From DeFi to NeoFi: The Next Chapter | Dan Elitzer - Nascent

All right, we live. Okay, thanks everyone. So, uh, my name is Dan. Uh, I'm one of the founders of Nent. We do early stage venture checks in crypto.

We do focus on the preede and seed stage. I've been pretty obsessed with DeFi and with the idea of an open financial system since 2018. So, uh, at the very first ETH Denver, I came here, I met a lot of the early projects like Zerox, um, like, uh, uh, there was, uh, few other lending protocols. Uh, Compound was around at the time. And the thing that really spoke to me about this was the idea that we were going to enable anybody to access or create any imaginable financial product or service.

And today what I want to talk about is what I think the next phase of that vision of that future looks like. And it's not the one that I expected when I first got involved six years ago, eight years ago. So the original dream was we're going to get everybody on chain. Everyone's going to be doing everything end to end. They're going to get their money on chain and they're never going to leave.

They're going to interact and transact with other people who are also on chain. And that that was that was where we were going to get to. But I don't think that is realistic anymore. The idea, we need to be honest with ourselves about what it's going to take to on board billions of people over the next decade. The reality is people are really living only about 5% of their financial lives on chain, if they're even on chain at all.

95% is still things like paying your rents, paying your groceries, paying taxes, uh dealing with bank accounts, and receiving your paycheck there. We need to accept the fact that it may have always been a pipe dream that we were going to get everybody living 100% onchain. The apps like Uniswap, like Morpho and A, these work. They're great. We've made tremendous progress.

But that is not the only place that we can expect people to live. and that that boundary between the two things that seam that's where we need to be building the right products and the right experiences for people. So that meeting of the pure onchain world of protocols and then the offchain payment rails existing accounts and relationships that's what we need to be building towards is that connective tissue. So when I talk about NEO finance, I'm not talking about DeFi. I'm not talking about things like like Uniswap, like Morpho, which are these really pure onchain protocols.

They can be a part of Neoinance, but they alone I would not categorize that way. At the same time, I wouldn't call things like Robin Hood or Coinbase as their core product to generally be in that neoinance category either. And certainly any exchange where you're just trading crypto assets on a centralized exchange, that's a traditional legacy exchange that happens to have a new asset class. There's nothing really new or different about that. But when you bring them together, when you give people the ability to earn and save and spend, uh that is where we start to see like real usage coupled with a c self-custody element and then also hooking in seamlessly to traditional payment rails.

Remember, people aren't just coming on chain and staying there forever. They're going to come onchain, they're going to flow back offchain. This is going to happen. We need to accept that uh and design for those hybrid systems. One of the best examples of this so far is a product integration that Coinbase did with Morpho.

So Morpho is this permissionless lending protocol where anybody can set up a pool using any asset as collateral and allow people to lend against that. Now, once that's created, Coinbase came in and they were able to hook into vaults and allow people to come in and deposit Bitcoin that they had on Coinbase, convert it into CBT, CBTC on base, put it in Morpho, borrow USDC against it, and have it in their account. I've used this integration. I hope many of you have tried this, too. It is incredibly smooth.

You don't need to worry about token approvals. You don't have to worry about gas. It handles everything seamlessly for you. Uh, and the results have been phenomenal in just over a year of usage where they've grown to. Um, Morpho as a whole has over8 billion in in TVL.

They've gotten to nearly a billion dollars in active loans through this integration as alone as well. And now they've integrated with many other major institutions, Anchorage, Bitwise, uh, Kraken, many more. And those are just a few of the ones that have started. They're making new announcements, it feels like, multiple times a week of new integrations that are coming online. Uh recently they just announced Apollo uh a nearly trillion dollar uh asset manager announced a strategic partnership with them and is actually now buying some of their token too.

So it's it's really coming along very fast. It's not the only thing though. That was what we would call I think over the last few years the DeFi mullet, right? The the fintech in the front, DeFi in the back. There are other ways that you can integrate and do these neo finance experiences.

One of those is tapping into liquidity. So using uh uh off-chain liquidity on centralized exchanges on CME, you can get so much more liquidity than is available on any of these onchain protocols, especially if you're off uh launching new assets. So Athena is one that grew. They got they were the fastest digital dollar to get to over $10 billion issued. Uh, and they did this because they were doing a tokenized carry trade where for the short leg of the trade, the shorting on pers, they weren't just doing it on onchain protocols.

They were tapping into Binance and Buy Bed and OKX uh where all this per liquidity exists. So that enabled them to scale in a way they couldn't have ever scaled this product if they were only living purely on chain. Tenbin is now doing a similar thing use doing co to tokenized commodities uh gold and they're also doing uh tokenized non- US dollar currencies and they're able to tap into the existing liquidity on CME um and on the uh FX venues as well in order to create their products. Again, you can't create these just onchain, but you still create self-custody opportunities and product integrations permissionlessly that you couldn't do in a fully centralized setting either. The thing that I'm actually the most excited about is these onchain neo banks.

