DeFi & Institutional - Panel Talk

And we're back now at the business stage. We talk about money and how to make money, but also interesting products or as as well as services that can help us in that specific journey. In my opinion, this is one of the most important panels here at Ethereum Cluj Defi and institutional. I'm pretty sure all of you out there that are seeing this and on our live stream um you know everyone is a Digen here. I believe from all of you three gentlemen.

I I know I was one until um a few years ago. But um I have with me Mark Richardson from Bangor. I have Filipo Morasi from Folks Finance and I have a Irish gentleman Owen Healey from Owen Healey blockchain talent. Now I do have some questions here that we have prepared together with Ethereum Kluch team. However, gentlemen, it will be an open discussion like we were like it's a you know Friday afternoon grabbing a beer and try to be as transparent as possible.

We might engage with our wonderful audience in case they have some questions regarding a specific topic. But uh I think we should start by introducing yourselves. Let's keep it under one minute. Um you know explain what to about, who are you representing, what are you doing in this industry and let's get it started. Uh I'm going to go first with Mark.

Sure. I'll keep it nice and short. Uh so yeah, my name is Mark Richardson. I was previously an organic chemist uh prior to the pandemic. Switched to blockchain in uh 2020.

Um first as a community volunteer. Uh had my first contract in January of 2021 with Bangor where I started as a researcher, then the head of research, then the product architect and now the project lead. Uh hello everyone. I'm Philippi, head of growth at Fox Finance. uh Fox Finance is a crosschain learning protocol and we are right now in the phase where we are on boarding institutions.

So we'll see a transition from just being uh defy protocol to more an infrastructure layer. Hi uh my name is Owen Healey and yeah run my own recruitment firm and yeah find talent for a range of different companies from trading firms to DeFi projects including folks and yeah no pleasure to be here. Thank you Owen for speaking in English because some people might not understand that accent but uh thank you for you know yeah uh thank you for you know keeping it u clear now um so gentlemen uh we're in a market that might not be as exciting in retail it was two three years ago however how do you feel about the institutional capital coming over to crypto you know in the couple of years actually two years we have seen a lot but what's your opinion on this there is a follow-up question has it grown in the last year I mean we know it's there but has it grown in the last year especially this year until now um do you think there is still institutional interest coming on chain or not and what about the future so um

start honestly Uh I mean you you just notice by going around conferences uh there are more uh people in suite than uh normal DJ in t-shirt. So this means that institution are just getting started in in looking at crypto and in deploying funds. So they are looking more in uh uh in a safe way to deploy funds into protocols. So and protocol obviously they need uh institutional funds. So protocols are building the infrastructure layer to uh to accommodate and welcome institutions.

So I will say that we are just uh starting we are at day one. I think um it kind of depends on what you mean by institutional interest because you might look at for example the uh the growing number of u let's say cryptocurrency treasury companies and point to that as growth right um and certainly in in terms of uh institutional demand to purchase those cryptocurrencies that is growth but they're not really using blockchains in any sort of significant way so I wouldn't say that that's necessarily growth for for blockchains or or DeFi because it's much more sort of centralized finance leaning than anything else. Um, but if you have a look at some of the the DeFi primitives that are truly on chain or at least partially on chain um that have attracted growth um you can point to things like u make a DAO or now known as Sky um through their T-Bill product um that has attracted some institutional interest. Whether or not you consider that to be uh true DeFi or not, I think is subject to debate. Um, but at least it's using the blockchain in a in a verifiable way and I think that we'll see um more of that.

Um, I I spend a lot of time in um in Switzerland and around, you know, the EU. Um, and certainly uh the Swiss government and the you know the the private and public banks there are taking blockchain very seriously, but it's usually for that kind of DeFi use case, right? So tokenized commodities, tokenized um stocks and and other things. Um but then also um looking to bring uh you know that kind of tradi style product in sort of a blockchain wrapper. Um so yeah the the interest is there.

It is improving but it looks very different to the DGEN sort of economy that you were referring to from 3 years ago. So it's a it's got a different style now. It's wearing different clothes. It's doing slightly different things. And it's I would say blockchain pragmatic meaning like a minimal blockchain presence.

Yeah. So I guess Sergy from Chainlink used a very good quote last year and he said um Treadfi is Defi's biggest customer and in the last year we've seen a noticeable shift in projects completely shifting their positioning um away from retail and towards institutions and what their demands um are. And I think the institutional interest is definitely real. you see companies like JP Morgan and many other institutions um significantly ramping up their blockchain teams and yeah those that aren't actively participating are curious in observing and even I suppose what's refreshing at this event compared to some of the other events I've been to recently um yeah it's a lot more institutional presence a lot more suits and yeah looking to see how thready products can be utilized in a more defi context. So

I'm going to make a conclusion now a lot more suits and growing new ways that we might not even know about. Uh these are the two things I've and also for you Filippo you said pretty cool stuff. So it is going to grow in the future but the suits might take over. We don't know or it will go in a different way that we actually don't know about. Cool.

