In this episode taken from Tokenized Live in London, Rob Hadick, General Partner @ Dragonfly, Stani Kulechov, Founder & CEO @ Aave Labs and Guy Young, Founder @ Ethena Labs to discuss how DeFi goes mainstream and more!
In this episode taken from Tokenized Live in London, Rob Hadick, General Partner @ Dragonfly, Stani Kulechov, Founder & CEO @ Aave Labs and Guy Young, Founder @ Ethena Labs to discuss how DeFi goes mainstream and more!
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Music by Henry McLean
Speaker 1 00:00
Rob. Thank you everyone for being here. So Rob attic, I'm a general partner of dragonfly. If you don't know us, we're about 4 billion under management. We invest in and around crypto, stable coins, anything that has to do with watching, in general, defi going mainstream is an institutional device, or what to call it, is one of my favorite topics. And you have two of the best in the space who on the founder side here. So maybe Stani guy, have you guys introduced yourselves and your protocols? Sure.
Speaker 2 00:37
So I'm Stani. I'm founder of the AVA labs, and we built the other protocol, which is a decentralized protocol for lending and borrowing. Currently have a 70 billion worth of net deposits. Out of that is 17 billion in stable coins. So it's very stable coins driven interest rates market. And more recently, we launched Harrison, which is using tokenized assets as a collateral and borrowing stable coins against these assets. So essentially using the same infrastructure and smart contracts we built for the permissionless world, for native crypto assets, such as boring against Bitcoin and Ethereum. Now that infrastructure is applied to more traditional assets that are on chain, obviously working quite a lot with guy in a project we call avatina, where we see a lot of compatibility in defi. So defi is an open world. These projects and innovations can actually be composed and benefit different types of use cases. Happy to be here.
Speaker 3 01:45
My name is Guy, young, founder of Athena. Before I founded Athena, around two and a half years ago, I used to work in traditional finance. I was at a private equity fund called Cerberus, and they focused on investing across the capital structure into financial services, so banks, non banks, payment companies and those type of businesses. The idea behind Athena was, can we create something that looks and feels a little bit like a stable coin, but as a slightly different construction in terms of its backing and collateral that sits behind it? So what we do to collateralize the core product, which is known as USD, is something that's known as like a Delta neutral trade, or like a basis trade. And essentially, what you're doing is you're going long an asset on one side, and then you're using derivatives to short on the other side at the same notional. And what you do, in effect, is create what we call a synthetic dollar position where movement in the underlying price doesn't affect like the solvency of you being able to maintain $1 position. And one of the interesting byproducts of that is that when you're shorting derivatives within crypto, because everyone wants to be long derivatives, and they'll pay a very large interest rate to be long, you can harvest a very interesting return while you're doing that, and sort of tokenize it in a format that everyone's sort of used to, which is a stable coin. So yeah, I guess the history since we launched, we came out with a product around 18 months ago. Now it was the fastest growing dollar that ever reached $10 billion in supply. So we're sitting at roughly $13 billion now in around 18 months. And that's the third largest dollar issuer, just behind tether circle. And then Athena is number three. And then we have a second product called usdtb, which is a bit more simple, plain vanilla, where we're essentially wrapping a stablecoin around Blackrock Biddle money market fund, and Athena is the largest holder of Blackrock product that's around just under $2 billion right now. And the idea is that Athena is sort of like a full suite dollar product provider to crypto, where you might want something on the plane, vanilla, easy to understand, like a normal stablecoin, or you might want something for a different purpose, which is USD with a slightly different sort of risk and return profile. So excited to be here. And yeah, so you
Speaker 1 03:48
both mentioned something I think is pretty interesting, which is, Ave obviously the biggest lender and depositor money market in crypto. About You said, 28 billion of loans outstanding right now, 70 billion of total deposits. But you launched horizon, right? And you see that at least as some sort of growth engine for you, which is your institutional product, obviously, guys, same thing, USD, that's your core product, 13 billion, as you mentioned. But ustb, you launched because also more institutional, like great product, right? So for both of you, you know, what was your thinking and saying? Okay, well, I have this great product that is growing, that is dominating defi, that we can continue to maybe do different types of distribution with, but I want to launch something else, something that's made more for institutions. What was the reasoning behind that? And what were the conversations like with those institutions, or those call it, people who are more mainstream, as we're calling the panel, what did they need to be able to get into your product and defi products generally?
