Bankless - 11 - Going Bankless with Compound | Robert Leshner

Episode Date: May 11, 2020

Episode: #11 May 11, 2020 Your savings account, your high-yield bank deposits, a CD. Can we replace these bank functions with a protocol?  Compound seems to think so. Compound is a two-sized money robot that provides borrowing and lending to create something new: interest. Learn what it does, why it's powerful, and how it's evolving as we talk with Robert Leshner. We even ask if there's a way for the community to get its hand on some Comp tokens and start shaping the future of the protocol. We cover: What you can do w/ Compound Power of programmable interest How Compound's different than: WellsFargo (traditional banks) Maker (other procotols) BlockFi (crypto banks) If crypto banks will out-compete DeFi How you can get COMP tokens Future of protocol politicians The protocol sink thesis Robert's biggest fear for DeFi How the Bankless community can help This is our final of three episodes in the "King Money Protocols Series" where we talk through the three most important DeFi protocols. Catch up on Episode 10 and Episode 9 if you missed them.    Before the episode begins we also talk about: Tron stealing our tax money What wBTC backing means for DAI ----- Tools from our sponsors to go bankless: Rocket Dollar - tax shelter your crypto ($50 w/ "BANKLESS") Monolith - holy grail of bankless Visa cards Aave - money lego for lending & borrowing DYDX - trade, margin, BTC perpetuals (10% off with this link) (trade.dydx.exchange/r/bankless) ----- Resources discussed: Compound protocol - interface Dharma - build on Compound Compound governance - interface Ryan's voting record - two votes! Read: How to get a Dai savings Rate - include Compound ----- Episode Actions: Try earning interest on Compound Stay tuned for governance opportunities: Here's how Bankless plans to govern Give Bankless a 5-star review on iTunes right now! ----- Subscribe to podcast on iTunes | Spotify | YouTube | RSS Feed Leave a review on iTunes Share the episode with someone you know! ----- Don't stop at the podcast! Subscribe to the Bankless newsletter program Visit official Bankless website for resources Follow Bankless on Twitter | YouTube Follow Ryan on Twitter Follow David on Twitter

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan, Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, we have an absolutely fantastic episode with Robert Leshner from Compound today. This is going to be an episode on how to go bankless with Compound. What did you learn from this episode, man? There were so many topics that got dropped in this episode that I haven't heard anywhere else. And so it was really a treat to get Robert Lesher on to talk all about compound.

I really enjoyed learning about the kind of the design ethos and parameters of the compound protocol, how it came to be and why some of the decisions were made in the way that they were. And so Robert, he's the founder of compound. And so he goes all the way back and kind of explain some of the choice. in the compound protocol, the ethos of the system at large, and how and where compound is going to go into the future. And so Robert's a really smart guy, sharp as attack, really saw the vision for Defi, I think, earlier than most people. And he has led compound with that vision.

And I think he hit that vision, that nail on the head really, really well. So, you know, tip of the hat to Robert for building something really powerful in this space. We touch on topics such as the Protocol Sync thesis, which me and Ryan are harping on more and more and more. And Robert really, really resonated with that. And so we're going to, we talk about that. And we also talk about what it means for a system like compound to be fully autonomous, but also governed by, you know, a set of community stakeholders. You know, these are topics that we all, we always knew we're coming in the horizon with compound. and it's starting to look like the arrival of these things like compound governance is just right

around the corner. So I'm really glad to have recorded this episode with Robert and gotten it into your guys' ears. I even felt like we got some insider information here that's actually dropping in this episode about how compound tokens could be distributed in the future. So stay tuned for that, guys. You will not want to miss it. But before we get into that, David, we should talk about our sponsors today. So the first is a favorite Rocket Dollar. This is for our U.S. listeners. So if you have an IRA or a 401k, chances are it's inside of a brokerage like a Fidelity or a Schwab account. That means inside the brokerage, you don't have good access to crypto. If you want to buy crypto, you have to pay 5x the price. That is crazy. You're getting ripped off by doing that.

What you need to do instead is break your retirement account out of jail. We've got a post on how to do this on bankless. It's one of our most popular posts. I will include that in the show notes. But you could go to Rocket Dollar. They can help you get what's known as a self-directed retirement account, either an IRA or 401k. They help you with the paperwork. They help you with all of the pain. They help you break your retirement account out of jail. Once it's out of jail, you can buy crypto wherever you want on Gemini, on Coinbase in a tax-free account. Super powerful. You could go to Rocket Dollar.com to check that out. Use the code bankless to get $50 off. That's bankless to get $50 off at Rocket Dollar.com. DYDX is one of my favorite DFI applications on

Ethereum. And that's because of just the magnitude of things that you can do on DYDX. You can spot trade, margin trade, you can borrow and lend. And coming soon are perpetual swaps. D-YDX has originated over $1 billion in loans over the last year and has half a billion dollars in trading volume. I personally, I like to use DYDX to leverage long when I'm feeling particularly bullish, but other people I know in the crypto ecosystem lend out their dye inside of DYDX to people like me who are borrowing it to go leverage long. Like many applications on Ethereum, there are two sides.

There are the speculators and then there are the people that are lending the funds. to those speculators. And so DYDX can be what you need it to be based on your own personal finance needs. And so if you are bullish, you can leverage. And if you are looking just to save your die, you can lend. And something that's coming new is bringing Bitcoin to Defi through perpetual contract markets. And so soon you'll be able to have price exposure to Bitcoin inside of the DYDX exchange. This is launching at the end of this month in May. you can sign up for the alpha right now. And a special offer for the bankless listeners,

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David, we're going to get started with the episode in just a few minutes. But first, I want to talk about this. something that's really just pissed me off. I found out today, there's an article published by crypto publication called Decrypt, that Tron is actually getting some taxpayer dollars, U.S. government taxpayer dollars from the PPP program. You know that loan program that was supposed to go to small businesses? Well, the Tron, a Tron subsidiary company based in the U.S. applied for it and they're getting $2.5 million worth of loans from the U.S. government. These are forgivable loans.