Any any questions from the audience on this topic? Oh, not yet. Okay. Now there's a tricky question here. Do current DeFi system actually work for institutional capital?

I mean are these decent are these uh let's say decentralized finance protocols focusing now more on institutional capital management or they are still mostly focused on retailers. Uh it's a nice question but I will say that in the recent years especially in in the last year we saw protocol building uh infrastructure yeah to accommodate uh uh institution like for example we transition for from a peer-to-pool uh I'm talking about any protocol from a peer-to-pool system like uh a to a vault based system like morpho that is entirely built for accommodate institution because institution don't want for example uh governance that can change parameters don't want other external factor factors that influence their activities. So they don't want to be uh uh they don't they want to be they want an isolated environment for the operation. Uh so we are seeing yeah this transition from having a community based model uh to a more like uh yeah isolated and private environment where yeah institution can move fans or deploy fans in a safe uh space. So yes I will say that uh we are already in this transition from community based operation to a more close one.

Yeah,

I think it's important to remember that the the origins of of DeFi are still deeply embedded in the sort of um anarcho libertarian, you know, uh view of what emerging DeFi protocols would look like. meaning that it was not just um let's say not observing um like Tradfire institutional laws and what they're beholden to but I would say more specifically rejecting it like actively rejecting it almost as a kind of protest right and so this idea of being like u completely anonymous peer-to-peer and this kind of thing this was the DeFi beginnings and it was by design incompatible with institutional capital um and I I think over time it's interesting to see the kind of um corporatization right of of DeFi protocols. Um the one that I usually hold up as being the you know the exemplar for this is make a right which started with you know the a fully decentralized you know stable coin invention which I thought was absolutely phenomenal but today it's fully collateralized by USDC and USDT right which are you know corporate um you know corporate stable coin alternatives um but it's important to point out as well that you know uh even protocols like E lend which became Ave um also had um a a specific splintering of their DeFi offering from their more trady offering. They had something called a arc which was specifically for institutional clients which allowed um them to observe things like AML um you know KYC and ATF compliance laws and things. So I do think that as the industry turns to institutional clients as a way to drive revenue and if that's the adoption pattern that they're looking to implement it is in a it is culturally distinct right from where D5 began.

Um and so in that sense, no I don't think the D5 protocols were built um to house institutional use cases and it's requiring um you know it's requiring a re-engineering I think to pivot towards those use cases. Whether or not we're selling our soul in the process I think is is something to talk about but no these things are are strictly incompatible and they were designed to be strictly incompatible.

Yeah. So that's a great point. Um and that is the question we're kind of the topic is about are we selling our soul in many respects and yeah I guess that's part of this thing that many have coined as the maturation phase at the moment and a lot of people that would have organically risen with the industry um now in many respects don't identify with or feel that it's um fluctuated away from its initial values and yes, it's very noticeable across many different ecosystems that they've definitely moved away from that community approach and have made trade-offs to accommodate um institutions. Um so yeah um it's very protocol dependent. Some are remaining true to the initial values, others have shifted and yeah a case by case basis but yeah this maturation phase that many are talking about um yeah has led to a lot of people not identifying with the industry that they once were intrinsically motivated with that they thought was going to change the world and now they're like they're thinking are we just are we are we just upgrading the system or are we rearchitecting it and that's kind of where we're at at the moment and yeah

yeah you know if I can add uh I I I I really have an an open question like I always thinks about it and because okay we are in a phase where we are maturating we want to on board uh institution but I I don't want that this demotivate people to build disruptive uh features like in the past. I mean we all started like a Den Den guy that uh tried to explore innovate we also uh strange economics uh so I don't want that in order to offer like a safe environment for institution whatever we we reduce the amount we put in uh in the creation of uh something interesting and exciting uh for the market. So this is my my point. I can see not that much of an excitement when we're talking about define institutionals. But I do have um I would say an imagination but not an imagination creation question.

Just short answer. Are we adapting DeFi to institutions or institutions to DeFi? It's certainly both, right? Um, so you know, as I said before, uh, institutions have a certain like legal framework that they need to observe. Um, if you're in Switzerland in particular, um, things like travel rule is like a super important and unavoidable consequence of whatever you're doing in in DeFi.

Um, so both are compromising um, some of their, let's say, um, like deeply entrenched habits. we've seen, you know, D5 protocols drift um closer towards um you know, what what would be considered at least partially compliant infrastructure and we've also seen both regulators and institutions also compromise a little on their side as well. Um the um I think the the best cases that we can um point to let's say the the model case for what this kind of thing looks like is things like um Melon which transitioned to Enzyme many years ago um is kind of uh you know the the original sort of onchain you know capital fund hedge fund style um product um I think it's in its like 11th or 12th version now. I've honestly lost count of it. Um, but they have always um had the vision of serving specifically institutional clients.

