On October 26, 2020, at the 7th Old Friends Reunion IOSG DeFi Summit, We invited Deniz Omer (Kyber Network), Stani Kulechov (Aave), Anthony Sassano (Set Labs), Mariano Conti, and Amir Bandeali (0x), on the theme “Cooling down after the DeFi summer: challenges and pathway forward”, to give us a thoughtful panel discussion.Full Text:
Moderator — Deniz Omer (Kyber Network):
Hi everyone, welcome to this IOSG DeFi Summit panel. I am really excited to do this. Today, I have some really distinguished guests, who is from the Ethereum world, from the DeFi world, and spread all around the world. I think everyone is like in a different time zone, so thank you for doing this. Thank you for coming and talking about Ethereum and DeFi. Because it has been such a hectic, and I would have said six months, but it has been a hectic year, two years, three years before, since we all got into this. It’s consumed so much of our lives, we’re all obsessed with what we’re building here, so really glad you know to have you all and it’s not a too long panel so if you guys don’t mind, I will just introduce you guys one by one and then we can jump straight to questions. I will start with like the furthest time zone, which is Australia and that’s Anthony, we have Anthony here from Set Protocol, he is also the founder of EthHub. He has a great podcast IntotheEther that I listen to all the time. I highly recommend it. Next in the time zone actually that would be probably me, I am Deniz, I am from Kyber Network and I am based in Cyprus. We have Stani, who is the founder of Aave. He is based in London. He has been in this space for a very long time as well. He has been building some crazy stuff and some dangerous stuff, I do not know, like flash loans and like you know, amazing stuff, thank you for that. And then we have Amir, you are based in New York if I am not mistaken?
Amir Bandeali (0x):
San Francisco
Moderator — Deniz Omer (Kyber Network):
Oh, okay so I’m not sure if Mariano is before you or not, but from here it’s like 3AM or something crazy, so thank you for joining. Amir is from 0x, they have been in the space for a long time as well. They have been doing great recently as well. And then we have Mariano from Buenos Aires, I was just like Maker Head of Contracts, but that was in the past and now he is just the official good guy. I think or he is like one of the coolest people in the space super friendly. Okay I’ll go like around my screen, I’ll just pass it on to you Stani, what’s been the most exciting thing that’s been happening in the DeFi space recently that you think is like a high priority and it’s good for the space?
Stani Kulechov (Aave):
Yeah, I mean as you said that there is so much going on at the moment, like developments and people are launching a lot of things. I think probably two most important things for me: Probably the one is the innovation. We really see a lot of different kinds of new products coming into the market and the ecosystem is growing quite substantially. So I guess that is like one of the things that when you can build permissionlessly, you will see a lot of interesting stuff and the space is so open because of the fact that anyone can build financial products now, from any part of the world. It just opens the waters for all kinds of innovation and I used to follow a lot of things that has been published and read papers and interesting products but today it’s really difficult because there’s so many things coming in into the Mainnet, so that’s quite challenging. The other thing for me what is being very cool to follow is the action on the governance side. So now that the protocols are growing substantially they basically are transforming into a decentralized governance, that is something for example some of the protocols already have been for a while Maker and for example Aave moving towards that there’s now UNI and Compound. It is interesting to see kind of how these various communities are structuring themselves and how they are organized, and all of this stuff related to governance is really fascinating for me and quite cool to follow.
Moderator — Deniz Omer (Kyber Network):
Yeah and I mean talking of governance, Mariano you were at Maker who has been attempting this governance model for years and I love the forum I love how things go kind of progress. And I think it is a great example out there, how do you think the picking up of this technology has been? Are we lagging behind because sometimes you look sometimes it might be just a dozen people who are voting? Is there kind of a problem there or like? What do you think about this space?
Mariano Conti:
So, there’s a couple of things. I think you know being so early at Maker and probably one of the first protocols that had on-chain governance, I see a lot of things that went right and then a lot of things that got a little bit stale that they’re trying to fix now. Protocols like Compound for example, they took what I think was working right and they kind of revitalized governance for you know 2020 let’s say and then that’s why I see a lot of protocols you know using the COMP token using like coalescing into you know kind of a stack that works for everybody. Projects using Snap I think that a lot of protocols are going to be using that, and it is really good, my only worry is you know governance fatigue for example, I own a lot of tokens for a lot of DeFi protocols, and I worry that you knowI cannot be informed of every single one right, and that’s where other projects that are interesting to me are the ones that are going to be aggregating or delegating voting power to so much of them because maybe I do want to vote individually on you know Maker governance but probably for UNI I would delegate to somebody else. And you know not worry so like Stani said I think on the governance side there is like a good foundation but I think there’s still a lot of room for even many new products that will you know make like life easier for me as a token holder and for delegates. That is pretty interesting.
