(upbeat music)
- Hi, everybody.
Thanks for joining us.
I'm thrilled to have some
of the true pioneers of
the DeFi landscape with
us today to talk through
exactly how decentralized
finance is evolving
and what are some of the key
factors driving it forward.
We're very lucky to have
Kain from Synthetix,
Stani from Aave
and Andre from Yearn with us today.
And very excited to hear
all their thoughtful points
on how DeFi is evolving.
I think just as a useful introduction
to make sure everyone knows exactly
what's being discussed and
the nature of the platforms,
maybe each person can just
quickly introduce in a minute
what it is that their platform does
and seeks to achieve.
- I guess I'll go first.
I'm Kane, founder of Synthetix.
We build synthetic assets,
it's a synthetic asset
issuance platform on a theorem.
So, we allow people via price exposure
to things like Bitcoin, gold, silver,
soon, oil and other assets on a theory.
- Stani, go ahead.
- Yeah, my name is Stani,
I'm the founder and CEO of Aave.
So, Aave is a money market protocol
where you can deposit stable coins
and other assets to earn interest.
And against that, you have a credit line
that you can utilize
and borrow other assets.
And basically currently,
we started the Aave protocol
beginning of this year
and we have roughly over
a billion worth of value
locked into smart contracts
and our story started a few years ago
with a first lending
protocol named ETHLend,
Ethereum Lending
and now we basically are transforming
what we have as a money market protocol
and giving it up to the Aave governance.
- Great and then from my side,
hi, guys, Andre Cronje, I'm from Yearn.
Yearn is a money optimizer,
I guess you can say.
It looks for opportunities
in the DeFi space,
in this saving space,
in the lending, the borrowing space,
and tries to switch between
these different lenders
to maximize yield for
people that provide funds,
LPs or just users.
Very simplistically, it is
a smart exploitation system
that tries to make the most money possible
for people that give it money.
- Cool.
Sounds good,
lots of very useful next generation things
in all those platforms.
From personal experience, I
can tell you it's quite amazing
what's being built.
So, I think one of the first questions
that might be useful to consider is
what do each of you feel is
driving the growth of DeFi?
What is kind of driving
this massive growth
in the amount of value flowing into DeFi
and just the growth of
the DeFi space in general?
And I think, you know,
for simplicity stakes,
we can start backwards starting from Andre
and then going to you,
Stani, and then Kain,
if that works.
- Sweet.
I think the answer is
pretty simple, greed.
I mean, the reason there's such
a massive influx of money right now
is because people are making
money in insane amounts
and the reason they're making
money in insane amounts
is because we came up
with a whole new Ponzi,
which is governance tokens,
which is this wonderful
way where we give away
free worthless tokens that
for some reason people buy.
And then, the next wave
comes in that buys that
so that the first wave can sell it
into the one that just bought
and we just keep repeating the cycle
while it's accruing more
and more and more value.
And this is making people
paper wealthy by insane amounts
and
I might have strong opinions on this thing
that we can unpack,
but it's not the sustainable part of DeFi.
So, if we do look past
that for a little bit
and we look underneath it,
we'll see the protocols
that are accruing value
and you know, this is things
like the Synthetix ecosystem,
like the Aave ecosystem,
like Compound and the supporting tools
like Chainlink as well for example.
These are the real things accruing value
because they're the ones
that are going to be here
in a year from now when
this greed phase is over.
But I mean,
I don't think there's much
argument on this point
that the current massive influx is purely
because of this new greed
cycle that we've created
seemingly out of thin air.
- Stani, what do you think is
driving the growth of DeFi,
the current growth?
- Well, I wanted to say that it's Andre,
but as he came up with a good explanation.
Well, what basically Andre describe is
how financial markets work.
They're sort of things that
drives the human behavior
and basically in different
kinds of yield opportunities.
And some of the yield
opportunities are quite substantial
in the way that they would not be possible
in normal situations and kind of like
when we are creating value obligations
and basically,
this kind of like a tokens
in a way that it's very
difficult to get them
and we have like different
kinds of waves of people
buying into the system because like
the thing what we have
now in yield farming,
which is very programmatic,
not just in the sense that how
it's designed in many ways,
but also like how economics work is that
money comes to money.
And basically it means that
people who have capital
can basically deploy that
capital in different protocols
and mint those tokens
and then sell that to people
who don't have capital,
but have just sufficient
capital to basically buy them.
And kind of fake the exposure.
It's kind of like financial system
is a bit of build this way
and it's
not fair
and that's how the market works.
But there is layer underlying there,
which is more
kind of like profounded in a way that
when you build things that
are actually more efficient,
so let's say you're building
base layers or whatever,
it's basically obvious Synthetix
or Yearn in a way that
you're optimizing yields,
when you're kind of like using technology
to get rid of efficiencies,
you kind of like create
actually very valuable
this kind of like opportunities
and I think that's like the
real growth that is happening.
So, when we're looking
at the growth of DeFi,
I think there's substantial growth
in things that we're building
and things that are kind of
like long term sustainable,
but then there's the noise on top of them
and there will be always noise
when people enter into financial markets
with less knowledge
and they usually have to
pay for that knowledge
by actually buying things
from other people then.
And it's kind of like
it's a dilemma in finance,
but now we see it even more
because we have so much
technology involved
and lets people understand
what people are doing in DeFi.