And you can see that in each iteration of the protocol, there are sort of new features, accounting methods, even sort of um exclusion rules that would make it easier um for um an institutional client to stomach and their regulator to stomach. Um and at the same time you've also seen um things like you know um you know o over that story arc uh things like the mic compliance you know framework come out and I know that that's still um controversial not universally loved by anyone on either side but still an attempt to sort of make clear um you know what is considered uh above board and what isn't. Um and then in in Switzerland, you see it's getting like very very easy, right? The um the the FINMA regulator there really um has made pretty clear exactly what um what can be tokenized, what can't be, what is considered a token issuer and so on that otherwise fits into the existing security infrastructure that they that they already have. So yeah, it's it's it's a two two-way.

These things move towards each other.

Uh yes, I think that uh it's both. So I will say that there are protocols that are building proper features for institution while there are uh other protocols that are trying to adapt in order to attract the the institution funds because at some point if you don't adapt there will be others that will do it and it's it will be basically uh I will say BD works in order to attract the the this kind of liquidity. So yeah, it's uh both uh both way of interaction.

Um yeah. Um again both I would say. Um I guess I obviously deal in people and yeah um I guess on a human layer um you kind of see your Dens, your institutional crypto people and effectively there's kind of three categories at the moment. you have hoodies, suits, and hoodies morphing into suits, if that makes sense. And I guess there's a disconnect still between both um parties.

Um but I do believe that there's a greater institution or a greater appreciation of what institutions bring especially even for and I know recent events might say otherwise but from a security perspective I guess institutions move slow process are very deliberate and slow for the right reasons whereas obviously we've grown up in an industry where it was ship ship ship and of often at a compromise um to security. Um, and that's no fault of D5 projects themselves due to audits being historically just so expensive. They had to pick what was audited and what they could spend. So, I guess as the industry is maturing um, and growing up, we're kind of seeing more hoodies morph into suits. So what we need is probably a greater appreciation for both sides of what both sides can offer.

And yeah,

personally I think I'll put it uh 60% towards DeFi and 40% towards institutions. I'm a numbers guy, but yeah um both of them have to you know give or take stuff. Mark, at one point you said Mika compliant. Uh, and this is an open question of course to the audience too. If you have anything, raise your hand and I'll uh try to um push your question.

What does a compliant DeFi actually looks like in practice?

No one knows, right? That's that's one of the problems with with Mika. So um a panel I did recently I was discussing with uh someone who leads um one of the major petitions for Mika um that's looking at um like helping the European Union I think to understand like where the ambiguity is in the policy that they've created um and um help them achieve sort of better wording and structure and how this might be enforced. Um but for example one of the things that maker compliance uh talks about is token issuance. um and whether or not uh a token issuer um can be identified and what responsibilities they have after they've issued a token.

And one of the um one of the let's say case studies is uh protocols like like Leo, right? one of these um you know liquid staking assets sort of thing where if you provide ETH um you know to this um smart contract it then issues you uh you know the wrapped stake or stake the tokens as a result and so in Mika it's not entirely clear whether or not Leo is um itself like the entity a token issuer or because it was generated by a smart contract if the smart contract is a token issuer and they take a spec like specifically they have different language surrounding whether or not it's considered a decentralized or autonomous token issuance versus whether or not it was an institutional um focus and then also whether or not tokens um are um you know if they inherit properties of other tokens. So for example in the in the Leo staked ETH case clearly it's representing the ETH that you gave to it in some way. Um, and this is similar to some of the like Ethereum protocols that build smart contracts to wrap uh, Bitcoin on one blockchain and then, you know, bring it over to Ethereum. So, things like um, ZBTC, for example, or WBTC and and so on.

Um, and in those cases, the way that the the wrapper token is regulated is based on like it inherits the um the properties of the original token that it is wrapping for example. Um whereas if you uh remember how Leo originally introduced the wrap stake ETH product they said that no ST is not a token that you get by wrapping Ethereum you buy st with ETH. This is an exchange of ETH for ST ETH. And after the ETH is given to us, it's our ETH now. It's not your ETH.

And when you want the ETH back, you can sell your ST ETH back to us for ETH. But the the change of ownership is is explicit. Um these are the kinds of things that Mika is really struggling with because I think that they are naively trying to apply um the the you know the old paradigm in in finance where you have very clear lines in the sand as to where certain assets are held and by whom because everything is custodial. Um whereas in this case where things are are automatic um whether or not because you deployed a smart contract that issues tokens should you always be the issuer or is it now like out in the wild and it becomes an autonomous process. So the we really the unfortunate answer is despite you know um how much clarity uh has been brought to the industry over the last decade or so it's still really not clear what it looks like to be compliant.

there is no example we can point to anywhere that we say look this is a fully regulated you know properly compliant D5 product they just don't exist um because you know what what it looks like to be compliant from a US perspective might be very different from a EU perspective and very different from a Swiss perspective and so yeah there's um it's really really difficult to know but in general um I think if we had such an example it would be fully KYC process um and you know with proper AML and ATF compliance measures over the top and we you know I think most of the DeFi community certainly the blockchain community would reject that right as being a necessity because it's starting to look very much like you know this isn't DeFi becoming compliant this is DeFi just becoming CFI and the you know the original components just don't matter anymore so yeah it's a I know it's a a you know an unsatisfactory answer. Um, but that that is the the wrestle that we're going to have with, you know, with uh litigators and regulators probably for the next hundred years. Like I I I can't see any end in sight.