Moderator — Deniz Omer (Kyber Network):
I mean yeah I think it’s important to recognize that the fatigue is there because it consumes so much time to absorb all the information happening in DeFi, and participating and you have like risks like impermanent loss where that might catch you out. There’s valuation of these governance tokens that how much is a vote worth you know. These are all unanswered questions. Maybe Anthony I mean what do you think about what does the curve growth maybe look like in the space, how have we been growing or like just what is your general impression kind of covering the space?
Anthony Sassano (Set Labs):
Yeah, I think obviously pretty much everything has been growing at a rapid pace. We saw the little mini DeFi token bull market play out, where I think valuations got way ahead of themselves. It really did remind me of 2017 where everyone was saying all these tokens are worth this much and really a lot of them were just governance tokens right as you said like how much is a vote worth. Well the platform actually has to have value for the governance token to have value right. If there is nothing to govern, then why would you hold the token right. There is no value in holding it, some of these tokens have claims on fees and things like that. But if the platform’s not generating any, if that has not been enabled for the token yet then you know that fundamental value is just not there. So you know that’s why we saw the kind of crash after it because at the end of the day, the emperor had no clothes for now. We are going to get to that point, but it was a lot of promises and it really did remind me of 2017, where you know even Ethereum to an extent. If for people who are around in 2017
You would have heard you know ETH2 was coming in 2017, and all these really cool things were coming to Ethereum. And you would you were buying ETH because of that and you know turns out it is actually going to take a lot longer and it has taken a lot longer right since 2017 for ETH2 to materialize. So I think that’s the same thing that played out with these tokens but as I said that’s not to say there’s not long-term value being created here, it’s actually funny that tokens like MKR that actually govern a platform that has incredible growth didn’t really see any price action during that DeFi bull market right. It actually went down so it was kind of like this weird thing, where people were valuing the valueless tokens way more than the actual ones that had fundamental value. And in hindsight it was pretty much like a good signal to say that this was not going to last.
Moderator — Deniz Omer (Kyber Network):
Yeah and I mean what do you think about looking at these valuations? Where is the market, has it heated up and popped for yield mining, and the yield farming and will the other fundamentally strong projects like decentralized exchanges, will they keep growing in size? Where do you see that, how do you see the growth coming up for these projects and for these different narratives?
Amir Bandeali (0x):
Yeah, it’s hard for me to you know, try to make a price call here or anything, but I think in terms of usage, you know we are still going to see increased growth. At least in the strong projects, but I think what really excites me about this little DeFi summer, is that it created actual real lasting users at the end of the day. I think it was a little bit unclear, if that was going to happen at first you know, when COMP liquidity mining came out, everyone was like really excited about it. But like not necessarily adding value, you are just taking advantage of the incentives in the system, and then more and more of these things started coming out. And over time enough capital entered the system, and you kind of just find yourself using these things like in your everyday life and you know at the end of the day, like right now yields have really dropped across the board. But like I am still DeFi native today whereas like before this like would still use centralized exchanges and stuff like that when I needed to right. There was still more liquidity and that is just not the case all the time today it is like liquidity is high across the board I can do things that I could not do in the centralized world. At all which is just insane. So yeah, I think you know this pretty clearly, encourages new types of behavior, new types of incentives, I think that is here to stay.
Moderator — Deniz Omer (Kyber Network):
Yeah, I think that is a great point and I mean when we look at the future like probably like the most important metric for me personally is actual number of users, you know. I don’t know how you want to measure it, but it’s not TVL right now you know, because some whales might I mean so very representative, I think mass adoption will have to come through increasing usage. So maybe like Stani from Aave. What kind of users are you seeing coming on board? What are their profiles like and, you know Metamask for example mentioned that there was one million active users using Metamask, I think I am not sure if it was in a month, but it was some high number how, what kind of people are seeing in Aave and, where is that growth coming from.