- Yeah, I mean, I agree.
I agree with both Stani and Andre here.
I think
that
ultimately, we've got this sort of
renaissance of tokens, right?
Of tokenomics and token design.
And in my view, tokens are just
a coordination mechanism, right?
The same way that, you know,
equity in, you know, traditional finance
is a coordination mechanism, right?
It's supposed to be this
vector that allows you to
both capture some of the value
that's accrued by a firm,
as well as to coordinate, you
know, what happens, right?
Now, obviously, there's inefficiencies
as Stani mentioned there,
that tokens have the
potential to remove, right?
You know, they have the potential to
significantly increase the efficiency
of these coordination games
and allow a bunch of
people to come together
and, you know, create a system
with very specific and defined rules
and know that the rules
are going to be adhere to.
And I think that when you
are redesigning finance
in the way that we are in this new,
you know, potentially more efficient way
and these tokens represent some ownership
of these new systems that are being built,
there's a lot of excitement,
because someone can come in,
they can supply some capital
and they can earn a portion
of the network, right?
Which I think is a
really powerful mechanism
that hasn't really existed before.
You know, we had the ICO boom
and you have to come in and buy,
you know, tokens to get
a piece of the action,
but now you can come in
and just supply capital.
And I think that that has created,
you know, a lot of noise
as I think they both rightly pointed out.
But there is an underlying kernel
of a very powerful force at play here,
which is that, we're all
kind of on the ground floor
of this redesigning of
traditional financial systems
into these new decentralized
financial systems
and anyone who participates in that,
I think is going to, you know,
potentially reap
significant rewards, right?
If they allocate their time
and capital effectively.
- Yeah, I think there's kind of two,
there's more than two,
but two of the more fascinating things
that I see going on here is, first of all,
you have incentives to bootstrap usage.
And those incentives are coming from
the same kind of dynamic,
a similar dynamic to what you
had during the token boom.
But now, that dynamic is being
funneled to bootstrap usage
and bootstrap adoption of the technology,
rather than just distributing
the token, right?
So, that's a useful thing for platforms
that would wanna bootstrap
their usage that way, right?
That measured themselves
on the basis of value
secured in volume, right?
So, that's not so different
from what I've seen exchanges do
where they offer Lamborghinis
or they offer various,
various incentives, right?
So, in as far as I can tell
from my limited kind of window like views
into the crypto financial markets,
incentives play a very strong role, right?
So, the people that can come
up with very good incentives
suddenly get volume and value secured,
which then creates a virtuous cycle
about you being the place to
do price discovery happens
and then now you're in a kind of position
that's difficult to unseat.
And this is the place where
people are willing to expend
massive amounts of like,
cash resources, but now
there's this new resource
that's coming to existence
and how do we expend that resource
in a programmatic efficient manner
to meet these usage adoption
goals we have or not,
like these platforms have, right?
And so, that's a very
fascinating kind of evolution,
especially considering that
you've kind of taken the
power of those token sales
now turning them into this
usage adoption mechanism.
And then, the second thing
that's quite fascinating
is the distribution of a governance token
in this manner, right?
Where I don't fully understand myself
exactly how that
distribution affects voting
or the proper voting on a system,
but it does at least
distribute it to users, right?
So now, you're at least distributing it
to people that provide usage to the system
and volume into the system
and therefore they presumably have
some kind of aligned
interest on that level.
So, it's quite a...
And those two dimensions,
it's definitely kind
of an innovative thing.
So, just continue down this rabbit hole,
where there's, you know, strong opinions
and then there's kind of
more charitable opinions
and there's all kinds of opinions
on exactly how this evolves.
I guess, starting with you, Kain,
as the person who really got
a lot of this going initially
and began this yield farming
dynamic and movement,
how do you see this in
various incentives play out?
So like, how do you see yield farming
evolving over the next
year or two or three?
You know, how do you
see it going from here
as a mechanism that achieves
this and other things?
- So I think, you know,
the distribution of WiFi
is probably one of the most
interesting experiments
that we've seen, right?
Yams and WiFi, I think are two
very interesting experiments
that we've seen play out.
And you know, there's an argument that
I think has been made about
yams is just this kind of game.
And it's, you know, kind
of this fluffy thing
with no underlying core to it.
I think maybe we'll see that view change,
but I think with WiFi,
it's very clear that there's
a value accrual mechanism
going on, right?
And so, you had this token where,
you know, it was 100% fair launch,
there was no presale, there
was no founder reward,
there's no, you know, whatever, right?
And everyone started the game
with the exact same rules,
maybe a little bit of asymmetry
in terms of information,
but, you know, not a
massive amount, right?
To the point where the whales
who were supplying liquidity
and who are earning it,
a lot of them didn't think
that it was going last
and dumped, right?
And then, there were people who,
you know, we're potentially
supplying liquidity
and held or whatever
and, you know, I think it's kind of
exceeded expectation
significantly in terms of,
you know, the price appreciation.
So, this idea that you can start this game
without any privileged positions,
everyone's got the same rule set,
everyone can kind of run out
and play the game, I think
is extremely powerful
because the level of
coordination that it creates
and the level of buy-in and
engagement in a community
is incredibly powerful.
I don't think we've
seen anything like this
in, you know, history, right?