Yes. what uh Mark said uh we have been discussing a lot with institution in uh for quite a while where where for building our the next version of our protocol where uh we allow institution asset managers to build their own landing environment and what they are requesting are basically access control module where they can have uh they can just allow people based on uh KYC, KAB B, KY. So this is something that will happen and uh all the institution are requesting it for user to access their own landing environment.

Yeah. So to answer your question, um I guess if Mark can't properly answer the question, I definitely can't. So I'll just leave it at that. So basically in conclusion it will take a little bit more time and friction until everything settles down. Yeah, it is a complex question but thank you for your answers.

Um you know I want to involve the audience as well. Uh have any of you actually used onchain yields? Raise your hand please. One, two, three. Oh nice.

How much was the API two three years ago? Do you remember? 20 30%. Right? So what is happening now?

And this is where you gentlemen shine. Uh I remember it was 20% at one time for BMBB. This was four years ago. But indeed over time this has compressed reduced and uh you know we know actually what happened. So what's the actual value proposition for institution allocating to defy today and uh is this compelling enough to justify the operational overhead?

I spoke like a true corporate man. It is a very complex question but in reality the yields have reduced significantly and is it worth it now? Uh I do think that yeah the net uh is also based on if you are in a bullish or in a bearish market. So it also depends on the borrowing demand uh which means that they generate native yields on on depositors. But in general what we are seeing nowadays is that okay there is a base layer of yield uh and then uh people loop on it to increase their yield exposure.

So the base layer is yeah obviously the the base APY is is lower but then yeah people loop on it to increase their yield exposure. So if uh we compare uh with the past there there there was uh I will say uh lower uh effort in looping and native uh uh uh yield boost due to uh incentive bootstrapping or other incentives uh initiatives. Uh but yeah nowadays it's more like a looping things. Uh people are trying to looping uh stable coin uh to increase their yeah exposure. So it's more looping compared to to the past years.

So I think um yeah couple of things to say. So you mentioned that o over time uh onchain yields are are trending down. Um and I think that is because at least in the first case if if you cast your mind back to things like defy summer things like uh liquidity mining rewards and airdrops and all these things were sort of the primary uh reason for anyone to participate in any of these products and weren't really at all interested in what the product does or how to use it. Um, and you know, AMMs I think are are like one of the um, you know, one of the candidate cases that I would look at that I'm the most critical of because they they did a very very bad job of communicating to users exactly what a yield looks like um, in the system and what specific financial instrument you're buying when you provide liquidity to one of these things. Um, and you know, we invented a lot of marketing words like fees that don't actually mean anything in an AMM context.

Um, and the yields were always low and the risk was always high, but as long as you're getting 250% APY because someone's raining tokens down on your head, you don't really mind what's happening there. Um, and this served a couple of different purposes, including institutional purposes, because in this case, the institutions weren't the ones that were using those protocols and necessarily getting the rewards, although there were some DGEN institutions that were doing this. they were rather the sort of the the VC institutions that were actually forcing these protocols to provide rewards um so that they could you know establish some sort of exit liquidity for the you know um the token round that they had participated in before the project even launched. So institutions were still available back then and they were making enormous amounts of money um you know for DeFi. they just weren't using blockchains or or the protocols that they were investing in.

Rather, they were, let's say, annexing the um the protocols for exit liquidity when they were trying to, you know, exit from their their token dispersements after they'd finished um finished vesting. So now, a lot of those programs are not as successful. like if you try those strategies today, the the market has wised up I think um to what it means to to be on the receiving end of that and so even the average crypto DJN doesn't really want to participate in those kinds of things anymore because their scars haven't completely healed from when they were abused the first time doing it. And the second thing is that the um you know in the same vein as when I said that you know I think fees is a marketing term that's made up to trick naive users into using protocols. um words like even looping which um one of my f fellow panelists just just mentioned um is just a DeFi word for leverage right and institutions know what leverage is um and they know what a riskadjusted return is and the leverage that we give people on DeFi has a minimal return and maximum risk so most institutions don't like using these things and if they're going to take leverage they're going to do it with you know a pen and paper contract from a lender that they trust to do things that they that they want to do and even then they prefer um you know uh you know the the risk-free interest rate as a minimum which is something you usually don't get out of a D5 product.

So yeah there is you know the drop in APY is partially due to abuse right of crypto residents um that over time have learned to reject these programs and then you know the the types of APYs that institutions are now being offered that they no longer have access to those abuse mechanisms. um is now having to, you know, get these protocols to stand on their own two legs and actually find out how, you know, how productive these protocols really are. And what we've discovered is the lending protocols are doing just fine, right? There's always like apparently infinite demand um to borrow and short tokens. Um the things that are struggling are things like exchange protocols.

um even some of the um you know like perpetual swap protocols like like Hyperlquid and that kind of thing have seen reasonably good institutional adoption but again it's on the funding side right it's the they they are they found a new way to abuse gamblers right um and and that's always very very profitable so it's interesting to see like exactly where the APIs are because the APIs that you get shown on you know the front end of a protocol or something like that on the website is very very different to the API that you're getting as the institution that's funding that protocol and I think the the the difference is is you know explicit and important. Yes. To add to what Mark said. Yes. Uh in the past the basically foundation were just throwing money as aggressive incentives campaigns to the market to attract the mercenary funds.