Speaker 2 04:45
Yeah, I think the concept of institution is really wide spectrum, right? So there's, there's already institutions in and using the permissionless defi us NASDAQ, let's companies that are some more involved in crypto, that might be for some galaxy or. A similar type of market makers. And I think what is interesting, at least for me, is that I see there's like a three different concepts of Fisher finance, and one of that is, for example, defi and decent just finance is an environment where we're going to have the best financial opportunities regardless of the backgrounds of the user basis. And obviously a lot of finance is driven by institutions. So that's going to be a an environment for institutional usage and to access defi. What's really important is is actually stable points. So stable points are the only way that users can access and institutions can access defi consume different kinds of financial opportunities, whether that's, for example, borrowing against digital assets and also at the same time extracting any type of yield opportunity, whether that's lending or basis trades. At for example, Athena has yen. Third component that is really important to understand is the RWA so token as assets, so defi is very much driven by Native Assets, Bitcoin and Ethereum, and being able to collateralize and obviously market cycles. So when the cycles are up, that drives a lot of capital borrowing volume, and it increases demand for stable coins and creates yield opportunity. And what I think is interesting in the future is that we will still have these Native Assets and native use cases, but over time, a lot of the value from traditional finance will move into defi in form of tokenization, and that's where AWS come into play, and stable coins are the way to then consume that liquidity or a use case. And it's quite a interesting moment at this point, because we see already first experimentations of tokenization of assets. And I think this is kind of like a continuation of just finance evolving in a different substrate. So obviously, ages ago, we started with clay boards, we moved to paper, we moved to digital a few decades ago, and now we're moving on chain. And every single substrate or this medium brings new properties. So digital means that anyone can trade the same opportunity across globally and access that information, and then the blockchain provides the ability to add additional guarantees, best execution, remove middlemen, reduce operating expenses, as these business models of finance are moving on chain and increase the access to financial opportunities and for institutions, this is a big opportunity. It's just a question of how to contribute into defi and RW, A's,
Speaker 3 07:41
yeah, I think, I think on the topic, sort of originated from a place of frustration on my side, where sort of felt like the biggest tailwind this entire cycle was institutional capital coming to the space, ETFs, around BTC and eth, and there were just these incredible tailwinds around the entire space. But defi as like an island, didn't really see as much of the flows that you were seeing coming into, you know, ETFs, basically, and then stable coins, even if you look at, like, very rough sort of figures, 2021 bitcoin is obviously double the price that it peaked at in 2021 tether supply more than double. And then defi, TVL, as of, like, two months ago, was actually, you know, it's 30, 40% below the peaks that you saw in 2021 and so for us, that was a pretty like IOP. Pretty like eye opening moment, which was we'd actually done a pretty poor job of, you know, taking the products that we built and actually putting them in a format that was actually digestible from the flows of capital that were actually coming to the space to interact with things like ETFs and stable coins. So I guess our perspective was and having, you know, worked in tradfi, and speaking to those type of entities a fair amount. There's actually a pretty narrow set of things which I think tradfi is actually interested in within crypto. I think it's kind of Bitcoin as a store of value, stable coins, as Stanley mentioned, and then tokenized assets. And if we dig into those second sort of two categories, there's actually a very different interest, I think, in those two pieces. Because if you think about tokenization, that isn't really actually something that like crypto natives are actually capturing and is the value from right? So Blackrock is putting a money market fund on chain. Apollo taking one of their funds and distributing them on chain. It's just a different distribution and platform, an angle that these businesses can actually just reach a larger audience. It's not really like crypto natives producing something that's like, unique and different out of crypto to actually push into tradfi. So I think the view that we took was the thing, this product is quite unique, and it's actually based fully on crypto primitives, and this is just something that you cannot replicate yourself sitting within tradfi, you're essentially like harvesting an interest rate that is native entirely to crypto. And so I think the view that we had was that there is actually a lot of demand in the world for $1 with double digit yields. So for reference, Athena's product in 2024 produced roughly 18% return, annualized on zero volatility, and sort of like since the date that we launched today, on average, that number is around 13, 14% so if we take a step back and just say what is. Demand for $1 with 14 to 18% return, that's not a 10 billion number. It's like a trillion type number, and it's really our job to actually put that in a format where we can sort of deliver it to those pools of capital. So I think for me personally, like, where do I want to spend my time? It's less around. How do we distribute existing products that are ready live and work within tradify to a slightly different audience. Within crypto, I'm not really interested in that. What I'm interested in is, can we create something that's like net new doesn't exist in the real world, and then actually bring it out into tradfi in a format that they can actually engage with it?