This idea that you could bring people
from all over the world
together so quickly
to create this really,
really powerful community.
And I think that we're just going to see
more experimentation around that.
Some of its gonna be good experimentation,
some of it's going to
be bad experimentation,
but it's going to be experimentation,
I think there's gonna be
a lot of lessons learned.
- So, Andre, how do you see
yield farming playing out
over the next year,
two years, three years?
How do you feel that the yield
farming dynamic and trend
out in the DeFi space will
continue to evolve from here?
- I mean, my base gut instinct tells me
it's not sustainable,
but at the same time,
we've never been able
to test something like this,
'cause you know, it's if
you go buy a Coca Cola,
you get shares of Coke.
What would you do with
those shares, you know?
Like, would you maybe keep it
because you just got it for free,
so why wouldn't you keep it
and see if it may be appreciates in value
or maybe I could do something
with it or the use of it.
You know, there's a whole
new meta game happening
with the stuff that
if you asked me this question
purely based on instinct,
I'm going to tell you,
it's not sustainable.
If you give stuff for free to people,
they're going to continuously sell it
because their value prop is not
in the thing you gave them
and you actually allow them
to exit it for something else.
So, it has to dry up.
The terminology I've been using
lately is liquidity locusts
because it's all of
these massive, you know,
LPs that they come in,
they farm your token dry,
they dump it and when it's no
longer ROI useful for them,
they just move on to the next thing.
So again, logically I feel it has to stop,
but we've never been able to test this.
This is a completely new
experiment and territory
and I'm surprised that it's
lasted for as long as it has
and I think I'm going to
be proven wrong on this one
and I think they're not
necessarily in the current form,
'cause one thing since Synthetix,
I mean all due respect,
I still love Compound,
but I mean everyone likes to be quick
that they started this whole,
you know, yield incentive but I mean,
the SNX pools have been
there since the dawn of time
in incentivizing liquidity.
If anyone, you know, Kain
and team have been through
a lot of different iterations of testing
what is good to incentivize,
what isn't good to incentivize
and in what quantity
do you incentivize it,
over what time spectrum
do you incentivize it.
And they've done so much
discovery and testing on this
and they're still using the formula.
So, just going off of their data,
I have to say that it has
been vastly successful
and I mean, we can see
the liquidity it provided
to something like sUSD which is phenomenal
and that's largely thanks to
those original incentives.
So,
it's fascinating.
I mean, I'd love to see it still exist
in two to five years from now.
Logically, I think something
has to change a little bit,
it's not sustainable,
but
the only real compliment I
can make on that question
is short term versus long term.
And long term I think we'll see something
similar to the model we have now,
but definitely not as
insane incentive mechanisms
because the rewards now far exceed
the risk and liability you take.
I'm more worried about the short term view
that it is creating in this space
where people expect this to
continue into the long term.
And I think
that gap when it jumps
from such high reward system now
to less reward system later
is going to cause a little
bit of reputational damage
in that, you know,
people will quickly say,
okay, but it dropped from 100% to 10%,
this is not sustainable, blah, blah, blah,
I'm going away, this is pointless.
It's the same thing they
do with the token price,
you know, when the token price is going up
and it's green candles, everyone's happy,
the project is fantastic,
these are the best founders ever,
this is amazing.
And when that starts going red
and it starts going down,
they're now this is a scam coin,
this is shit coin, what
are these people doing?
They need to completely fire
everyone and get new teams.
So in the short term,
I'm worried that that's going to happen
and I foresee that happening.
And then, the long term, hell,
I'm just along for the ride.
- Got it, got it, thank you.
Stani, how do you feel that
yield farming in various incentives there
will play out over the next
year, two years, three years?
How will that evolve in the
DeFi ecosystem in your opinion?
- Yeah, I mean, it's interesting.
It really depends on how
things are basic designed
and what is like...
Like who are the entities
and the people who are actually farming
and how they're getting access to this.
I mean, if the idea is...
There's two ideas.
The first idea is basic
distributing governance power,
like that's one thing.
And the other basic idea is
to give basically kind of like a yield.
So, the way I see it,
how it goes now is that
a lot of this yield farming
happens from big accounts.
So, the big people are
basically farming everything
and they're selling everything
because that's part of
basic of their strategy.
And end of the day, of course,
kind of like it's a question of
how you could use whatever your farm.
I mean, as Andre said,
we haven't been in this
position in terms of like
where with the Coca Cola example
or basically when you buy Tesla
and every mile you drive,
you get Tesla's shares.
But the thing is now that
the models that we have is that
because of the cryptoeconomics offers
the markets where you can
freely trade these tokens.
You're basically taking those Tesla shares
and using them to buy electricity
and fill up your Tesla car.
And that's the how, basically,
it's kind of like,
even though those tokens
are built for governance,
the purposes are kind
of a bit of different
because we had experimentation
in terms of where
the governance power has
been given to the people
in terms of usage.
And good example is Finland,
the country where I am from,
where most of the banks
here are cooperatives,
which basically means that
as you're using their
services over the years
and this has been done for
past hundred years or so.
So, the more you're using their services
and basically a bunch of other things,
you're basically getting
this kind of credits
and based on those credits,
you can either use them to pay services
or you can actually exercise them
to vote in that bank governance.