But obviously this in in a bare market is not sustainable at all. So yeah, the all the the PY were really uh influenced by this aggressive uh mercenary campaigns and now there are a huge amount of illbeering product compared to to the past. So we are seeing a lot of eelbearing stable coin. Maybe in the past the only eelbeering product were liquid staking. So uh and yes nowadays basically every protocol interact is uh yield bearing also with pendal we have asset that generates heels uh so yeah right now we have product that generate heels by itself.

Yeah. So I'll just strip it back a little bit and you mentioned earlier like is it worth the risk and I think that's what a lot of users are asking themselves that question at the moment and yeah I guess recent incidents have obviously yeah um the kelp hack the drift hack been the two most prominent have made people ask themselves questions like is DeFi worth the risk at the moment and it seems that like even in ETCC it the talk was a lot about RWA as opposed to DeFi and I guess yeah um I think like DeFi we need to just I guess conference is just a huge thing I suppose especially on the institutional side and on the retail side as well and again just for some just to give you some stats like crypto 50% of North Koreans foreign currency income comes from crypto hacks and it contributes 10% of their GDP. So we know at the end of the day like we do need to um like make DeFi more secure whilst also um obviously staying true to its initial vision which obviously isn't easy and I think the DeFi space as it grows and matures as well there'll be a lot more sophisticated insurance products as well. I do believe that's probably an untapped market as well given that only around 1% of DeFi is actually insured at the moment. So yeah, um yeah, interesting approach to be honest with you.

I have another question because this is the uh business mainstage. This is going to be a commercial questions. Uh are you guys ready? Don't hate me. I'll buy you a beer afterwards and hopefully you'll forgive me.

But uh you know some of the uh participants here at ETL cluge some of them are uh you know geniuses and some people just want to know a little bit more and um I'm going to ask you you know Black Lock Fidelity is their presence is in any way make crypto more legitimate? I know don't hate me. Don't hate me.

Happy to start. I I don't think it makes it more legitimate, but I don't think it illegitimizes anything necessarily. Remember, Black Rockck has, you know, 10,000 fingers in 10,000 pies all over the all over the place, you know. Um I think that any it makes sense that if crypto is or was interesting and that there are um you know things that you can do there and especially from Black Rockck's perspective you know investment opportunities such as their you know ETF for for Bitcoin um that they would at least try it right and that's not to say that everything Black Rockck does is always a good idea um but they do have a pretty good win rate and I think with something like the the Bitcoin ETF um they did identify I I would say correctly that um there is a an appetite from regular people who want to take exposure to Bitcoin but refuse to use you know whatever centralized exchange you know that that that might be offered to them specifically because they know about FTX and they know about Mount Gaus and and so on and so to have someone who is I don't want to more legitimate because I think that that would be giving Black Rockck a little bit too much rope. Um, but let's say more on the hook, right?

If something like Mount Gox was to happen to Black Rockck, you know that they've got $120 billion in assets that you can sue them for. Um, and that that gives a lot of people peace of mind. Um and similarly Black Rockck knowing that they have that kind of liability are more likely to be on their best behavior um simply because there are you know hundreds of thousands of lawyers all over the world who would be salivating at the concept of taking Black Rockck to court. Um and so you do kind of get um some level of let's call it security out of that um you know mutual antagonism. And ironically that is exactly the you know subject of the PhD thesis from which Bitcoin sprung forth.

So there is you know there is at least some element here that that mutual animosity does result in security over time. Um but this is one that's much more entrenched in traditional legal structures and that sort of thing. So I don't think that it's necessarily at least um philosophically at ends with the Bitcoin thesis. Um, but at the same time, I will point out that it does nothing for, for example, the Bitcoin blockchain, right? All of the all of this ETF trading and things results in very minimal transactions actually on the Bitcoin blockchain itself, which means that miners are still largely dependent on um the block reward rate um in order to keep their mining services active.

um whereas the you know the off-chain products that are being built around it by Black Rockck and others um are being communicated exclusively through you know SQL databases and other things. So I don't think that Bitcoin necessarily benefits. I don't think that people who want uh you know a bright future for Bitcoin should look to what anything Black Rockck has done and say this is the example of of Bitcoin marching on. Um, but if you're someone who is just interested in swapping Bitcoin and speculating on it and that kind of thing, it kind of is positive. So, yeah, I think there's a it's different categories of of improvement and um yeah, it I don't think it's any more or less legitimate because of it.

Yeah, honestly, I think the same. I think that the general audience uh shouldn't be influenced by external like actors like for example okay the technology works but uh this shouldn't be uh something that can be exploited by even important actors like I I I do just an example like okay Trump launched a memecoin and uh we we knew that feeling when all the builders knew that feeling when he launched the mecoin basically it ruin the the image of our ecosystem. So but we are not that kind of stuff. We we don't do that kind of stuff. The same it happens on with the Argentinian government.