Stani Kulechov (Aave):
Yeah definitely we do not at least have one million users at Aave, and probably will not have for a long time, but I think interesting time period is that the protocol was launched in January. So, we would definitely have multiple types of usages, and I think most of the liquidity comes and is also consumed by other applications, or other protocols or smart contracts on Ethereum. And that’s kind of like interesting part I mean it’s quite developer friendly protocol and very simple in terms of what Aave is essentially it’s a money market for your deposit, then you can draw credit line or delegate the credit line to someone else. And of course, there is the Flash Loan. So, these different projects are creating interesting new functionality, it might be a way to rebalance your deposit, from one protocol to another which basically means that we are sharing user base with other protocols. With those products, and it might be for example we have specific products that are using flash loan such as the DeFi Saver, that lets you self-liquidate your MakerDAO wallet for example and then we have different kinds of arbitrage bots, that are using Flash Loans to liquidate or to arbitrage, and but I think there’s still quite a good amount of actual direct users that are using the protocol through our interface. There is currently roughly like 50 access points to Aave with different kinds of wallets such as Argent, MyEtherWallet, and you could actually access Aave from there. You don’t necessarily have to come to our user interface but one of the kind of things for us was important to have like very seamless user experience and our user experience is a bit different because our protocol slightly different for example from other protocols. And this is something that is done on a purpose because we want to maintain a different kind of a system. But also, it is always confusing for DeFi users when they are jumping from one protocol to another and seeing this kind of differences and they have slight learning curve for example when it comes to the collateral ratios and so forth. And the liquidation prices. But what is interesting here is that like in our philosophy we always tried back in even the Ethereum days to access kind of directly like the end user and try to get more adoption that way because we believe that the more users the whole ecosystem will have more. And I think this is happening all the time that there is a new protocol on DeFi and some of the users end up using Aave because they need liquidity. Let us say it might be yield farming it might be something else, or they just want to unlock their liquidity of their holdings and they basically come to us. So, our user base is very shared and we definitely recognize this kind of like a superuser type but the Aave community itself is quite diverse. So, we also have users that are just using Aave because, that’s basically the project that they follow. They understand use case of unlocking liquidity and it is useful for them. But what I see quite recently happening a lot is that one particular user might use eight or even ten different protocols, for example like, even three lending protocols, then two swapping protocols to swap or provide liquidity. And I think this is just a growing phenomenon and it is great.
Moderator — Deniz Omer (Kyber Network):
Yeah I mean it’s been so exciting to see the growth on not just Aave but 0x as well and Set protocol and just like the whole space is taking like a level up after we spent a few years building the foundations right, getting the small pieces in place, learning from different projects observing, reiterating like experimenting at a very high pace. Like Mariano what do you think is one of the biggest risks to everything that we have built.
Mariano Conti:
Risk, I’m always thinking that some piece may eventually crumble and bring everything down but the more time goes by and the more money that everybody puts into these protocols, I do think that you know the foundations are laid and most of it is like pretty battle tested right. I am a heavy DeFi user like I look at everybody here and in the last 24 hours I have used everything. I have loans in Aave I am farming DPI, ETH. I’ve traded on Matcha, so it uses 0x and it uses Kyber as well. For liquidity among others so like I trust those foundations very much. I mean in that respect I think that we are approaching not what I would call zero risk, but as safe as we can be in that foundation and then it’s what I would call almost like the Layer one of DeFi. You know the established loaning, money markets Aave, Compound, Maker the liquidity and Uniswap those contracts that what I would sometimes call it Layer one and I would recommend anybody using those right and then everything that has been built on top of that you know newer protocols that take advantage of it. Those I would probably go in with a little bit more care, but you know I think that is a good thing. We are laying foundations and as time goes by, those risks become minimized of course if you played safe right. With your health factors and collateral wages, unlike me.
Moderator — Deniz Omer (Kyber Network):
Yeah, I mean if you can figure it out right. That sometimes it is a whole jumbled mess to know what exactly is happening and then there’s this whole phenomena of these dark pools or just predators waiting to catch something that you do any mistake you do will be pounced off so it can be a very unforgiving place and Anthony I wanted to ask you like apart from these risks. Another risk we have is that the growth might overtake the pace in scaling, so we end up with 700 gwei transactions. That we had only two months ago so it’s not like a theoretical risk it does happen sometimes when there’s a new narrative it happened with little kittens like a year two years ago and now it’s with the yield farming when you look at the next six to 12 months do you see it scaling outpacing the growth and what’s coming into the space. How do you think that those two are going to progress in the next short near-term future?