And what's happened in this system
or other cooperative systems,
for example, grocery
stores that are organized
the similar way in Finland or in UK,
is basically eventually, kind
of people don't care that much
to vote on things where
things are going fine
and professionals are taking over
and kind of like it becomes somewhat
a bit more boring and institutionalized.
It might be good,
it might be bad, depending
what's the perspective,
but I think like the
problematic part now is that
it's not about even usage
if you think about it,
it's actually who has the
most capital owns the system.
Like, if you look at the accounts
that are farming everything,
like, these are the same people
and they're basically
farming most of the things.
And the control goes to
these people eventually,
one way or another
or protocol launchers
who are basically issuing
this kind of like a yield
farming strategy is where
they have basically theme tokens.
So eventually, it's a game of like
who has the most of the capital
takes the kind of like a
control of the protocol.
And it's not actually the usage,
that's completely wrong perception
because the usage is actually
how many users are using the
services over a period of time.
And based on that, you
can basically reward them
to participate in governance,
which is very difficult
to achieve in DeFi.
And now, the most easiest
and efficient way is just
calculate how much their
contributed capital
because everything now is
calculated in the space,
how much you're locking
value, providing liquidity,
which is kind of like a nonsense,
the whole total of value
and I mean, the idea
there was kind of like
how much people trusting
your smart contracts.
But that's not the right way
to measure businesses or protocols,
their success and their user behaviors.
And now, it's basically a game where
wells will have a lot of capital
can actually own protocols.
So if you are wealthy,
you become wealthier
and you own
one of the most critical
infrastructures of the future,
which is the financial system of tomorrow
and that's like the most
fucked up thing in this system.
- I see.
So, in the context of the systems
that actually interoperate
in quite interesting ways,
in addition to the yield farming
and all those types of dynamics,
you know, Andre,
you have a huge amount
of experience with this.
How do you look at the right
way to compose different DeFi,
what are called money legos?
So, how do you look at how
different DeFi infrastructure
or DeFi protocols should get composed
to operate properly in your opinion?
- Well, first, Sergey,
thanks for actually thinking
that I have any kind
of plan or methodology
when it comes to putting
these money legos together.
Really, it's the same as
you do with normal legos.
You know,
one of two options,
you either have a manual
that tells you how you're
going to put it together
or I never have the manual,
you have a box filled with
random bunch of pieces
of different ones that you've
collected over the years,
you throw that out on the carpet
and you try and see
which pieces you can use
to build the thing you just envision.
So, it's really
what pieces can I use
to accomplish the job
and you know, a lot of times
you thought you were gonna
build a pretty castle,
but you didn't have the pieces for that.
So, on the one side, you're lacking a wall
and the other one, you've got a roof
that's a plane's wing or something,
but you mix it together to kind
of figure out what you want.
But it's less about...
I mean, I definitely don't have a plan
when I approach how I put
these money legos together,
but it's more about
what do you want to achieve
and then which parts do you
want to use to achieve that
and it might not be the
exact result you want,
but the beauty of this is
it's going to be something
and that's what makes it really cool
because even if you...
And I've done this a lot of times as well,
where I'll be like, I want to build XYZ,
I start putting all of my
little lego pieces together
and I start building towards it.
And then halfway through, I realize,
look, I don't have the
pieces to build that.
But while playing with those pieces,
I discovered I could actually build ABC,
which is also cool and
something completely different.
So for now, I'd say it's a lot less
about how you approach composability
and how you build with it
and it's a lot more exploratory.
You kinda just have to
play with the pieces
and then as you play with them,
you come up with cool things
that you can put together.
So,
it's not great
from a more structured
sense
because I think a lot of people
that'll want to come in the space,
you know, and there's
lots of sites doing this,
Sets doing a good job,
(indistinct) is doing a good job.
And they're all getting to a point
where there is more of a structure
where I want to accomplish XYZ,
so these are the things I need to use,
but we're not there yet.
We're still very much in
playing and figuring out.
I mean, for the longest time,
dYdX is a great example.
For the longest time, I was
using a bunch of their stuff
and I didn't even realize you could do
something like flash loans with them
because there's no documentation available
that it is possible.
Don't worry, Stani, nowadays, I use Aave,
don't have a panic attack.
But like, originally,
when I looked at those,
I didn't realize you could do it,
but that's because the way
they designed it in code
is you borrow first, you repay second.
So, just because of that design mechanic,
not because they had
built it for that purpose,
but because they built it in that way,
you could accomplish this net result.
So, there's so many
awesome things like that
that happens in this space
and I mean, I'm pretty sure
Kain and Stani can talk more
than I can on this topic
because I'm a top level consumer,
they're bottom level protocols.
But like, so often people build stuff
you could never have envisioned
they were gonna build it.
Like someone just launches a product
that uses your platform and you're like,
how the hell did they think of this?
Like, why?
Why?
And then, you play with it
and then you're actually like,
okay, this is actually cool.
Anyway, long story short,
yeah, there's much less of a plan
and it's a lot more of
just exploratory fun.
You know, it's the fact
that the pieces are there
that makes it so awesome.
But I do like the fact that
we call them money legos,
because when you step on one accidentally,
they do hurt as much as real legos.
So please, you know, be aware of that.
- We'll keep that in mind.
Thank you for the heads up.