So uh if you bring and you build useful product then uh uh the the space accept you and then uh yeah you can bring more legitimacy to the ecosystem or otherwise no I mean the people uh uh shouldn't be influenced by external factor even if these actors are very important.

Yeah. Um I would just say it depends on the stakeholder. Um to be honest and obviously a lot of the stakeholders here I would say would see it maybe as a negative but yeah we can see a lot of people can take a balanced view. So like both parties can learn from each other and yeah know just um Mark mentioned a very good point about um Bitcoin. I'm just curious to know like with the Bitcoin ETF like maybe a bit off topic like but would like for from a security perspective with Bitcoin like with all this paper Bitcoin would would you be worried about that?

I'm just curious. So

sorry your your question is from a security perspective am I worried what am I specifically worried about?

So like all this all this paper Bitcoin being traded um rather than actual Bitcoin.

Yeah. So suddenly there's potential for abuse, right? So, uh, I remember when, um, the Donald Trump administration, um, first took office, the most recent time, one of the things that he wanted to start talking about was the gold audit at Fort Knox particularly, but also just the gold the gold reserves, you know, worldwide. Um, and the reason he brought it up is because it's actually well known that there is more gold ownership on paper than there exists gold anywhere. Um and the reason that's possible is because you know the the paper accounts um can you know uh can be duplicated and you know they don't have the same sort of you know cryptographic authenticity that a blockchain is programmed to have.

Now Bitcoin has that right that authenticity check and the double spending check. Um but once it transfers onto paper and becomes tradable that way you lose all of that. Now, that is a security risk for people that are trading the ETF, but it's not a security risk for people that have Bitcoin in their wallets. We're uh we're running out of time, but I do have um actually two more questions. I want to push you off the edge a little bit here.

So, um who actually wins when institutions come to DeFi? the protocols, the token holders or just the institutions themselves?

It's a super important question. Um, you can imagine that there are different sort of um there are different structures of engagement that are going to be pursued and remember we're still like this is a very PVP sort of environment. Um, and so the institutions when they show up, you know, they're they're bringing the big guns, right? And remember, they're they they act like they're your friend, um, but they are an opponent, right? They're they're there to um to drag as much value out of the ecosystem as they can, either through rent extraction because they are looking to own the protocols and charge people to use them, um, or because they have an edge that you don't, right?

So specifically like I said with things like hyperlquid certainly things like poly market where a lot of the quantitative an like quantitative um analysis talent in the world um is now being recruited by Jane Street to you know um to pursue effectively arbitrage um on things like poly market but then also in things like just simple spot trading um and if someone has access to to better infrastructure then they're going to be able to you know um to to apply uh a specific knowledge um that you don't have um in order to extract more value from you, right? And this is like naive people doing stuff for apparently no reason is institutional bread and butter. Um and so yeah, they they might it it's ironic that they get welcomed um it's like you know um you know inviting um you know a fox into the hen house kind of thing um and and being glad for it being a hen. Um but it doesn't necessarily have to be that way. Um another thing that institutions bring is I think a sense of um sobriety and things done right.

So um you know we pointed out that during 2020 2019 maybe even up to in the beginning of 2022 there I remember there were protocols popping out like maybe four or five a week on Ethereum mainet. Um and a lot of them were very bad protocols. um either because they weren't audited properly or not even coded properly to begin with um and or or or deliberately malicious. So one of the things that I think institutional interest brings um is let's say a higher bar to entry and for some people this flies in the thesis of the like sort of anarcho libertarian view of of blockchains but I actually do think that's kind of um a a necessary let's say um quality assurance aspect to to releasing a protocol. Um, and I think institutions if if they will be bringing their own protocols or if they're going to be um acquiring certain teams to develop protocols for them, they're going to have a much more sort of zero tolerance for the kinds of, you know, um, re-entry attack issues that were really common in 2020.

Um, or the kinds of really, you know, um, low IQ exploits that we've seen even this year about things like token permissions and other things. So that kind of stuff would never get past. I was I was going to say Microsoft, but I think the new Microsoft actually probably isn't the the the right opposite number to hold here, but certainly Google would never let that kind of thing pass and Amazon would never let that kind of thing pass. So I think that yeah, it elevates the the standard um that that you know that we might enjoy and this is a good thing because you know we've spoken a lot about institutional adoption up here on the stage today already. And one of the two things that's come up more than once is LSTs and lending protocols and be reminded that we're still in the wake of one of the most devastating, you know, uh, attacks that affected literally the interface of both of these things with each other.

Um so I think that yeah the the future in you know in a DeFi controlled by institutions I think would be better protocol you know um stability and security but at the sacrifice of more rent extracting and the fact that you're playing against you know an opponent um who knows more than you do and has a much higher advantage than you. So it's give and take.

Uh yes of course. Uh I mean the first the question is uh if the fight wins protocol defy

so who wins the protocols the token holders or just institutions themselves?