Speaker 1 10:33
So I want to pull in that third a little bit, because that's interesting, because you just said something, and I think actually polar opposite of what Sony said. Sony said, Hey, I'm really excited about bringing traditional assets, tokenized assets, on chain, right? You said, I actually don't care about the traditional assets. I want to make something net new that has financial primitives based on crypto. I want to distribute them outside of crypto, right, and into other people. I guess. Tai to how would you react to that point? A little bit. I think the common criticism is that, you know, Janice Henderson, which I know is on the horizon platform, they have a clo product that's a little over a billion dollars right now, the old billion dollars is basically just collateral to the maker or sky stable coin. They, you know, got another product, I think, a money market product. But that looks maybe like, Okay, well, I, you know, just finding the new person to buy a thing that I am trying to distribute, I make 2% on or some number of bits on, right? And that's maybe not a big market, right? Or guys saying, actually, the much bigger market is me taking something net new and distributing it to those people. How would you respond to that? And how do you think about maybe that Tam, or that addressable market for horizon in that kind of framework,
Speaker 3 11:40
could I just qualify one thing before Stanley is people who is creating something that is net new out of tokenized assets. So taking unlevered money market fund, or an unlevered Apollo a cred fund is something that people can access normally themselves. When you put it on Ave and you're levering it up. And, you know, taking whatever tokenized asset that is there that is a net new product that sort of falls out of that kind of, let me
Speaker 4 11:59
do a little like, you know, get a little spicy discount on here. Like, you don't discount on here. Like, you know, he could defend
Speaker 2 12:04
myself. No, there's literally to defend. Like the stream is two fold in the sense that we have to see like, the direction is going two ways, right. So we have to see token as assets happening and coming on chain. And at the same time, we have to see, you know, these crypto native primitives also coming into the chat fi, if there is a opportunity. So I think it's two way stream. In that sense, I do agree with guy in the sense that you know what horizon provides is the ability to have 24/7 repo market, and that is something that market makers, for example, don't have access as of today in the chat, Fi, and the more you tokenize these assets, and larger diversity of portfolios you have you have, the more actually benefit from that. And horizon today is over 100 million. But it's really significant after one week of launch. So it's a interesting development. And then the other, other way around, of finding these kind of like native crypto primitives and tokenizing. I do think it's also interesting, and that's something that I am a big believer in. The challenge there is, obviously to find a primitive that scales to billions of people, and you have to rely on these native crypto assets, which is defi yield is very much driven by the trading of Native Assets, such as focusing Bitcoin and Ethereum. And if you think about like, if the whole future is moving to this new financial medium, from like electronic to or like digital into on chain, all finance will exist eventually. And it's a question of, what are these early adopters? And I do think it's, it's not that exciting of selling necessarily a tokenized money market fund or tokenized clo to a Dao, but it's an interesting way of getting early liquidity seeded into these experimentations, and over time, I think the best way tokenized asset works if you get a network effect So once you build towards a specific user base and provide better utility, and that way can increase, actually the adoption. I think that's, that's the way to grow token as assets, but bringing the same assets necessarily is going to be harder, because at that point you're basically trying to sell to the same audience. There's not that many T bill buyers once they've you know, you have these opportunities that exist already. So it's more of a two way stream to be honest. And I would say maybe at some point we'll see a more chat by fun version of the AAVE made a field that already exists that is just accessible to traditional terminals for investors.
Speaker 1 14:41
I think there's roughly $6 billion worth of Athena assets on Ave right now, if you go like, through the list on Ave, it's like, okay, well, I have USD, which is, you know, your core product and state, USD, and then you have these different maturation of the PTS, right? And you have also ustb, right? So there's a lot of people. In this room would probably think that what I said is like nonsense, right? How do you make what you're doing and that new, novel product actually accessible to, like, a broader set of people, right? Like, and make it easily digestible? Because people might know what you know some sort of like a credit default swap is, but they don't know what a PT is, right? And is it just how we think about talking about these products, or what does the packaging need to look like to actually bring institutions into these products?