Kain, you know how do
you feel is the right way
to think about composing
these DeFi building blocks
and what are called money legos?
What's the right way to reason through
how you can compose them
together in the proper way?
- So I think, you know,
one thing that's really
interesting at the moment is
the kind of positive externalities
of some of the things
that we develop, right?
So you know, we built this
LP rewards contract, right?
We actually commissioned
Anton from 1inch to build it
because we were distributing
rewards manually
and we said we need a
better way of doing this.
And you know, Anton being
the brilliant guy that he is,
like, whipped up this
crazy thing in like a week.
And you know, we started using it
and then a bunch of other
people started using it.
And now, it's become this kind of,
you know, deep AI primitive
of how to distribute tokens
in this continuous fashion,
which is great, right?
The issue that we've
kind of seen lately is,
you know, we thought that
was like this very granular
kind of modular composable thing
that people could hook
into different platforms,
but it's actually still a
little too clunky, right?
Like, you actually need
lower level components
that can be combined and part
of the reason for that is that
every time someone makes a
modification to that contract,
it needs to be re-audited,
you know, it needs to be
reviewed by people, et cetera
and adds additional risk.
And so, I think that
over time, we're getting,
you know, we're going to
develop more granular components
that can be combined together,
that you know, are off the shelf,
that are well vetted,
that, you know, don't need
to be re-audited, et cetera.
And like, there's maybe
a few little parameters
that can be changed and you
can view it really quickly
and reason about what that
components going to do.
And so, I think that that's something that
we still need to push forward towards
and you know, kind of
we've got money legos,
but a lot of the legos like, you know,
they're kind of weird and malformed.
You don't necessarily know
how they're gonna click together, right?
So, we need like, really
rigid, well defined legos that
you know, you can put them together
and you know exactly
how they're gonna work,
which is the next step, I think.
- Right, while making sure they're secure
and nobody steps on anything,
which I think is, yeah.
Makes perfect sense.
So, Stani,
how do you feel that
these composable DeFi systems,
different protocols and money legos
should really be combined to make
the next generation of financial products?
How do you view that?
- Yeah, so basically, as kind of like,
from our perspective,
like we're building pretty
much like a base layer,
which is, I mean, as a lending borrowing
or like a money market protocol.
There's interesting functions,
but the main functionality
is in the sense boring,
kind of that because the idea is that
we can provide a layer for others builders
to come up with things like for example,
what Andre is doing with
Yearn and other developers.
I think what is underrated
in the DeFi and the whole kind
of like value proposition,
it's actually not just
permissionless acts for consumers,
but I think the even interesting part
from a developer's perspective
is the permissionless ability
to build things on
anything that is on chain,
on, for example, Ethereum,
or if there's bridging and so forth.
So I think that's the like,
very interesting value proposition
because it means that anyone
from any part of the world
can basically build financial products,
tailor basically financial experiences
and combine different things
and that is like the very cool thing.
Of course, the dangerous part is here that
since we're handling value,
a lot of value and things
are driven by incentives,
incentives come in different
shapes and some forms
and some of them are greedier than others.
And it means that it might bring,
if you come up with
something very interesting,
you draw a lot of network effects
and you draw a lot of
capital into your system.
And kind of like if you
aren't focused on security
and by the way, one of the
interesting things is that
Andre, for example, when he builds things,
he focuses quite a lot on security.
And we kind of see a
lot of people coming in
and trying to quickly deploy things
without going too much
into details, as Kain said,
that when you combine
the smart contracts
that is already available
to you and they are audited,
it's not the same thing,
you need to basically
audit the whole thing.
So, if you're building a house
and you get the walls from one place,
you get the floor from other place,
end of the day, you need someone to
come and inspect the building
to make sure that
everything's done properly.
And this very same thing
applies to whatever work
and this is the kind of like a main thing,
I really love how people are using Aave
and creating this kind of different things
using Aave and Synthetix, sUSD,
SNX and kind of like getting those skills.
Like all of this functionality
is very fascinating
and sometimes, like what I
love to do more is actually
look at what others are doing
and someone somehow basically
getting involved and telling my opinion
like because these ideas,
they come from like...
It's difficult even imagine like
where people come up with these ideas,
like Andre basically said.
And I love to brainstorm
in different things
and you see kind of like
quite interesting stuff being built.
What I'm scared is that basically like,
as DeFi protocols are growing a lot
and this is my fair opinion,
in the sense that they're
starting to think like
how they can accumulate all the wealth.
They're starting to become the banks that
they basically try to escape.
And they're trying to
think like how we could do
and how we could get the capital
basically injected into our protocol.
And what is happening here that
there is a slight fear that kind of like
this compensability
idea will get challenged
in a way that protocols
might start to think
and with their governances,
like how we could do this ourselves
or like in power to all like
protocol and build there
where actually that
the real value added is
when these different protocols
and things built on top are
working seamlessly together
because now it's possible to do
and that is the way to
actually recycle value
and capture value and
remove the inefficiencies.
And that's where you're basically
creating better things
and better ecosystem.
And this is how we have
built DeFi to this extent.
But I think at some point,
we will see some challenging
phases coming up in that sense.
And that is why it's important
for like every developer
and the ecosystem to think about,
like always composability in mind
because that's the
gateway how we came here.
- Yeah, yeah I agree with that.