So through the growth of stable coins, the ability to have self-custody wallets where people can earn into bank accounts that are then linked immediately, convert them into stable coins, uh allow them to invest those, earn off those and then off-ramp them easily, usually via debit cards. Uh it was really hard to even like track down the number of these out there. There's I only included a few here. Uh EtherFi is probably the largest. Uh Cass, Takenos, Dollar App, UR coming coming online fast.

Uh and this is really enabled by stable coins. Stable coins have absolutely hit escape velocity. I don't need to tell you about all the integrations that have happened with folks like Stripe uh and PayPal and Visa, but it is uh kind of crossed that point where in previous cycles we may have seen institutions pull back. They all realize there's real spec non-speculative use cases here that they're very excited about and they're putting massive capital, massive resources and strategic initiatives behind it. One of the reasons they're able to do this is regulatory clarity.

Uh getting the Genius Act passed in the US was huge. We've seen similar legislative pushes in other countries around the world. uh that's made it much easier for banks and other traditional financial institutions to do these integrations with onchain services and we're seeing hopefully workable frameworks on the securities front emerging as well. See if the clarity act can get there. Um and also infrastructure finally we're at a place where we have these real scalable fast lowcost L1 and L2 experiences.

Account abstraction is real so people don't have to worry about managing gas. It can all just be bundled on the transaction. And onboarding new users is finally smooth, right? Just with an email address, being able to have a wallet set up, connect your bank account, be on onchain, earning interest in a vault, and then immediately spending out of that via debit card. Uh that seemed really hard to believe we were going to get there four years ago.

Uh but today, it is just table stakes. Uh anybody can spin these up very, very quickly. So the message from this I would say to builders is stop pretending that the off-chain world doesn't exist or is going away. It's going to stay there. Your opportunity is to build at this seam.

Meet your users where they are. They are going to still have payments. They're still going to have a lot of their assets that are offchain. Accept that fact and build the best integrated product experience. If you're building something where you're not working necessarily directly with end users, you're building new assets, new derivative type products that are tokenized onchain, think about how you can use these integrations into legacy venues and liquidity.

There are uh now a number of partners who have broker dealer licenses and other things that enable them to work with you and help create these products. Black Rockck has done an amazing job with their uh biddkenized money markets that are kind of KYCed and whitelisted but are then wrapped and used in other products as well. Uh and when you think about what this can be, think about the the full life cycle, right? Where are your users? You can't just build for people who've historically had a lot of Bitcoin, a lot of ETH.

Those there those are still very valuable users to get. But think about how much larger the market is that you can now address when it is this easy to both on and off-ramp people and integrate them into protocols. Don't just limit yourself to the people who are going to come to this conference and come to similar ones. Get out there. There are billions of people that are now part of your addressable market.

The final warning I will have though here uh to builders is don't forget about security. This is still really important. If you lose people's money, whether it's your fault or some hacker doing something that you couldn't have prevented, doesn't matter. It's game over. Uh institutions are here.

They only want to work with partners who understands how important security is at both the wallet and smart contract level. And so, you need to be serious and show them that you're going to be a partner worth working with who's not going to cost them customers and cost them fines and headline risks and all that. This is a place that we at Nason have actually been investing in for years. It's not a new thing. The the guys um uh Andy at the rollup I think was the one who kind of came up with this term of neo finance.

We've had this thesis for a while. Uh between Morpho, USDA, and Birch Hill on the lending and credit side. um down to folks like Open FX which are doing FX payments are now well past 20 billion dollars in annualized volume uh within less than two years of launch. It's pretty incredible how fast these things are growing. Don't sleep on this.

Don't say, "Oh yeah, maybe this is a trend." I promise you the best founders have been building towards this for multiple years now. It is obvious. Please, please, please start building with this in mind. If you are doing this, reach out to us.

We want to work with you. We've had a lot of experience working with teams navigating the complexities of the NEO finance space and bridging these onchain and off-chain worlds. Don't feel like it's throwing in the towel on permissionless access and truly open finance that is still going to be supported. The more people, the more assets we get on chain, even if it's coming through intermediated settings, it's adding to the liquidity. adding to the robustness of the pure decentralized, pure uncensorable assets and protocols and we will all benefit from that especially the people who need it most.

So please please think about this think about where you can play and the opportunities that are emerging as we have this clarity as we have these opportunities. Uh let's let's grow the pie. Let's grow the opportunities. Thank you.