Like, what's up with that? What's going on, man? If this doesn't illustrate why money and value systems should be put onto public utility systems like Bitcoin and Ethereum, then I don't know what's what. The money printer just went for there's a bunch of money being handed out for small businesses. but because money and money value transfer systems are inherently political, people like Tron can pay their accountants overtime with their TRX that they also just printed out of nowhere to fill out the forms faster than all the small

businesses who are struggling to pay their employees and have other things that they need to tackle. So once those accountants filled out those forms super fast and get them submitted, the Tron Foundation can get those money printer bucks. So if this doesn't illustrate why we are trying to be a bankless system, turning money and value transfer and value management systems into public utilities that are credibly neutral and inherently apolitical, then I don't know what will. So for those of you who are not familiar with Tron, it is a copy and paste of Ethereum. It's run by a self-obsessed marketing guru named Justin's son. I mean, really, we never talk about it on bankless because I'm, there's no reason for you to really know much about it. And we don't like tarnishing the bankless movement with projects like Tron. They're just not worth your time. But this one infuriated me enough that I thought we had to talk about it because it's more of an example of, you know,

being in the money spicket and getting access to government funds. When there's a Fiat system and it's set up to distribute funds, it's not set up in a credibly neutral fair way. And whoever is closest to the money spicket. As you're saying, David, whoever has the banking relationships, they're the ones that are going to get the funds. The funds aren't even going to the small businesses necessarily. Public companies are getting them in some cases. And, you know, Tron, companies like organizations like Tron, which are complete scam projects, are getting them in other cases. The super ironic thing about this is that Tron could, can print their own money, too. Like, they also have their own TRX money printer.

So, like, they're going to the other money printer and just collecting those funds, but they could have printed their own TRX anyways. And so, like, and the other thing that I think we should all really just be aware of is, like, the federal government and the political organization behind the U.S. dollar money printer couldn't identify that maybe perhaps Tron wasn't a viable candidate to receive these funds. Like, we're not vetting people enough to identify that maybe Tron doesn't, Tron, the owner of their own money printer, doesn't need funds from the federal government that could have been much more suited to other small businesses. There are thousands, hundreds of thousands of small businesses throughout the United States that actually are desperate for funds. There's a story I heard on Planet Money, which is a fantastic legacy podcast,

about a local business that I'm very familiar with called, Molly Moons. It's a local ice cream shop here in Seattle, and they interviewed the founder who applied for a $300,000 business loan through this program. And because they ran out of money, they gave, they gave her a loan for $15,000. And when she got that notice, she said on the podcast, that she just opened that up and laughed because $15,000 would do her absolutely nothing. She had, she has multiple change, multiple employees, and it's just laughable. And then, meanwhile, Tron, this chain run by this self-aggrandizing like borderline scam artist is getting money from the federal government.

And like maybe perhaps this whole federal reg government controlling the central, the money of the United States isn't working the way that we hoped. Yeah, I'm kind of with Ben Hunt from the Epsilon Theory newsletter. He says, burn it the F down. Like, that's how I feel when I see stuff like this. And I think the reason there aren't protests in the street is because most people don't know that this kind of thing is what's going on. They don't know that their government fiat system is basically getting looted by organizations like this and by those that are printing money. And it's not even that the Fed or the bankers who gave these funds are the ones necessarily at fault.

I mean, they're all part of a system that incentivize. and leads to this outcome. So, guys, I mean, that's why we're on the bankless mission is because there should be a separation between money and state because we think there is a need for credibly neutral protocols to play a role in our financial system. We think that fair finance and fair money should be accessible to anyone with an internet connection. Just another reminder of that.

Let's talk about something different, David, because I know you have some opinions on this. So we talked about the Maker Protocol in episode 9 a little bit, how to go bankless with the Maker Protocol. And at time, we talked about some collateral that was used to back die, a collateral. The primary collateral is ETH and was ETH and still is ETH and other tokens as well. But a new token has just been added recently called WBTC. So that is a wrapped custodial version of Bitcoin. So it's not as trustless, of course, as something like Ethereum, not even close.

It's actually custodied by a crypto bank of sorts, a BitGo, sort of a custodian provider that is custodying the assets. It's not very trustless. What's your take on this, David? Is this a good thing or a bad thing for Maker? And is it a good thing or a bad thing for Defi? So I think we should all take a step back and look at the fact that there is now Bitcoin inside of MakerDAO.

And when we view the crypto industry and especially the defy industry from Bird's Eye View, like, that's incredible. That's a really incredible, like, innovation. We finally got Bitcoin inside of MakerDAO. Is this the final form of Bitcoin in MakerDAO? Probably not. Definitely not. I hope not.

And so is this a good thing? Absolutely it's a good thing for today's version of Defi. If this is still the way that it is in two years, five years, ten years, then definitely not. The truth is that centralization makes things go faster. And so WBTC wrapped Bitcoin by BitCo inside of Defi is not necessarily the trustless crypto economic protocol future that we're envisioning. But how else are we going to get there if not dipping our toes in experimental ways by using centralized mechanisms first.

And at the end of the day, people, at the end of the day, we need to realize that this is a journey that we're going on, and not the final destination doesn't happen tomorrow. In fact, the final destination never actually ever happens. Defi is always going to get better and improve and get stronger. And this is just the first step of many to this maximally successful Maker Dow protocol. Okay, David. So now, like, 80% of dye is still backed by ETH, right? But let's say, you know, 2%, maybe 5%, maybe even 10% at some point in time, starts getting backed by these more trusted assets. What does that do to the banklessness of die in your mind? Yeah, this is a really good question. So, you know, die that's backed by ether is like the most pristine, most trussed.

trustless version of dye. But I wouldn't say that, and now, and then right now, there's 99 million die that's backed by ether. There is 12 million die that's backed by USDA, half a million die from bat and 100,000 die backed from WBTC. So it's, yeah, like, it's largely ether, but, you know, this, this trend is trending away from ether. Now, I think people need to remember what the whole point of MakerDAO is. The MakerDAO protocol is a risk filtration system, as in you put assets in, and then MakerDAO takes the risk from those assets, and it puts it into MKR. And then the remainder is what you get is die. So with die, you get no upside, you get complete stability, and you get no risk. You get minimal risk. And then all that risk is put into MKR. And then if the MakerDAO system is

working well, then die should be as risk-free as possible. Risk is something that you can engineer out of a token, and that's what happens with die. And so when we talk about, you know, dyes issued by the centralized asset WBT that can be burned as as seen fit by the BitGo system, or the same thing with USC, then people are saying, well, then this, these characteristics of the collateral are then exemplified in die. That's not true. It's, exemplified in MKR. That's where those centralization risk is. MKR holds all the risks from all the collateral inside of its system. And the whole point of MKR, of MakerDAO, is to appropriately manage risks with the skin in the game, which is the MKR token. And so when people say that, you know,