Speaker 3 15:24
Yeah, so I think there's one piece, which is, how do you pitch it and present? And then one is like, you know, Reg wise, Operation wise. How do you actually get them sort of plugged in and comfortable, actually engaging directly? I think the funny thing is that we always think that we're inventing something new, but there's always an analog that actually sits within chatfly. So, you know, Stanley made reference to the repo markets on Ave. That is kind of what they're doing that does exist. And the PT markets, for those who aren't, can you actually just for people here that don't know define what the PT market is? Yeah, you can sort of think about it as called Pendle, where they're essentially taking any asset that has a floating rate of interest. You can sort of plug in, and then someone will be buying at a discount, almost like a zero coupon bond, the principal. So essentially, what you're doing is swapping a floating rate of interest or stream of income going forward to just a fixed rate of return that sort of looks and feels a little bit like a zero coupon bond. So what's interesting about that is that there's a ton of volatility within interest rates within crypto. So you might wake up one day and interest rates are 50% to lend, and then the next day, it's like sub t bills, and that just sort of, like, obviously, oscillates with prices in a pretty auto correlated way. And so, yeah, one piece that's interesting there is you're essentially taking you didn't have, like, any sort of form of interest rate curve or market within crypto until Pendle turned up, where you basically just have, like, sparse interest rate markets that will be jumping day to day. What Pendle essentially introduced was the ability for us to say, 369, 12 months out on the curve where you're willing to actually rock in an interest rate, and then you can start to take those products and level them up, and in our way, use it as collateral to trade somewhere else and all those different pieces. So I think that's one, actually one area of defi where we're not even in like, inning one. It's just, like, so unbelievably immature in terms of thinking about forward interest rate markets. And I think that's one piece that Pendle has bought that's new to the cycle in the last few years. I think the second question is, so how do you sort of describe it to people? I think there is an analog for almost everything that's happening within defi. It's just you don't see it presented in the same way, the way that we think about this is that a large piece of how we think about distributing this product into tradfi is actually saying, can we put this in a format that they're used to? So we have a product that's called iusd that's coming out where, essentially what we do is allow any asset manager, credit fund, hedge fund, anyone who's sitting within tradfi, to basically set up an SPV where you can just take in fear, turn it into USDC, and one click, basically deposit it to come into USD. And essentially all you're doing is creating like a fund that sits on top of USD and replicating the exposure to what's being sort of held at the underlying level. And then the LPS who are sitting within all those different entities that are described there are basically just getting a replicated exposure to the underlying and then never having to touch crypto rails underneath. You're just sort of sending Fiat to, like a GP in the same way that you would any normal fund. This is obviously just takes quite a bit of time to get people used to and comfortable with this. It's not as easy as just like throwing something in the wild, like you're doing defi normally, where you have to actually get through, you know, a lot of legal work, structuring and stuff to get that going. But yeah, I think that that's a product where the potential upside, I think, is just even bigger than the entire product that we have right now. Because I think when you start to speak to entities within chat fire and say, What does 1415, 18% annualized return on dollars? Like, how interesting is that, if you go and look at almost like any large multi strat hedge fund in the world, like 10% is an extremely good year with close to, like, zero volt. And there is, should be a place in your portfolio for something that looks sort of similar to what USD is doing. So we're extremely excited about the upside of that. It just takes a longer time than we would have hoped to sort of get it to market. One of the
Speaker 1 18:54
things that stony I were talking about before this was these corporate chains. So you have the launch of, you know, Archi tempo, you have the launch of Robin Hood says they're gonna launch their their own l2 using arbitrum. You've announced a potential chain as well. How do we think about call it core defi and using call it, you know, defi native protocols with instances like Harrison on Ethereum, versus these new corporate chains and deploying on there. Do you expect there to be different user bases? Do you expect those things to be You talked a lot about liquidity flywheels, which are obviously tougher on brand new chains. How do you think those will potentially interact with the rest of the ecosystem? And do you actually think they're dead on arrival?
