi-billion US Dollars assets publicly without actually selling it because this is your bag you don't tell someone I'm about to sell please be careful no because you either have something like you have your plan you do like you take position on the market or you want the thing to go very very bad so then you can do Acquisitions so whatever you read on Twitter there's always a message between the lines and I think the community is starting to understand but they still use it they still use some project change so I don't understand something we need to stop doing is like worshiping like um like basically leaders in the space because the whole idea about decentralization in communities that you can like like bring tribes together and communities together and this is like happening like ongoing basis and some of these people that are like actually kind of like done they even come back oh yeah most of them in Dubai but yeah yeah yes we've got one minute uh quick advice specifically for builders in the bear Market what should they be doing Market well Builders specifically Builders and also people that maybe got affected by the market find a position in a nice in a nice environment nice company focus on building and shipping because if you look at the history of blockchain all the people aware or enter blockchain for long-term purposes like built they're all here and like quite success for them so it's a matter of being here for the long term medium or long term not the short term because if you if you take this space as a short time plan it's like going into the casino yes of course you will always find people going out of the casino and then super happy but the reason is it's actually why they build a house the casino they make sure some people leave the house like multi-millionaire whatever but this is very unlikely that you will get into those people this is like getting a ticket you know so I think the priority is like focused on building trying to find a product that helps society and then just yeah the we have a long pass we will still survive this phase we'll still be here in 10 years so I mean there is no other space that is as exciting fun in the in the old different ways and the pain and pain but intellectually stimulating learning like there's no such other space yeah yeah I'll just say to to you know Focus what is important to you and you know for some it's building for some it's like solving a problem um you know it's like things markets are going up and down it's not only crypto there's things happening in you know in in the bigger bigger economy economies at the moment with stocks and and interest rates are going up so and I think um yeah it's it's going to be hard times you know um and I just think focusing what is important to you you know for some it's hell for some it's um basically defy um but yeah I would say like it's a good time to to have less noise and and build things cool thank you very much this is a great panel [Applause]