MKDai is now centralized, what they really should be saying is MKR is now centralized. And it's taking all the centralization risk and putting it into MKR. And so if you don't want, if you don't like that centralization risk, the answer isn't to not buy die. I think the answer is to not buy MKR because you are saying you're making an opinion that the centralization risk is bad. And so I, you don't want that risk. And so then don't buy MKR. But die should still be okay. Dye should still have the qualities of a risk-free, stable asset. I suppose with Dye, if one of those assets got seized, for example, BITGO decides to seize all of the Bitcoin and the value that decreases to zero,

then what's going to happen is Maker holders pay the price, right? Because Maker gets inflated. So as you're saying, it does sort of shift that risk, you know, back over to Maker and not necessarily in the hands of a dieholder. That said, we've talked about it so often here, David, that this is going to be a Darwinistic survival of the fittest emergent ecosystem of stable coins and assets. I do think that it's going to open the possibility for a more,

a single collateral, completely trustless, maybe more muddy robot, maybe less governance type of stable coin on Ethereum at some point. I'm not sure what way, shape, or form that takes. I'm aware of a few projects that are kind of working on something. But what will happen is another asset will emerge that might be a bit more trustless than die. And those assets will kind of battle it out. And I think net net, the bankless community wins from these experiments being pursued from multiple vantage points and in multiple ways. So that's a good thing. Yeah, I definitely agree. There seems to be this really strong demand for this maximally decentralized, maximally trustless version of die. I would

remind everyone that the Black Friday or the Black Thursday events that occurred happened very much because dye was only backed by ether. I mean, there was some die from bat, but a negligible, negligible amount. And so this trustless and decentralized, total, maximally decentralized version of die comes with its drawbacks, comes with its weaknesses. You know, a dye that can be backed by real estate, WBT, U.S.DC, basic attention token, you know, realty tokens, hopefully in the future, that version of die is going to be far more liquid and far more stable, which is the whole point of dye in the first place.

You know, die is first and foremost supposed to be stable money, and stable money is liquid money. You need to have liquidity in order to be good money. And the dye that has a large set of distributed collaterals will always have less risk and more stability than any other stable coin. And it's also worth noting that like say die has like, say, say, die has like 10, 15, 50, 100 different centralized assets inside of the MakerDAO protocol that's backing it. Well, if they're all centralized, they're all going to be centralized in a different way. And so the centralization risk from one doesn't bleed into the other. And this kind of goes with like the Oracle system, right? Like if Coinbase, the centralized

company, Coinbase has an Oracle and then the centralized company, Binance has an Oracle, and then the centralized company Circle has an Oracle, the Oracle's are themselves, decentralized, even though they're propped up by a bunch of centralized actors. The same phenomenon works in die. If dye is propped up by a thousand different centralized collaterals, well, then die is still decentralized because it isn't just this one single homogenous centralization risk, right? You don't get to add those things together.

Those are separate centralization risks, which makes them somewhat decentralized. Yeah, absolutely. And whatever happens, I am looking forward to seeing the stable coin asset wars in the coming years. I think it'll be a net benefit for the community. Hey, maybe even compound might, through its governance process, might throw a hat in the ring there. We'll have to see. All right, we're going to get into our episode with Robert. But first, we got to talk about our sponsor, Monolith. Monolith gives you the ability to spend die wherever visa is accepted all over the world. The defy card by Monolith allows you to have die.

a smart contract wallet, but then be able to swipe your card at any store and then spend that die in the real world. It allows you to have a little bit of the Ethereum network in your pocket as you go about and do your daily business. You know, crypto, it's not really the most intuitive platform. It's not really something that's very easy to use, but things like the monolith defy card make Ethereum very tangible and very integrated into the world at large. This way, you can live a bankless life without having to compromise with the tools that you use. So you can download the app at monolith.xy-Z and get your bankless visa card today and start putting some of the economic activity of the world on Ethereum with your monolith visa card.

Another bankless tool you absolutely have to check out is AVE. AVE is a sponsor of the podcast, and they are a lending and borrowing critical on Ethereum, similar to compound in some ways because you could lend to it, you can put your dye into it, it will take that die, it will transform that die into an interest-bearing asset that you can carry around with you. You can do that with dye, you can do that with ether, other ERC-20 protocols as well. You can also borrow from Ave. Now, when you borrow from AVE, you can select an option to convert your variable rate loan into a fixed-rate loan, so you know exactly what you're paying on a given time interval.

Developers, you've got to check out their flash loan protocol. That's being incorporated in all sorts of developer tools right now and in all sorts of other interfaces. Go to AVE.com and deposit your crypto to start earning and borrowing. That's AAAVE.com and check it out. All right, guys. Let's go ahead and get right into the episode with Robert Lechner of Compound. Welcome to episode 11.

David and I are really excited about this. We've got Robert Leshner, who is the founder of the compound protocol, one of the big three king protocols, D5 protocols, as we've called them in this series. Robert, welcome to bankless. Glad to be here. You know, Robert, I think it would be super useful if you just give our listeners an overview of how you got into the compound project. Why'd you start it? What was the need that you saw and the interest that you had. Well, it's funny that you asked the interest that I had. When I looked around at the space, one of the things that I saw, and this was in 2017, was that everybody was focused on the speculative and trading sides of crypto, focused on the price of given assets. And there was

less of a focus on how those assets would be used, exchanged, and transferred over time. And interest, when you boil it down, is the ability to use an asset. set in a capital-efficient way to use it for a productive purpose. And an interest rate is really the price between two different counterparties and how they each value its usage over time. And we saw everyone focused on the spot or the current value of an asset and very little on the future value of the asset and using the asset. And so we decided to build an interest rate protocol because we saw it as a very important

missing building block in the space. And three years later, we're finally at the point now where, they're starting to become this concept of, you know, crypto assets having interest rates and being able to participate either as a supplier of the asset or a borrower of the asset, very frictionously. So, Robert, you wanted to create essentially, you saw a need to create sort of a, we might call it a money Lego, but a money Lego for interest then. And, you know, you didn't see that need being fulfilled.