Anthony Sassano (Set Labs):
Yeah, so I have taken the position over the last few months that the high gas fees are the best thing to ever happen to Ethereum. Some people do not like me for that, but I have presented you know many arguments through different mediums as to why I believe that. And really the number one reason I believe that is it forces people to basically build and adopt scaling solutions because you know while gas is cheap, there is no motivation to do that right. No one’s asking you for it, your users are not asking you for it, you do not feel the pain, so there is no motivation. But when the gas prices are as you said 700 gwei, every single person, even the whales are complaining about the gas prices. So, you know that becomes an ecosystem-wide issue and over the last I guess 2020 we have seen more scaling solutions go live than in Ethereum’s entire history. And not just like a few but like a lot of different scaling solutions right, and they are not just like test nets are actually live on Mainnet right now. And there is more going live every week. It is actually incredible I did not expect it to happen this fast but it’s kind of feels like the research was done and now the developments are being completed. And we basically got lucky that we got these ready. By the time that the network exploded in usage as it has. And even though the gas prices have come down, they are still like 30 40 gwei which is, uneconomical for a lot of use cases still right, maybe not DeFi but a lot of other things that have since been priced out. So, in terms of what I am going to… What I think we are going to see over the next few months. I don’t think that we’re going to slow down in terms of scaling because even if we don’t get that mania where it spikes up to in future again there’s always that thought in the back of people’s minds where it’s like this could happen at any point right, we could have like a new mania, everyone could go crazy for yield farming again and we’ll be back where we were.
I think crypto kitties as you mentioned was not enough back in like 2017. Because even that only lasted a little bit of time and a lot of the builders that are around today and a lot of the protocols that are around today didn’t exist back then so that was like a distant memory but now everyone’s acutely aware. And the technology is ready too so of course in 2017 the technology was not there for this. So, I am very bullish on Layer 2 going live over the next few months. We are seeing the biggest projects adopt it Synthetix is running their trials right now with Optimistic Ethereum. You know you have also got rumors of Uniswap v3 going to be launching on a Layer 2 solution. So, you know when the big players do it the rest of the players will follow. So, there are some open questions around DeFi composability. And how that is going to work in the Layer 2 world. But I think I like to call it the Ethereum scaling war effort and I think because it is such a big effort from the ecosystem, we are going to solve these problems. I do not think it is their showstoppers. I do not think we are going to just say oh, you know we could not do DeFi composability at Layer 2, it is all over. I mean there is too much value at stake. We are creating too much value every day, and we have so many new people to onboard. And I have not spoken to anyone yet. That is just like hands up you know give up. It is like okay how do we fix this. How do we get to the world where we are scaled? And we do not have to worry about anymore. Yeah and I mean just to how do you see do you think in 12 months’ time? All the projects here will actually be on a Layer two and if they do how do we solve composability on Layer two is everyone going to be using the same one. Does that solve the problem what do you think?
Amir Bandeali (0x):
Yeah, I kind of doubt that. Everyone here will be on Layer two within 12 months. And I think it is probably exactly for that composability reason. Like Mariano said he used like eight different protocols within the last 24 hours. And I think a lot of these Layer 2 solutions coming out are really exciting and promising for certain use cases, but I think it could still be longer than we think before we are able to replicate the same feeling today. So, I know this is probably an unpopular opinion but it wouldn’t surprise me if one of these other Layer one blockchains actually got some amount of traction just for the use cases that are being priced out on Ethereum today. Or like they were a month ago when gas prices were 700 Gwei just because I think most of them can support some amount of composability. That being said I think it is definitely an uphill battle and Ethereum has a really strong head start. But yeah, we will see a lot of really interesting experiments. I think Layer two solutions lend themselves particularly well to things like Synthetix where you need to deposit your assets anyways. And it is not actually changing the user experience all that much by utilizing these things. So, I think we will see it perhaps in more isolated places where it makes sense and even that will take some of the load off the applications, just still on Layer one. So overall pretty optimistic about that
Moderator — Deniz Omer (Kyber Network):
Yeah and I like how you mentioned other Layer one solution, and then we completely forget that exist as well and okay. They are all like kind of competing for growth as well, but from what I can see right now, it is not organically growing in other Layer ones. There is a lot of funding, kind of treasury that is being spent to prop things up, and I think that is one of Ethereum’s huge advantages. But Stani what do you think about other Layer ones? Can they be a threat? I mean okay I am sure they cannot be. No one can say no, it is not really a threat but which one of them and what would it take to beat Ethereum’s adoption curve?