Speaker 2 19:35
That's interesting. I think always. Now it's 16 or 17 different networks, and the way we think about AAVE is just a piece of public software that can be deployed anywhere, and if there's enough traction and some sort of a use case specifically for that, AAVE should be everywhere where there's use cases and users. That's kind of like the philosophy obviously having a lending protocol requires some. From some sort of active management from like the risk perspective and the governance side. So I think there is certain cost that comes in. So maybe smaller chain deployments doesn't really move the needle, especially because we see a lot of growth happening actually on the Ethereum main nets, but we're trying to be pretty much everywhere, and also beyond EVM. So we recently launched AAVE. We wrote it in move and launched it in Aptos, and that was the first step for the AAVE ecosystem to actually go beyond EVM. But when it comes to actually the corporate chains, which I don't think is a bad idea, in the sense that's if there's a specific network effects and users that you can tap into. And I think Stripe is a great example where they already power incredible amount of merchants and businesses, and they can actually provide value added for that as well. And I think in circles, case, there's certainly something that's they can do in terms of like payments and stable coins and create an ecosystem, but it's really hard to grow a chain from ground zero, and it requires a lot of incentivization and flywheels. And I think that's something that we've seen in defi, is that the liquidity follows the incentives, and I think the winners are the ones that have the deepest distribution. And I'm actually more kind of like concerned of the for the first generation of stable points like usdt and USDC, because mainly volume is driven by the usage on centralized exchanges and defi, but they don't have that end user distribution which actually then matters at the end the most.
Unknown Speaker 21:39
So do you think Stripe should not share a stable coin.
Speaker 2 21:42
The thing is that if you have a stable coin, you control the underlying yield. If you have an ecosystem where there's someone else's stable coin and you're capturing the yield, you're basically losing money at that point. So in that sense, you you should have some sort of but I think Stripe position is very unique, because, you know, I do think they are looking to have a certain amount of neutrality and introduce other stable coins. And kind of like, I believe in this, like a more world of, like, multiple stable coins. And I think that's the right way. In some ways, stable coins are somewhat like payment trails, you know, so you can accept us. You see, once you get the USCC, you convert it to your own stable point, and you capture the yield, essentially, that's maybe one way to think about it. So stable coins as payment trails, and I think that probably makes sense to have that and also as a kind of like a way to after, also liquidity.
Speaker 3 22:34
So I think to date, I kind of see like two real use cases, blockchains, I think speculation, casino type activity, which is kind of where Solana and hyper liquid now have found success, like Solana on trading spot meme coin type stuff is sort of the majority of the activity that you see there. And then derivatives sit on hyper liquid. And those are kind of the two most successful versions of chains that we've seen outside of Ethereum. And I think the second use case is movement, storage, settlement of digital dollars and tokenized assets. So I think Ethereum and then Tron, just not that many people know about, is actually sort of the most popular chain for moving stable coins around. I think the complexion of what people are using and what we define as, like a successful outcome actually changes through time where, if you actually believe the crypto thesis, and you believe that, like, trillions of dollars of assets are moving on chain, you have to believe that that speculative use case that we described of like casino type activity becomes a much, much smaller proportion of like global activity that you see on chain. So it wouldn't make sense that Solana and meme coin trading is even like comparable to the movement of, like, all the stuff that Stanley and Bob been talking about in terms of bringing trillions of dollars on trainers, tokenized assets in 10 years time. And if it is, then I would sort of consider everything we've done like a massive failure. So I think the way we sort of look at and define what does success actually mean, I think it's less of like a consumer facing interaction that people have going forward. So if we look at what stripes doing, I think it's an incredible idea that makes a huge amount of business sense for them, but it's really them just making that stack more efficient, owning more of the stack, and almost sort of like undercutting a network in the process of doing that. So I think the way they see, like corporate entities coming in and using the stacks like that, it's actually just to improve their businesses, like marginally own, a different piece of the stack where they didn't own before. And it's not something that a consumer is waking up and going, I can't wait to get into like stripes chain, to go trade meme coins. It's just not really like the outcome that they're trying to sort of achieve. So yeah, I think that it makes a ton of sense for them as a business. But the way that we sort of think about success on these things, I think looks very different, where, if it's basically just running new back end infrastructure for yourself. I think success is just defined as like, are you creating efficiencies, doing things in a better way than you were before, rather than, you know, finding a million retail users that want to come and trade on the train?