So I mean the protocol has to be s sustainable in the long term so as to generate revenue. So if uh you are able to attract institution a big institution of course the the protocol will generate revenue especially in a lending protocol if institutional brings their liquidity there will be people that will borrow that liquidity for example if they deposit stable coin for sure there will be people that uh will borrow that stable coin you can also enable underrise lending uh uh private land lending and uh yes as Mark said there will be more restriction in uh uh in the UX in terms of parameters on how you interact with uh with the landing environment. Uh but I think is also a good thing. Uh we as lending protocol but also other lending protocols are trying to build a safe environment without limiting too much the user experience on on the on the landing management of the position in order to ensure that people can have a safe experience. Because at at the end the the unique role of lending protocol that could be managed by a governance or a team is just to ensure that people can have uh a safe and a nice uh experience without jeopardizing the protocol.

So this is the most important thing and if institution brings uh an additional layer of security and push protocol to adopt to adopt a new uh new security measure this is only something that protocol will benefit from it. So yeah, the question who wins and I might be naive but I still think everyone can benefit and it's in some respects it's great that institutions are raising the bar um but equally have to acknowledge that we just we're at risk maybe of DeFi being a just a mere sandbox for institutions and that's where we're at and the story is still being written who wins but um yeah no um I think to build a more bottom up approach um within the industry as a whole. I think we need to have fair valuations so the token holder can win because we've had this insane high FTV culture for the last number of years. Um protocols with zero revenue and zero users launching at multi-billion valuations that was just crazy. And yeah, we just need more organic business models.

So yeah,

uh I love you guys. You kept it real. uh through the the whole panel. Thank you for that. Thank you for being transparent.

Thank you, Mark, for your knowledge. I think I learned a thing or two. Thank you, Filippo, for your uh you know um the fact that you have are opened to certain stuff and of course, thank you all for speaking your mind because I totally agree with you. Uh are there any questions from the audience at this point? You have a question?

Okay.

Hey guys. So I'm Andrew from rack and my question for you would be um six month bonds in the US are currently paying uh just below 4%. Whereas a yields for example are paying like 3.3% or 3.5.

So I'm a big DeFi maxi but I do kind of start asking myself like why defy? Like why would it make more sense for my money to be parked on curve for example where I'm being paid in a token? I mean the rewards are CRV, right? So, uh, rewards are meant to be sold. So, that's definitely something that's going down while also having smaller yields on USDC.

So, yeah. Yeah. The answer is you should take your money off of AB, right? But it's but it's the same as anything else. Like I think people um people conflate um sort of DeFi maximalism as as you have um you know pointed out and I feel this the same way so I'm not criticizing you but DeFi is just another set of markets right and so you should be um comfortable arbitrageing the interest rate um between for example you know the the four-year bond on on you know um on US treasuries um as you are you know uh arbitrageing maybe the yield that you're getting on ARB versus Morpher or Compound or wherever it is that you're deploying capital because the more people that are DeFi maximalist um that continue to tri to contribute um you know their uh collateral to for example these lending protocols the lower the yield will continue to go.

Um the idea in a free market is that it will self-equilibrate because if you're not getting the same yield as you are on the literal risk-free rate in US treasuries then you should withdraw your money and buy a treasury instead. um and that will adjust the return on on a so this is where um things like the efficient market hypothesis start to fall over because there is a cultural pseudo religious you know um lack of pragmatism when it comes to which sources of yield people want exposure to um and that's just that's nothing new right people have done this like you know I I can point out that um you know the the Swiss version of the T bill constantly is at like fractions of a percent even now and and has the risk of turning negative frequently. Um and people will still prefer um to buy, you know, a quarter% yield on CHF um than go and get a 5% from the European bank literally 90 minutes across the you know across state borders. So yeah, it it's that kind of um this is a cultural phenomenon, not a financial one. But if you are upset that you're not getting you know that yield you should just go and get that yield right and if everyone did that in an ideal case under simulation lab conditions the interest rate would be the same everywhere all the time.

Yes and just to add yeah as I mentioned it before that interest rate is also due to the recent event you know that happened to have and whatever and also because we are in a bare market so uh the the borrowing demand is not as when we are in in a bull market. So as soon as we enter the bull market you will say the the py is skyrotting because there will be demand for for for stable coin. So this will attract new depositors. Uh and yes, as I said before, there are products that generate heels uh natively. Maybe they add uh bit more of risk, but this is also uh something that you need to evaluate based on your risk uh return involvement uh evaluation.

Uh so yes, obviously as Mark said, there's also a arbitration things between platform. So maybe a is offering whatever is 4% there are other protocol that are offering more for just uh depositing. So uh there's also a exploration uh uh activity that uh each users have to perform. So we have another question here. Go ahead.