Maybe we could just level set for our listeners too on, you know, just some compound 101. So what can people actually do with compound? So if I'm somebody who's interested in going bankless, I have a Ethereum wallet, what can I actually do with the compound protocol today? So compound creates a short-term interest rate for different crypto assets. So if you have ether or the stable coin die or a token like basic attention token or zero X, you can supply it to the compound protocol to earn an interest rate. Now, this is not a lot of, loan and there's no duration of this interest rate, you're earning a short-term variable interest rate. So as supply and demand in the market change, if there's more people trying to earn interest

or there's more people borrowing, the interest rate available to you changes as well. So what you are receiving as a user is a variable interest rate that you can participate in whenever you want and for as long as you want. So this variable interest rate, how is the interest rate? How is the interest rate? interest rate for any two assets decided? For a given asset, the interest rate is set based on an interest rate model, which is an algorithmic approach to coming up with the appropriate interest rate. The alternative approach that some systems may use as an order book, where people essentially negotiate through trading on what they find to be an efficient price. Compound doesn't work that

right. There's a model. The first models for the different assets were originally designed by our team, and over time, these models are going to be increasingly generated by the community. But there's basically a model that runs each interest rate for each asset. The interest rate on ether is different than the interest rate on the stable coin die, which is different from the interest rate on a different asset. And these models take into account really just two things, supply and demand. It's similar in some ways to how the Federal Reserve takes into a account the supply and demand for money and an economy when they set the interest rate. In this case, though, it's just a math formula. And it runs completely autonomously. And every 15 seconds, which is

an Ethereum block, in which the conditions in one of these compound markets changes, the interest rate will change ever so slowly. So, Robert, you said autonomous and you said that users are actually interacting with a smart contract, some code, rather than with an order book, almost interacting with the money robot. And we talked about this in episode 10 with Uniswap, but I'm noticing sort of a trend across our big three DFI protocols, you know, Maker and Uniswap and now compound, that none of these are actually order book type protocols. It's all sort of an interaction with some sort of a money robot interaction with some code. Is that really the killer app for defy? Why is that, why does that seem to always rise to the top and be so successful?

Yeah, so I think one of the reasons why we're seeing this succeed is that it works in what I would call single player mode. You know, if the system is built and the money robot is coded correctly, it doesn't necessarily require the participation of many other users for you to be able to have the financial service that you would like. It allows you to sort of play on your own, to see the service being offered and to interact with it. It doesn't, you know, necessitate other users with the exact opposite view of the exact opposite. at time coming in to match with you in any way. So it's significantly more efficient for, you know, the level of defy that we're at today. The way I viewed this is a, that defy has definitely settled on a peer to contract model as opposed to a peer to peer model. And way back when, all the way back in 2018, there was Dharma, which was going for a peer to peer model of

lending, where two parties would find each other with an exact agreement. of the exact inverse agreement. So one person was lending at 3% and other somebody else was borrowing at 3%. And those people would get matched. And we found that Dharma, that was just not in a very efficient model. And so it seems to be that the peer to contract model

where there's one person, as you, as you, I really like the single player illustration, one single person interacts with a contract. And that contract to me is operating as Mr. Market, right? Mr. Market comes every single day and knocks on your door and says, this is the rate that I have for you today, take it or leave it. Is that the way that you view it? Yeah, that's exactly right. I think you summarized it well. The contract aggregates a lot of market activity from many different users and standardizes it into a format by which a single user or participant can interact with it instantaneously right away, where the second the Ethereum transaction is mined, the interaction with the, the interaction with the, system is effective. You don't have to sit around waiting for anybody else. So that's a really efficient model because not having to wait for a counterparty to take your trade just means that you can

get your trades executed instantly. But ultimately at the end of the day, a human does have to be in the process somewhere, right? And this is true for Maker Dow and for Uniswap as well. So even though that the algorithm for determining the rates is autonomous and runs autonomously, designing that algorithm is a human-based endeavor. Can you talk about some of the decision-making that goes into designing the algorithm and what makes a good algorithm versus a bad one? Yeah, that's a great question. So, you know, the compound algorithm itself hasn't really changed too much over the last

couple of years. At its heart, it's relatively primitive, where there's a very basic concept where when there's more demand to borrow an asset, the interest rate goes up. And when there's less demands to borrow an asset, the interest rate goes down. That's at its heart what it does. The design of this, you know, to get to something so simple was actually quite a lot of work. You know, earlier, you know, visions of how a compound would work were actually significantly more complicated. But what we found was that, you know, over time we're able to strip away everything except the most basic, you know, simple formula, which is essentially a straight line,

where interest rates increase as a function of demand. So, Robert, it's funny that David mentioned Dharma because now Dharma is actually building a smart contract wallet, and they're leveraging compound in order to do that. They're almost a onboarding service to the compound protocol. Is that by design? Are you guys making compounds so that other protocols and other money Legos can plug into it? And like what are the most interesting, I guess, projects that you've seen being built on compound? Yeah, that's a great question. So when I think about who the user of compound is, I actually don't, you know, visualize, you know, a person with an Ethereum wallet, you know, sitting at home at their, you know, office computer, you know, interacting directly with

protocol. We envision that the users of compound are actually other developers and people building applications themselves. One of the great things about smart contracts is the users can be people or other smart contracts or other applications or other financial products. And, you know, compound when you boil it down, it's just an interest rate. And it's a series of interest rates. And anyone can incorporate this. We think that the best, you know, products are ones that developers can build on that simple concept. Take the compound interest rate and build it into a larger, smoother, better product for a consumer. And we're starting to see that with applications like Dharma. We're starting to see that with people building compound into other

tools and other services where it's just an interest rate. We're seeing it wind up in automated market makers like curve. We're seeing this interest rate evolve from being something that you is an individual access to directly to something that you access indirectly through other products. And that's really exciting. Since day one, that's always been our vision, is that, you know, the primary users of compound would be developers. Would you say that that was the motivation behind the C tokens where, you know, in compound V1, if you wanted to get interest on your die, you would submit it to compound.