Speaker 2 24:52
I do think that's one thing that's interesting, is that a lot of these chains, they will still need the kind of like, the same infrastructure that exists in indeed. Defi. So they need lending protocols, they need access, and they need a lot of the infrastructure there. And I think it's because defi is very unique and unchained in the sense that liquidity really drives into places where you get capital efficiency and you have volume, essentially. And that's something that's, I think, even if you think about strives, like a more, like wider business model, and like payments, I do think that's in the future. You also need lending and availability of exchanging assets and doing it as kind of like a capital efficient way as possible. So defi will be, like, logged into these networks as well.
Speaker 1 25:36
We're talking a lot about, okay, permission versus permissionless, right? And like, what is the world supposed to look like when there is all this other assets and all this other activity that's moving on chain to the point around, okay, well, there's a lot of defi activity that is still going to be needed in the infrastructure that's going to be needed for that real world activity. Well, so far, we haven't seen near that amount of activity in the permissioned arena, right? So is stripe supposed to interact with permissionless defi protocols? Or are other sort of, you know, corporate ideas supposed to do that? How do they do that? If that's the case? Or do we expect that we're just going to a permission world of blockchains?
Speaker 3 26:13
Yeah, so I don't know the details around what it takes to sort of run a payments business compliantly, like on chain. So that piece of interaction, in terms of what they need to do, from a permissioning perspective, to sort of make that work. I think the perspective that I have is that you need to be very careful when you start to introduce permissioning, because it starts to just resemble, why not actually just use a database rather than a blockchain at all? So whenever we've sort of thought about, when does this actually make sense for us? It's more actually at the app layer, which is saying you kind of want everything to be permissionless at the base layer, but if you need to introduce a piece of KYC or AML or something like that that might sit at the app layer, I think what Stanley Harrison, I think, is the perfect example here, which is, if you have an institution that comes in and says, Do you want to buy a tokenized interest in my fund? But not everyone in the world can just buy in here without any KYC, you might want to introduce that sort of small permission layer that actually sits at the application level before someone can interact. So I think that that's the view that we have where there's a, you know, reasonable middle ground between permissioned and permission less. But I think for use cases as big as, sort of, like payments and settlements, sort of on chain. I don't know enough around what even stripe is thinking about for Tai mean, more
Speaker 1 27:19
broadly, but obviously, like, there's, I think there's an expectation too, right, that Rob expectation too, right, that Robinhood chain will probably just be the Robinhood front end, right? And then, like, you know, is there an ability for them to, you know, deploy Ave on the Robin Hood chain, right? Same thing with with stripe, but I think the question is really a little bit around, like, ethos as well. So, like, crypto has grown on the back of permissionless access, right? Like, it's not a year from that era. And guy, you're a little bit newer, but the world seems to be and you guys are both kind of putting your protocols behind this idea that the next phase of growth is more institutional. And if that's the case, the crypto looks a lot different then than it does now. And does that have to be true, or is it that we can kind of find a middle craft,
Speaker 2 28:01
I see, like the permissionless, like I could come here and, like, preach about the defi ethos and like permissionless and like, everything needs to be, like, wide and open, and that's what I stand for personally, no question about it. But I do think that the permissionless aspect I would rather like to see kind of like and pitch it from, like, the business perspective. So like, if you are able to convince people, whereas, like, in compliance team or regulator, or, you know, your colleagues and your organization of actually operating, you know, permissions and environments, that can be a really big business case. Just to think about something like, you know, payments, if you are able to be a FinTech company and operate in payments and settle on stable coins. And if someone has your organizations issued stable coin, they leave the application or are still holding the stable coin, they're still essentially in your ecosystem, and you can build more wider than the kind of captive user base. So to kind of see, like, the business opportunity here being actually really valid. And obviously the challenge for this whole like permission board is that obviously permissionless world drives more liquidity adoption because there's less bottlenecks, like if you have to ask someone every single time you trade, or get a like a approval onboarding, those are all friction, and they exist for a reason, obviously, because of the compliance or some other legal reasons. The matter of fact is that permissionless world is more liquid and like that's should be the North Star. What do we get there? And how fast? That depends what a lot. But I do think there's a lot of value in this permission world in the sense that's and do you can in a right way? I don't think the market itself, like Tai said, That's you'll need, like market infrastructure that is permissions issue assets. You can have some sort of, like a permissioning eligibility on the asset level, and then use these assets in a more permissionless way, and kind of like, have. Some sort of liquidity aggregation there. The long term, hope is that we go into a world where all the assets and all the liquidity can move freely, the faster, the better, in my opinion. But obviously we live in a world where, you know, we have to ensure that we do things responsibly and securely, from like the compliance perspective, and also ensure that these defi protocols themselves become battle tested and more secure that we can deploy more capital, we get better arguments. Why remission is defi? We say, if it's secure and it's low risk, and that takes time, in my opinion.