Hi my name is Stanis and my question is uh what is the defi end game? So in other words, what what the what's the dream that you are chasing? Uh as a builder or as a user? as a user is uh my dream is uh that all the people can choose to get paid in uh in in crypto and deposit in lending protocol savings products entirely on chain uh offramp without having to pay fees spending with uh direct uh payment even without passing to to cryptocard or whatever. ever just direct uh crypto to merchant uh avoiding crazy fees by uh by yeah by banks uh uh visa masterard uh so it's just a direct interaction between the the users to to the merchant but yeah as also savings option uh you you get your salary you deposit it earns uh I don't know five 4% there are a A lot of people I mean in Italy there are se more than 80 80% of the people just keep their funds on banks without even earning he on it which is crazy in my opinion.

uh there is no education on it but also maybe uh there is no uh an infrastructure that allow it right now in the fi uh yes the on boarding and off ramping it's it's something that you can do but uh there are still fees so in an ideal world it's something that will be without uh fees and uh it will be straight away deposit it uh uh off ramp uh get paid pay without even interacting with uh centralized services. So this will be the ideal world.

Yeah. Um, I guess maybe a little bit off topic, but my dream in the short to medium term is that as the industry grows and matures from a DeFi perspective that everything isn't based in USD stable coins and that we can kind of think of other um stable coins um because yeah, I think yeah, 99% of stables are denominated in USD and that presents geopolitical um consequences. So hopefully um Euro stables become more prominent in a DeFi context and other stables uh going forward. So yeah,

I don't really believe in an endgame um because it implies that there's an end of something, right? So endame is something that you have in you know a strategy where um you know that a game is going to conclude after 80 minutes or something like that. DeFi has no endame by definition. Well, I hope by definition because it's an infinite game. the um you know I I hope that as we continue um there are sort of better practices in um in in protocol design and and implement implementation and engineering um and I hope that uh people become you know less tribal and less religious about things and more pragmatic in in how they um treat D5 markets versus C5 markets.

I hope that the boundary between those two things becomes let's say well- definfined but also necessarily blurry. Um and I hope that um people that come to DeFi um start to shoulder responsibility for educating themselves on what it means to be a DI user. You know, one of the one of the characterizations that I have that I wish more people would consider is that in a CFI context, someone else is responsible, right? That you know, if if you do something um it's it's now uh you know, someone's taking custody, someone is agreeing um to guard you and nanny you right through the decisions that you're making. Whereas in DeFi, it's like, no, I take responsibility, which means every DeFi protocol that I use, I've read their smart contracts, right?

And I've read their technical docs, and I know how the blockchain works, and I know how the consensus mechanism works, and I understand what it means when Google says that they can break, you know, a 256-bit elliptic encryption curve key on Bitcoin in 9 minutes, you know, assuming that they've got 500,000 cubits. that as a DeFi user, I know what these things are and I know what the risks are and I take responsibility for someone not, you know, taking responsibility for me. Um, I think that I mean that's not really an endgame, but I hope that at some stage we do have that kind of cultural acceptance in DeFi that no one is responsible for anything that happens to you but you. I mean uh I'm seeing a lot of people that uh don't do the right ops for for custody and uh yeah this is a problem that uh yeah in a theoretical end game this should be solved. So yeah this is an important aspect when you interact with defi and we talk about end game.

Uh yeah because as I mentioned there are literary people that they don't know how to to store the funds uh to maintain in a safe environment. So yeah this

uh we have another question here. Let's do it fast.

Yeah I'm not going to take it so so much. It's just like a question I think you are talking about institutional and all this kind of stuff but every time it's just like USDT just dollars. How how do you think about like other currencies like local currencies like I I'm not from here. I'm from Colombia. We have like a local stable coin and in Bangor we had before like some liquidity pools but I was just checking and it's zero right now.

So how we can make it this like because also we host some hackathons in Colombia and there are some institutionals like financial that wants to get into crypto but they don't know nothing. and they don't feel like confident it's very I mean for me as a user if I want to go to bankor it's too much I mean I can do it but normal people cannot do it so how we can take all these institutional markets but thinking about not USDT thinking more localizable coins to be for for for the real people

yeah it's a fantastic question um and so we do like we we continue to work with um the seller blockchain um and uh you know token issuers like um uh Stabilo right which I think has had the Colombian Peso um you know uh deployed before and still has um and also things like Mento and Mntio um that you know are trying to get let's say the the whole forex market uh represented on the on the Cello blockchain um and then things like Minipe on Cello are trying to uh take out a lot of the let's say UIUX overhead on behalf of users which is the other complaint that you had. Um so certainly um these things have existed and do exist. The the big problem is is that um once these things are developed and released in general no one uses them, right? So in in some sense the and this is true of blockchain across the board. You usually have people begging right for a certain feature or saying there really should be a protocol that does this and this and this and this and when someone builds it no one shows up to use it, right?

So it it's as much uh on the users, right, on the wouldbe users for refusing to use these things that are built for them as it is on, you know, if you want these things to thrive and survive, you actually need to, you know, um to to use it. Um and if if no one uses it, they will die. So and you know, again, this is just a free market mechanic. If um you know, if it scales and lots of people want it, then it will be there. But if you specifically want it and there's only a handful of you, then these things will perish and they will disappear.

It's it's that simple.

Yeah.