But now with V2 and the introduction of C tokens, which are compound tokens, which are tokenized, versions of what is in the compound contracts, you can, instead of depositing dye and getting interest rates, you can just buy C-Di, and then that's basically using compound, but as a token. Is that kind of the design motivation, or is there something else with that as well? That's exactly right. So what's really funny is, you know, as a developer, you know, compound version one, which did not have C-tokens and compound version two, which does have C-tokens, are functionally very similar. It's just that C-tokens. It's just that C-todon-1, which did not. tokens make the programmatic ability to transfer and manipulate balances easier. It makes it easier

to understand and easier to visualize. You could always, you know, build an application on top of compound that had complex routing of balances. C tokens just make it easier. In a lot of ways, you know, when you squint, you say, wow, compound, you know, V2 is totally different because you've tokenized balances. It's almost no different at all. You know, you could always manipulate balances. This just makes it simpler and easier to understand. And it's exactly why we designed C tokens. We wanted it to be easier to transfer and program the balances inside compound so that, you know, it could be more easily adapted as a building block in other people's products. So just so listeners are understanding this who might not be familiar, I'm familiar with C tokens, right? So if you take a,

you could take a token like Eith or take a token like die, you deposit it in compound and you get back the C token, which is the exact same. same asset, it's an ether die, only it's now interest bearing. So it's got that interest money robot that you've been talking about, Robert. It's got that feature attached to it. So as long as you're holding the asset, you're always occurring interest. You know, to me, this is kind of like a paradigm shift because in the traditional banking system, outside of programmable money and outside of crypto money systems, it doesn't work like that at all. So if I have a savings account at Wells Fargo, You know, and maybe I'm receiving, I don't know, 0.1 interest, a 0.1% interest rate, sadly, because interest rates are so low.

But my savings account is tethered to Wells Fargo. Like that interest rate is very much tethered to my account, my relationship with Wells Fargo. It's not composable. I can't take that interest rate and that asset out and, you know, move it somewhere else. Is that the killer feature of all of this programmable money stuff? I think it's one of many killer features. If other developers and startups were able to program and manipulate your Wells Fargo balance, you might see some radically interesting new financial products emerge.

But it's just too difficult to do that. You'd have to first withdraw it to another account, potentially belonging to the software developers or their new product in order to manipulate the balance. C token is just, it's a great analogy. It's like as if your bank account balance was able to be used by other applications more easily. So Wells Fargo is a place that receives deposits from users and then gives them an interest rate. And then it also allows people to take credit and then it charges them an interest rate. And in some way, some of the credit or some of the interest being charged upon people taking out a loan is paying people that are depositing their money inside.

of Wells Fargo. However, with my credit card, I'm paying, you know, 24% APR. And then on my bank account, I'm receiving 0.1%. And like, there are other loans that aren't so egregious like a credit card, like, you know, a small business loan that's 4 to 8%. But the point is, like, Wells Fargo has has this insane discrepancy between the payments being laid, being paid to the depositors versus the payments being paid or charged to the people that are borrowing. And so compound I see as this, it's a money market, right? So it's connecting borrowers and lenders directly with a protocol. And it's totally being, it's intermediating, this whole system,

cutting out the middleman and just connecting borrowers and lenders directly in this bankless system. Is that right? In a lot of ways. There's a couple other differences that sort of explain, you know, why there's not like a 20% spread between, you know, what somebody's paying to borrow an asset and what someone is earning to supply to the market. The first one is that there's, you know, unlike a credit card loan, there's lower or no expectation of defaults.

So with a credit card loan, you know, there's a lot of risk involved in the borrower, you know, making sure that they, you know, continue to have a job and are able to meet all of their payments. There's always an expectation of small sales. The borrowing that occurs in compound is actually, in some ways, some of the safest borrowing that we were able to design. So the way it works is you can borrow any asset from the compound protocol as long as you supply and maintain more collateral than what you've borrowed. And this allows people to interact with compounds very quickly, very easily, and in a very standardized format. There's extremely, extremely low risk of default because the users are maintaining more value in the system than what they're

taking out. And so the interest rates don't have to be punitive because they don't have to accommodate, you know, the expectations of defaults and losses in the same way as lending to a consumer. You know, in the same way that the interest rates on mortgages, which are secured by houses, which are great collateral, are significantly lower than unsecured loans. So, you know, having great collateral that's extremely liquid and accessible is the first thing that brings down cost. The second is really the automation. A money robot, as you guys say, is replacing all of the operations, real estate processes and costs of other approaches to borrowing assets. It's completely programmatic. It's completely automated. And it's completely standardized. And it's instant.

So the cost is essentially zero to, you know, facilitate somebody borrowing from the protocol. And those are the things that really, you know, start to disintermediate existing processes. So Robert, you mentioned something in there I want to zone in on because I think we're going to spend some time later talking about the comp token and governance and that sort of thing. But use the phrase good collateral, right? Yep. So what makes good collateral for compound? So good collateral is one. where there's a transparent value. Everyone generally agrees on what it's worth. Two, there's

liquidity. If the protocol has to, you know, incentivize people that seize the collateral, then it's able to be sold. It should be relatively liquid. And lastly, it should be relatively stable. An asset that doesn't move in price that much is significantly better collateral than an asset whose price, you know, jumps around in extreme fashions. So those are the three things that make good collateral. Right now, in terms of Ethereum and what's occurring on chain and DFI, you know, Ether is currently, in a lot of ways, the best collateral. It's very liquid. It's very easy to agree on what the price is. And it's a standard that everyone can sort of agree on. And so, you know, that's the best collateral we have today.

Over time, as more assets become tokenized on Ethereum, there's going to be other assets that might be just as good, if not better, collateral. We see stable coins rapidly emerging. You know, they also meet the criteria of, you know, being transparent, being liquid, and having a price that's actually quite stable. We might see more traditional assets and securities over time emerge on chain. we might see bonds and equities emerge on chain. Those things are also great collateral. I think we're going to be surprised by all the things that wind up, being able to be accessed by a protocol like compound as collateral.