I think it's generally
good when people focus
and have a clear piece of what
they wanna succeed at, right?
And they focus on building
out that part of a stack
or that part of a process
and they focus their
energies on doing that well
with their limited resources.
And I think that's how we've
kind of arrived at this place
in DeFi's growth so far is that
there are a number of focused people
building different parts of the stack,
different pieces of the puzzle,
but then get composed together
and better and better formats
and better and better more
advanced configurations.
But that still requires people to focus
and make those individual building blocks
and to make them very
well and flexible enough
to be composed.
So on that note, you know,
one of the important building blocks
that is also helping to
enable DeFi is oracles.
And I also wanted to get
everybody's feedback separately
on how they feel that oracles are playing
into DeFi's growth
and how they affect, you know,
what's possible in DeFi
and their general importance
in driving that growth
and enabling DeFi to happen.
And, you know, for this question,
I guess initially, we can turn to Kain.
You know, Kain, how do
you feel that oracles play
into DeFi's growth and accelerated
and playing to its continued evolution?
- It's sort of an extension
of my previous point that
we need these well audited,
you know, well trusted bedded down
components that people can plug into.
And you know, off-chain data is obviously
a critical one of those, right?
Like, we need to know what
the price of bitcoin is
on a theorem if we want,
you know, tokenized versions
of Bitcoin to be tradable,
et cetera, et cetera.
So, you know, price discovery
and things like that
I think are really critical.
And, you know, to sort
of take the extension of
what this kind of openness
and composability does is,
You know, Synthetix sponsors
a bunch of feeds from Chainlink, right?
Aave sponsors a bunch
of feeds from Chainlink
to be published on chain.
That is a very fucking expensive
process right now, right?
Like, I don't think people even...
Like, Synthetix is still running.
You know, we're still
running our own oracles
where thankfully, I think
in like 48 hours maybe,
it's like 52 hours, something like that.
There's a countdown timer somewhere.
We're switching over
from our existing oracle
to 100% Chainlink oracles, right?
And one of the reasons
for that is efficiency
to try and, you know, not have
this duplication of effort.
The interesting thing I think in DeFi is
all of the effort that we put in,
you know, that Stani and
his team have put in,
that Chainlink has put
in to make this work,
it's all now available.
It's there, it's open, it's on chain,
anyone can access it
and, you know, that's just
a very different process
to try to apply, right?
You know, where you build
this little walled garden,
you'd invest a bunch of money in it,
you'd negotiate with the
people that you're doing
and you would have this
little siloed thing
that you controlled and
only you had access to.
And actually, what's happening is
you're building these kind of public goods
where you've got, you know,
all this infrastructure
and all this value that's there
and people are coming
together to kind of coordinate
and essentially, you know,
sponsor it and build it.
And I think that what that will
enable is pretty incredible.
You know, it's another component of this,
kind of financial stack that
we need to have access to
and the fact that it's
open is just amazing.
So, you know, that's
something that obviously
we're very much looking forward to.
Let's hope Kain doesn't get tired meme
that's been floating around for a while.
I can promise you that I
will sleep much, much better,
you know, in about 48 hours
when we cut over to Chainlink oracles
and know that we've got
a very secure system
that we're no longer
reliant on maintaining.
It'll definitely improve my
tiredness quotient for sure.
- Great, absolutely
thrilled to help with that.
We know you work night and
day to make all this happen.
Yeah, I think those are some good points.
I think real security is expensive.
I think that's one thing that
people don't fully realize.
Decentralized computation is
expensive if you do it right
and there does absolutely need to be
a globally shared data resource
that's used by the DeFi community
in an open composable way.
So, I think all those
things that you said,
I completely agree with.
I also love to hear on
Andre's point of view.
Andre, how do you feel that
oracles fit into DeFi's growth
and allowing it to continue to grow
and function properly?
You know, how do you feel that
oracles fit into all this?
- Well, I always like to
go back to the ICFO stage
when you know, we...
At that point we were putting
everything on the blockchain.
we were putting cheeseburgers
on the blockchain.
We were putting people's
chihuahuas on the blockchain.
It didn't matter what it was,
there was going to be a new blockchain
that's going to launch with digital tags
for your cats on the blockchain.
Now, the point of all of that stuff
and the reason why I always told people,
look, all of this shit fails,
is because blockchains are very bad
at interacting with
anything outside of them.
They're fantastic at interacting
with everything inside of them.
So, like even today,
Bitcoin is very good at
interacting with Bitcoin,
but it's not very good at interacting with
anything outside of that.
Ethereum is very good with interacting
with the assets on it and ETH,
but it's not very good with working with
anything outside of that.
Now, there's a whole
different paradigm there
where we start talking about cross-chain
and stuff like rand, et cetera,
which I'm not going to go into.
But the beauty about oracles are
they bring these external
data points onto the chain
so that you can actually
start interacting with them.
And I actually think people underestimate
how strong that becomes
when we start talking
about more data points
and higher frequency of data points.
So I mean, I know right now
and I respect that a lot,
you guys are going a
very conservative point
with, you know, you're
slowly transcribing data,
you're very carefully adding new streams
and that's because security
is paramount right now
and I agree with that.
But like, once that
infrastructure seamlessly exists
where it can just plug in any
of these external data points
that gets transcribed on chain
and I mean, I'm not
even just talking about
pricing information,
even when you start having
weather information,
you start looking at
different insurance systems
you can build.