Speaker 3 30:35
Yeah, I agree. I think the middle ground is permission. We have to acid and app layer. And I think when you start to introduce that kind of stuff to the base layer in a fully permissioned way. I think the question is, just, why don't you do this on a database?
Speaker 1 30:46
Last question, what is your most controversial take each of you around the future of defi, going mainstream or institutional defi? My controversial take would be that basically all of these corporate app chains don't right? And they all end up actually going back to some version of Ethereum, or maybe an l2 but like, if it's an l1 they don't work by themselves.
Speaker 2 31:08
Okay, that's a really good one, and I think that's really fair. I do think that l twos are very interesting strategy and way to scale. But also, there's this idea of, like, the world will be full of networks, so we can have a lot of L ones and l twos. And I think eventually we'll follow the scale of economics and maybe, like, consolidate into, like, handful of main networks. And I think Ethereum will be really important there. And having some sort of more neutral approach helps there quite a lot. Because a lot of these corporate chains, you know, they start as a really interesting ideas and as a way to consolidate the whole stack that you might have, but there's always business interests involved. And I think that the best network effects happen when you have a really level playing field. And that also means that, you know, you have some sort of a way where there is no corporate interests dictating the kind of like a whole network. So I think that's why Ethereum is going to be in a really interesting position going forward, if we see more of these ones hobbling in and I think the kind of like a most level playing field might be the best place to actually see innovation. And the difference between FinTech and everything else we've built in finance in the past versus on chain. And before is us being able to build on chain, is you have low access to participate. And if you just look at us here today, like we come from backgrounds where, you know, very small startups that, you know, I started, basically still being in university and coding there. So, like, the barrier is very low, and you can achieve a lot by innovating building, and that's why I think neutral, kind of like a platform or like a network, is where we see most of the developers just keep coming in.
Speaker 3 32:51
I think I agree with your sentiment that the majority of the sort of corporate chains will fail, but I think that's just a statement that's broadly true with most chains that try to come to market like you tend to see a bit of a parallel sort of distribution in these things, where two or three, I think, will be extremely, extremely large, like trillion dollar outcomes, and I think the rest of them sort of fail to get material traction. I think one that's maybe slightly different is there's been a lot of interest in tokenized equities that coming on chain, and then people sort of trading spot tokenized equities. So you see now with Kraken and a few of the issues. Robin has obviously spoken about it quite a bit. I think that that is not going to be successful. I think it's like the incorrect form factor that people actually want to trade these assets. So I think it's super inefficient, expensive and kind of worse than what you can do in the real world. But I do think the actual form factor for where equities gets a lot of traction within crypto is through derivatives on perpetual swaps. So I don't think it makes sense that retail leverage speculation on equities is done through options. So if you see the way that retail sort of trades equities on Robinhood, what are they trying to do? They're just trying to express a levered long view by buying a call. They're not trying to underwrite, like volatility, underwrite the Greeks while they're doing that. And who sort of benefits from that is just Citadel, sort of sitting on the other side, taking a spread. I think this is actually one of the few unique crypto primitives, which is just like outright better than anything that you see within tradify, which is the perpetual swap. And I think that, like linear leverage that you get through that instrument on equities is like $100 billion plus opportunities. I think people are, like interested in how equities touch crypto, but I think the form factor that they're coming in now is 100 times less interesting than the opportunity that that sits there with perpetual swaps on the same asset.
Speaker 1 34:29
Well, let's give these guys a round of applause and thank you.