And so this is going to evolve over time. I think the assets we have today will not be the assets we're using in 10 years. And as long as something meets those criteria of being transparent, liquid, and stable, it's great collateral. Very interesting. I want to earmark that to come back to it when we talk about governance because I know governors of the compound and the comp token specifically have a role in actually selecting what collateral goes into the system. So let's bookmark that and come back to it later. But what we're kind of tying this off for folks that are just learning about compound, there's maybe two other systems.

I'd like for you to compare it to, Robert. So we talked a little bit about traditional banks and Wells Fargo and how compound is. different there. I think the listeners probably grasp that. But we've also talked in a couple episodes, episode nine, about the maker protocol. And there is borrowing and lending, of course, with Maker. What are the differences between Maker and compound? Yeah, it's a great question. So the key difference comes down to actually the name of their protocol, Maker. So they're actually making an asset that doesn't otherwise exist. And they're making the stable coin die. This is sort of created by the protocol out of thin air, and this is the superpower of Maker.

It doesn't have to already exist in order for their protocol to lend it out to a user. So in Maker, a user provides collateral, and then the Maker protocol creates die, using the collateral as something to ensure that the die is repaid over time. In compound, we're not actually making an asset. There's no new asset that doesn't exist because of compound. It simply facilitates liquidity for all of the assets that already exist in the world, one of which is the stable coin die. In compound, in order for an asset to be borrowed,

somebody else where many other people or thousands of them are supplying the assets of the protocol as liquidity. And so that's the biggest difference, is that, you know, makers creating an entirely new asset, whereas compound facilitates an interest rate for assets that have already been created. So if we were kind of stacking the money legos, you'd say maker is more the, it's really the money Lego of die of stability, right? And the way it gets there is through, you know, credit and borrowing and lending and those sort of functions. And that's different than compound,

the heart of compound, the money Lego of compound is really interest, right? And so that's how different. There's no asset that's being produced in compound, as you say. But what about folks might be familiar with, we call them crypto banks on bankless as part of the program, but these are like centralized exchanges and centralized third parties that take custody of your assets and also provide interest as a function. So like a blockfi comes to mind or a Celsius or even a crypto.com, How is compound different from those crypto borrowing and lending services? Yeah, that's another great question. So compound is run entirely on a blockchain.

Everything inside is automated through smart contracts, and the entire system is transparent. You can very easily go on compound's website. You can very easily go on the Ethereum blockchain, and you can see every transaction that's ever occurred. You can see the state of all of the markets. You can see exactly how much the protocol is holding and how much has been borrowed by other users. It's basically radically transparent. A crypto banker is centralized business facilitates a lot of the same activity. The biggest difference is it's not run on a blockchain using the smart contract is run with a traditional business.

In some ways, this is spreadsheets and custom software. it's facilitating this off chain in a lot of ways. And the economic functions are very similar. You can go to one of them and earn an interest rate. And you can also go to them and borrow an asset using crypto's collateral. The biggest difference is automation and transparency. Yeah, I really want to hammer this home for listeners because folks in the bankless community ask us all the time.

Like what is the difference between a blockfi or a Celsius or a crypto? com. And you know what I have to tell them is like, I don't really know. You know, of course, they each have a reputation and I might trust one more than another with my assets. But the reality is, once I deposit my crypto in those crypto bank lending services, it's a black box to me. I really can't see the assets on chain that are backing the loan that I've just provided

that I've lent out. I have no transparency as to what their risk management functions are. Essentially, I have to trust the chief investment officer and the compliance team not to screw things up. Whereas with compound, I get to see everything on chain. I see all of the assets that back each of the loans that I provide. I see even the liquidation process, which is a function in compound. it's all completely transparent. It's like having the view source capability of a banking system.

And that to me is the magic. And that to me is like the paradigm shift of this whole open finance system. Would you agree with that? Oh, I agree completely. I think one of the superpowers of any crypto asset, whether that's, you know, Bitcoin or Ethereum or compound, you know, the advantage is transparency. The advantage is inspectability, auditability. It provides a level of comfort if you know how it works that you'll never get from a traditional business, that you'll never get from a bank or a crypto bank, because that's just not the way they work. And this leads to,

I think, radically different outcomes. I think it makes it significantly safer to build your own business on top of compound or your own application on top of compound, then on top of a system that you don't know how it works or where the money is, or whether or not it's solving. It should facilitate a significantly better experience to build on top of. So let's talk a little bit more about how new collateral is included in compound, because I think this gets to the heart of some really interesting features that the compound protocol is rolling out around governance. So there is now a token,

a governance token, a voting token, if I'm understanding it correctly, called comp, that can be used by comp holders to actually vote on collateral that goes in the system or not. There are other voting features as well. There are proposals that can be voted on. but can you sort of describe what comp is and some of the new governance features you guys are rolling out and how that intersects with, you know, new collateral that might be added to the system? Yeah, absolutely. So there's two long-term principles that we have in mind as we create a new governance framework for the protocol. The first is that we want the protocol to be able to run forever. What this means is that the likelihood that any one party can take down the,

system approaches zero. You know, in Bitcoin circles, they call that censorship resistance. We want compound to be able to run forever. And this is good for users and this is good for developers that are building on top of the protocol. The easiest way to do that is to remove power from ourselves, you know, to reduce the likelihood that, you know, anything can go wrong if, you know, keys are mishandled, etc. So that's the first piece, is reducing risk of someone screwing up the system. The second is increasing the upgradeability of the protocol. And this is making it easier for new assets to be added to the protocol or new functionality to be added to the protocol. A centralized team has limited resources, limited bandwidth, and limited focus.