If you start having flight
pattern information there,
you can start doing futures
on flight destinations
and prediction markets.
So, there's so much
that evolves
the second you can start adding this data
into the Ethereum system.
Now I remember
there was a different
discussion at one point.
I don't remember who it was,
I think it was Larry Lawmaster.
He was talking about,
and this touches to Kain's point as well,
where he was talking about,
you know, when you trust one
of these big oracle companies,
it's basically you're
trusting Dan from IT.
You know, if you had your own Dan,
that he had his own little computer set up
and he was running his
own little price feed
that would just have a
smart contract wallet
and write it on chain.
And you know what, you
put so much faith in Dan
to keep that thing up and running
and to keep it secure
and to make sure it's not compromised
that you end up having 500 Dans
that are all trying to do this job
and to make it, you know, robust
enough and scalable enough.
Because if you have a stable price feed,
that's, you know, sitting
there for 10 minutes too long,
in the open permissionless
environment that we have,
that is a lot of problems that
you just made for yourself.
People think it's fine,
whatever, it did an update for 10 minutes.
(laughs) no, no, no.
If you're in this world we're in
where you have such
sophisticated arbitrage
already happening
and it's not even at a level
where I would call it intelligent,
you know, it's still very manual driven,
but like that's quickly
millions you've lost
just because of that.
So, I think it's twofold.
I think on the one side,
it's the wealth of new products
it unlocks as oracles mature
and allow blockchains
to be aware of more than
just what's inside of them.
And on the other hand,
it's this incredible robust
security infrastructure
that, you know, gives
and can put this well
and I can echo the sentiment,
it gives me peace of mind.
Like when I had my own
oracles I was using,
that was one of the first
things I would check
if I wake up and, you know,
you don't sleep when
you have these systems.
You wake up every one
and a half to two hours
to quickly do a spot check on your phone,
is everything fine?
How many telegram messages do I have?
Okay, less than 1000, nothing broke.
More than 10,000,
oh shit, I better get up.
So, just having that peace of mind
and that comfort that comes with that
as a builder, I cannot
express how vital it is.
So, you know, I'm both,
oracles make me both excited
about the things I'm going to be
able to build in a year from now
and in the immediate short term,
they make me a lot more comfortable
and a lot more at ease
because I know that that
is a huge risk vector
that is been taken care of.
So,
I mean, I'm not trying to
sound like a Chainlink cheerleader.
I think everyone already knows,
if they look at my Twitter,
that clearly I am one.
So, it's a little bit difficult for me
to not show here,
but I mean, it is on the virtues
of how much power it
brings into the ecosystem
and I think right now, you know,
we have feeds that is
creating value for everyone.
I mean, I've got a bunch of
weird little single-sided AMMs
that I'm busy developing with them.
And, you know, that's not what
they were even intended to be used for,
but as it expands and we start
getting more data points,
then we're gonna have some
sexy systems in the future,
that's for sure.
- Yeah, Andre, I really
wanna echo that sentiment.
That's great to hear and I'm
glad that you see it that way.
We're thrilled to help make
everything more stable now
and to really expand
what people can build.
I'm personally always very proud
when we put out a new data feed
and that allows the
creation of some new market
or a new product
and that enables a whole
new category of things
to exist out in the DeFi ecosystem.
And we feel very lucky to be working with,
you know, people like
Kain and Stani and you
and all these people to
enable all of that to exist.
Actually, weather insurance,
we recently had weather go live
and we already have a live production
weather insurance product
that's providing crop insurance
in some developing
countries and other places.
So, I think you're
actually completely right
on that second point,
that as more data goes on,
you'll start to see the amount of markets
and the amount of
financial products scale up
to go in lockstep with the
availability of that data.
I'd also be thrilled,
Stani, to hear how you think
oracles play into DeFi growth
and how they play a role in
driving that growth forward
and kind of what role they have to play
in the ecosystem.
- Yeah, I mean, when I called you,
I think it was like couple of years ago
or a year and a half, I can't remember,
I explained pretty clear,
like we have this oracle
that basically we're running
and like half of the maintenance issues
or things that we need to fix in terms of
kind of like failures was
always started with the oracle.
There was always something
and kind of like it
took a lot of resources
for a small team like us,
we're not that small as
Andre in terms of like,
how many people are developing,
but it takes like a lot
of resources from us
and what's kind of like,
helped us when we found like
a one solution that works,
we got rid of that stuff.
So, we took resources from
whatever went always fixing
this kind of like a system,
which wasn't our main product
and the only thing was kind
of like security feeds,
the data into the smart contract,
which is one of the most...
It's kind of like the blood in human body.
I mean, that has to be accurate
and flowing all the time
and if it stops, as Andre said,
like ten things are going pretty wrong
and there is losses,
quite a lot of losses.
And that was our kind of like thing there.
And I think for us, what was important
to find something kind of like...
Our goal was to find a consensus,
like something that others are using,
something that is reliable
and they have like
a plan.
I don't want to share
like Andre by the way,
like a Chainlink,
share like if everyone reads my posts
when I'm either drunk or sober,
I write a lot of good things
because I love what you guys are doing.