Stani Kulechov (Aave):
Yeah, I think the Layer twos I do not see them like competing too much with Ethereum, because I see them just another level of security, in the sense that the Ethereum brings the highest security in terms of let’s say decentralized financial applications and then if you have a Layer two where you need more scalability. You have the less security, but you can always Rollup some transactions or your data into the Layer one in some extent they actually support each other. And at least that is how we see things, that how we have been looking because the thing is there is so many interesting Layer two solutions. It is even difficult to say which one of those will become the one that is going to be used very much and that there is composability. So, one of the options is that like you deploy the infrastructure in many places but then there’s the technical challenges and the maintenance of those because not just you have one place to maintain security, but you actually have multiple venues and that becomes problematic. I think they are like supplementary; you know and as Amir said that some of the applications like for example trading, where you might have the isolation Layer 2 is perfect for that. For us at Aave we basically try to follow where we are a secondary lending market, so we go there where issuers are stable coins and liquidity which is trading yeah and then after that we can basically follow where the liquidity is and build additional infrastructure. But so many options now it is just like I would like to work with all of them and just like we do not have enough resources. But so many cool things happening on Layer 2
Moderator — Deniz Omer (Kyber Network):
Yeah definitely. And I mean we have to wrap it up. Someone asked one last question I will just open it out there: there might be people coming into this space right. And there are like every day they are coming into the space. What would you guys want them to build? Do people come and just copy paste Andre’s smart contracts and build crazy stuff or would you guys rather they do something else like what would be the best use of their time maybe we can help guide people like completely new to the space and just trying to follow people and trying to figure out what to do and how to contribute to Ethereum.
Anthony Sassano (Set Labs):
There is so much that they can do, if that is the problem right, there is so many unsolved kinds of issues at this point. But if we are talking about bringing in new users probably a lot of it has got to do with maybe not so much building, but like educating. I think you know I am a big proponent for education. I spent a lot of my time doing I think that is the biggest thing at this point. We have not enough people building interfaces into these things at this point. There is so many different mobile wallets you can access right. There is so many different DeFi interfaces, you know you have got Zapper and Zerion and things like that. I do not know how much value someone would add by building another one of those things and trying to compete with the other ones. I think you know there is always a market for education or you know like people out there looking to learn how to use these different things and then you know you teach one person and then they go teach all their friends right so it’s not like you have to teach everyone. You only have to reach certain people who go on to teach everyone else, and then you can lean on what other people have already built. You can get those mobile wallets, you can teach people how to use them, and then everyone just learns like that. That is what I would say new people should focus on. I mean it depends on what kind of person you are as well. If you are a developer, maybe you want to educate other developers right. You want to do developer education. If you are like me and you know you’re not a developer, you’ll do like just basic ecosystem education and you’ll put together updates for people and keep people in the loop and things like that. But yeah that would to me. It seems the highest impact at this point in time but yeah, I’m curious to hear what other guys think.
Amir Bandeali (0x):
I think like you said, there are a ton of different interfaces out there and sometimes it is kind of hard to differentiate. But I think building interfaces for users outside of the space can hit the right combination of education. Plus building a useful product in a way so I do think we need a bit more focus on UX. I think for a lot of applications. If you are from outside of the space and you just view them for the first time, you are going to be so confused as to what is going on. Sometimes it feels like people are building for the same group of DeFi users. And it is adding significant amounts of value for those users. But at the end of the day we do need to grow the space. I think that the number of users is the most important thing.
Moderator — Deniz Omer (Kyber Network):
Yeah it sounds like we are all super bullish about Ethereum. We are all really excited about its future and we do accept that it has risks and challenges. And yeah, I would like to thank you all for coming. Amir sorry for keeping you up so late. Thank you all for sharing your thoughts. It has been really interesting diving into Ethereum and always talking about crypto and decentralization and governance. So yes, that was very enjoyable.
Thank you!
🦄 About IOSG
Founded in 2017, IOSG Ventures is research and community-driven with offices across China, US, Singapore and Germany. We focus on Open Finance, Web3.0 and cross-chain ecosystems, investing in teams with top potential worldwide. Our portfolio covers more than 60 projects, including Layer-1 blockchains (Near, Polkadot, Cosmos), middleware (Celer, Raiden, Reach) and applications including Defi (MakerDAO, Synthetix, UMA). We have been actively involved in various developer & DAO communities. We believe in long-term partnership and we work closely with our portfolios to advise and support them along their journey of entrepreneurship.
If you would like IOSG Ventures to consider your project, please send a summary of your project along with a pitch deck and/or white paper to [email protected]
Follow us on Twitter.