If you can design a framework for the community to be able to upgrade the protocol, instead of one team being able to upgrade compound, you have a thousand teams being able to upgrade compound. You have a thousand teams being able to upgrade compound. And this is also great for users that want to interact with the protocol and applications built on top. It allows an application built on top of compound to improve the protocol that it's built on. So we see this as an extremely important virtue as well. And we've designed compound governance to achieve both of those things. One is reducing the risk that a mistake is made intentionally or accidentally by a team. If you have one private key that runs the entire protocol. It's very easy for something to go wrong. And the second is we want

upgradeability to be in more hands. So we've designed a governance system, which is now running the protocol, called compound governance. The way it works is relatively simple. We've created 10 million comp tokens, and instead of 100% of the comp tokens being held by one address, which could lead to the first issue, we're distributing those 10 million tokens over many, many, many, many addresses. First to a group of stakeholders that's about, you know, 60 stakeholders who originally built the protocol, and later to all users of Compouts. There's going to be 20, 30,000 users. Think of this as like the largest multi-signature wallet in the world. And with Comp in the hands of tens of thousands of stakeholders, then these stakeholders can come together to both

approve changes to the protocol and upgrade the protocol. So the way it works is you can vote your own comp or you can delegate it to anybody else. We see this as a very powerful feature because it, you know, enables you to have a more, you know, liquid democracy. If you want to participate directly, great. I think very few people want to stay up all night learning about compound mechanics and, you know, spending time thinking about how they're going to vote on protocol changes. there's a small group of people that are wildly fanatical, and I think this is exciting for it.

And there's a lot of people that don't. And so by delegating your tokens, you can pick somebody else to represent you, to vote for you in protocol decisions. And this can be an expert in the community. You know, you can delegate your tokens to Ryan Adams. This could be an application built on top of the protocol that you trust to make good decisions for the protocol. you can delegate your tokens to Dharma, or this could be your own address, whether it's a hot wallet that you use

for interacting with experimental new systems or it could be any other address that you choose. And this is the basic interaction. You can vote or let someone else vote for you. And from there, proposals are then created by the community. Anyone with meaningful support in the community who's not a stranger who has a meaningful number of comp votes delegated to them, can propose an upgrade. And then the rest of the community is able to vote on it. And this allows, you know,

going back to the two points, one, a massively reduced realm of ever and ability for any one party to destroy or corrupt the protocol. And two, upgradeability by a much larger audience. And we're starting to see the very first interactions in Confound Governance Gold Live. We had our first two proposals last week. And I think we're going to see a lot more activity over the coming weeks and months. Part of these blockchain crypto economic systems, starting with Bitcoin, and then also moving into things like Maker Dow and Uniswap, all these things have tokens with them, right? So Uniswap for every exchange, it has a token. Bitcoin has its token, and Bitcoin's token was issued via this immaculate conception story. And then after that, it's been issued on this

competitive seniorage basis, and that's been considered very fair. The Maker Dow MKR token issuance has had its criticisms of its lack of fairness. And in my opinion, fairness goes down to the very essence of the beginnings of every single blockchain crypto economic protocol, compound being one of those protocols. And if the comp token is issued 50% to a million people and 50% to one person, the fairness is obviously questioned. And it breaks down what it turns a compound into something that could be a public utility into something that is like a private for-profit entity. And so how are you guys thinking about the token distribution and fairness ensuring that compound is something closer to a public utility rather than like a for-profit application?

Yeah, that's a great question. So this goes to the design goals of the system. We want to make it where, you know, no one address can, you know, let's say destroy the protocol intentionally or unintentionally. And that the protocol is upgradable by a large number of people. You know, fairness really comes down to those things, ensuring that it runs forever and that it's upgradable. Beyond that, you know, we don't really have any other design goals. And so the way we're structuring this is we're, you know, ensure that.

Shoring net, about half of the voting authority is broken up amongst many independent stakeholders, and the other half is distributed to the users. And we think that over time, it's going to achieve both of those objectives. And from there, the comp token holders can evolve. They can change. They can upgrade the protocol in an entirely new direction that hasn't been conceived of yet. But the company that originally built compound is going to retain zero of the tokens, and the protocol is hopefully going to run forever.

So, Robert, I've actually had the opportunity to vote in the first two proposals that you mentioned, and it was really seamless, and it was really fun. We could talk about what those proposals are and kind of the outcomes, whether you're surprised or not. But first I want to ask a question that's probably on listeners' mind right now is, like, many folks that are in the bankless community use compound. How can they get compound tokens? How can they get comp tokens? You talked about distribution to the tens of thousands of users. Is that distribution in place yet? Is it coming soon? What plans

do you have? I think a lot of folks are going to be interested in participating. They just want to know how. That's a great question. So we haven't announced the exact mechanism yet. it's still in the building, auditing, and testing phase. But the basic premise is that we want all of the users of the protocol to wind up becoming stakeholders in the protocol. I don't want to tease you guys, but that's as far as we can go with this question today. But over the next couple weeks, I think there's going to be a lot more information that starts to come out. And I think it's going to be very exciting for the users of the program.

So in Compound's current form where it's centralized around like a specific team, a specific set of people, I'm sure you guys have hired people that are more knowledgeable than the average person when it comes to designing a protocol, you know, gearing up the economics to fit right. How do you trust or how do you think that this distributed network of, you know, hundreds of people across hundred thousands of people across the world actually have the competency to understand confidence. at a deep technical level and make adequate and appropriate changes that are in the best interest of the protocol. Yeah, that's a great question. So I think in a lot of ways this is going to evolve rapidly, but it's the responsibility of those who have, you know, compound governance rights to ensure that the protocol is upgraded in responsible ways. I actually think that based on some of the design decisions we've made, it's going to lead to slow governance. I think one of the absolute best things about both Bitcoin and Ethereum is that they move relatively slowly. It's easy to understand how they work and that they're not going to radically change without a whole bunch of people knowing about them.

And a lot of the actual governance mechanisms are in place, so it's very easy to say no to proposals. It's designed to be hard to get something through compound governance. And, you know, I'm going to hope that the community over time, you know, helps enforce, you know, strict standards for the protocol. Demands that, you know, meaningful changes are audited, demands that they've been analyzed from an economic perspective, et cetera. I know that I'll personally vote against proposals that don't meet those criteria. I hope that others, you know, take a similar perspective. And over time, I do think it's going to lead to slow governance. Hopefully it looks like Bitcoin, where there's a couple major changes over the

years and not, you know, a cadence of weekly updates. But we'll see. And one of the things that can also change through governance is actually how governance works. So if it needs to evolve, you know, further to slow things down, that's a possibility too. So Robert, you know, given sort of what you see, so the community gets comp tokens and they have the ability to either vote themselves or delegate their vote to knowledgeable experts. Do you see sort of the rise of what we might call protocol politicians that kind of aggregate votes and they get delegates on board and they sort of vote almost like party platforms?