And what's important
there is for me is that,
there is a consensus what people are using
because this helps basically
us to build products
and things that are working on,
let's say, in Synthetix,
are working at Aave and
are working at Yearn
and our products are basically meshed up
with this money like a structure.
So, they have to have functionality.
And I think like in terms of data,
it's kind of like funny how like,
it's crazy like how, for example,
Andre said that, what kind
of things you could do
in terms of finance, but also like,
how much data there is available
in the reward that actually
could be super useful on chain.
Of course, not all of the data.
You don't want to put all the data
because it has a price to feed it,
but the things you can build
like beyond DeFi basically,
beyond financial application on chain,
there's so many things you could build.
I believe that DeFi
will build quite long of
the infrastructure now,
like the next couple of
years is where we'll build
the infrastructure and
the financial products.
But the cool part is when we start to see
other parts of the
on-chain economy to evolve
and then DeFi utilized there
and we don't see like money legos,
we will see like all kinds of
legos
connected to e-commerce
and NFTs and so forth.
We will have a kind of
like economy here on chain.
And that data is very valuable
and kind of like if you
think about what's happening,
for example with Chainlink,
it's kind of responsible
of the DeFi ecosystem
because those price feeds
are the blood of the DeFi protocols.
For example, Aave and Synthetix
and the incentives are
aligned in the ways that
they need to work.
And because it's not our main thing
to uphold oracles and focus on that,
we can focus on the very
exact thing that we want to do
and build just a secure piece
of underlying foundation block
that anyone can use, build on top,
utilize and making sure that
that piece of block is competitive enough
and basically flexible enough
that we attract people to
build things and innovate.
That is what, like, we want to focus upon.
And this is like one big thing
that we don't need to be scared of
and I definitely like...
There's two things I'm
personally kind of like worried,
always been,
the oracles and the value locked in the
smart contract
and making sure that actually,
you have done everything.
Because end of the day, I mean,
that's functionality there.
I mean, the code is public and so forth.
The less responsibility,
like the Aave community
has, the Aave team has,
the better because then
we can actually focus on
other things like to our
core business models.
- Yeah, yeah.
- I am...
Sorry to interrupt you, Sergey.
I just realized myself, Stani and Kain
and all of our teams can
sleep peacefully at night
because you don't get to
sleep peacefully at night,
because we've just shifted
all of our worries about oracles onto you.
So, thanks for that, my man.
- Absolutely, if I can enable you guys
to focus on making all of this happen,
I've been building smart contracts
for like seven years now.
I've been watching the
token movie on rerun
for like a number of years.
The fact that you guys are here building
something that goes beyond let's
make a token, send a token,
is really the realization
of this technology's
like fuller potential.
And so, I'm absolutely grateful
to be working with people like you
that are taking this entire
industry into this direction
of more usefulness and
real financial products,
not just the definition of ownership.
And so, you know, if we take this role on
and you focus on your roles
and we all together can build
this type of blockchain-based
financial products future,
I think at the end of the
day in a number of years,
we will be very proud of that.
So, I'm more than happy
to take on whatever,
you know, that specific role.
And so, thank you for working with us.
I think that what Stani said
is something I'm also definitely seeing.
I'm definitely seeing the
teams that can focus on
building their core product,
instead of worrying about making
blockchain infrastructure,
are able to push a lot of features
and make a lot of new things
that make them attractive in the market.
And I think that's a trend
that's gonna definitely continue
and something we really
wanna enable, right?
Like how do we make really
good financial products
that are really appealing
and really competitive and really focus.
And then, the second thing about enabling
other categories of
data is that
I actually see that as you
enable other categories of data
and you have insurance or
other things like NFTs,
you actually have new forms of collateral.
So, you have new forms of
collateral flowing on chain
because initially, you
were tokenizing collateral
and you were saying this represents that.
Okay, that's one category of collateral.
But now you have this represents that,
but you need data to prove it, right?
So now, that's a whole
new world of collateral
that makes its way on chain in the form of
insurance cash flows, NFTS,
all the different things
that oracles enable.
And then, all of the value from
that additionally secured collateral
can then flow into these DeFi protocols
to earn interest or
participate in various markets.
So, I think both of those dynamics
about enabling DeFi to build very quickly
and like add web quality and web speeds
while maintaining security
because that security is
shifted onto a platform
that focuses on security
and also enabling all
these other categories
to shift even more collateral on chain,
which will then be fed
into these DeFi protocols
to generate even more usage of DeFi,
that's really what I see as
maybe the second stage of
things that we can help enable.
Maybe let's enable data to have
the DeFi protocols work properly,
but then let's enable
many categories of data
to generate lots of collateral
that can make their way
into those DeFi protocols,
just like token value makes
its way in there that way.
And of all the other
assets outside of the chain
the way Andre mentioned,
that's trillions of dollars in assets
that can be migrated on chain,
but many of them don't just need a token,
they need an oracle as well
as a tokenization system.
So, it's really been
fascinating talking about
all this with you
and I really appreciate
all the thought and effort
you folks have put into
building these systems
and sharing the feedback here.
I always wish we had more
time on these amazing panels
where we discuss these truly kind of
next generation questions.
But I think that's all the
questions we have time for now.
And it's always a real
pleasure seeing everybody
and thank you for getting on the call
at various times of day and
night to talk through this.
I think it's really very exciting.
Thank you.
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