Is that going to be the end state here? Yeah, I think there's a lot of different phrases for this. Protocol politician is a great one. I think of them more as protocol, you know, members of a board of directors. But I do think there's going to be professionals who are skilled at understanding suggested proposals and changes to the protocol and representing a wider audience.

You know, we see this all the time in, you know, traditional corporate governance. You know, every shareholder can vote, you know, in a annual meeting of a publicly traded company, yet few do. In general, there's experts involved, and it winds up, you know, with people that spend a lot of time thinking through proposals where you get to this best of both worlds, where you always have the right to participate on your own. Anyone who has comp tokens can vote. Anyone can research it. Anyone can make their voices heard. And for those that don't want to put in the time, they're going to want to find experts. Whether you call that a protocol politician or

a protocol expert, I think you're going to naturally see a gravitation towards, you know, individuals representing many stakeholders. Some of these individuals might form doubts, right? I could see, you know, a bunch of people delegating their votes to a Dow, which has its own experiments. And I can see a lot of people being individuals who participate. I could see, you know, you, Ryan, you know, becoming popular in compound governance and having members of the community say, you know, let's form the bankless alliance or whatever it winds up being. And I think this is going to emerge rapidly. Once we open the doors to 20,000 users having comp tokens and being able to participate in governance, I think we're going to see some wild results.

Oh, yeah, David and I have given a lot of thought to what the bankless United political action group might look like, Robert. So you'd be pleased to know what thinking about it. We've been chewing on this. That would be super cool. Yeah. And, you know, it's very exciting to get the community involved in that way. I'm glad that you mentioned sort of some kinship with shareholder governance because this is sort of what it strikes me as. Some folks say, well, you know, voting with,

capital in this way, that's a plutocracy, right? And, you know, I think it, I think that's right. I think that it is a plutocracy, but companies are organized in that way, right? It's very good that our Democratic Republic Protocol is not a plutocracy. It's very good that the base layer Ethereum and base layer value chains like Bitcoin are not plutocracies. But for, for Defy protocols, I'm not certain that that is the wrong model. think it could be a good model, but there seems to be a piece that might be missing, and I want your thought on this. So with a more mature, it's been out there longer governance token like Maker, for example, it ties two things together. So there's the voting right that you

have with Maker, but you also have the skin in the game aspect where Maker, you know, receives some upside from fees that are burnt in the Maker platform, right? So there's some upside there. And if a mistake is made, if their wrong collateral is added, well, Maker inflates. And so the value of makers essentially destroyed. So governors don't just have the right to, an ability to govern, but they also have some skin in the game. Do you think that that compound is locking that? Or do you think that that's not an essential piece of the puzzle here? That's a great question. So, you know, I do think that over time, the way the token works may evolve based on the will of the community. But when we launch compound governance to the community,

it's strictly a governance token. There's no economics tied directly to the token. I'll go on the record and say, please do not speculate on comp token. It is not meant to be an economic vehicle. It is purely a governance token. All it does is enable you to vote and participate in compound governance. And I think that's really exciting because it keeps the system simple. I hope that it leads to a system that's easy to understand and easy to participate in and is open to a very large audience. And over time, you know, the comp token holders may upgrade the protocol to change that. But I'm very excited to start off with just a clean governance foundation and, you know, be in a position for people to get increasingly involved with it. I think that those who wind up holding the comp token are going to want to see compound succeed.

I think, you know, giving a token to the users and, you know, the folks that helped get it off the ground, everyone is sort of rooting for the same thing, which is to see a protocol continue to scale, survive, and evolve. And I don't necessarily think there has to be economics for that to work. So what's stopping comp holders from just voting themselves into profits from the borrowers of the compound protocol? They could. The entire administration of the protocol is run by compound governance and the compound governance token holders. And the protocol may evolve in unexpected ways. I'm actually most excited by how much power compound token holders have. It's really quite exciting. I think over the next couple years, we're going to see all sorts of proposals, some simple, some advanced, some complex, some bewildering. And it's going to be really fun to

watch the community debate them and implement the ones they think are best. I just hope that, you know, governance evolves in a relatively slow fashion for major changes and can be nimble for small changes. So the proposals that we've seen, I'm wondering if they are going to be kind of recipes for cookie cutters for proposals that we'll see in the future. I know in Maker governance, for example, 95% or so of the maker governance votes really surround changing a few core variables, parameter changes and that sort of thing or even, you know, collateral types, that sort of thing. The first two votes that we saw in compound, one was about a parameter change. So that was adjusting the dive parameter to something a bit more efficient.

And the second was a collateral change, adding USDT. Can you talk about those two proposals and whether you see them as sort of emblematic of the types of proposals that we'll see moving forward or even thoughts on the types of governance issues that will be voted on in the future? Yeah, absolutely. So out of the two proposals, what's interesting is one of them was written by our team and one was written by an application that's built on top of the compound protocol. So our team did the work to propose the addition of a new asset, tether to the protocol, based on the community's prior interest in seeing the asset added. To be clear, it wasn't added as collateral. You can't use it to borrow any other asset.

And it was designed such that it's as low risk to the protocol as possible. But we did do the work of creating a template for how to add a new asset to the protocol. And the second protocol improvement was created by Dharma, which did the work of writing and deploying a new interest rate model smart contract. It was only one line of code different from the existing contract. But it set a great example of the fact that the protocol is upgradable by the community. Our team that originally built it doesn't have to write the code to upgrade compound. There's no foundation. There's no middleman.

Anyone out there is able to write a new contract. for the protocol or simply change one parameter of the protocol. And I think it's going to be really exciting because the first two demonstrating how easy it is to get involved. Our contract was, you know, hopefully a cookie cutter for other assets in the community you might want to add and debate, you know, how they are used as collateral. And the second was, you know, done as an example of creating an entirely new contract by a third-party team.

there's going to be additional proposals, some of which require zero smart contracts to be deployed. We're simply changing a parameter. You know, the community doesn't know this yet, but there's actually a very simple drag-and-drop GUI to create proposals. Wow. You only see it when you have enough comp votes. It's a hidden feature unless you have 100,000 comp delegated to you. But there's actually tools to create proposals that require no code.

And so I think what we're going to see is the community over time learning how to create proposals and how to garner support for them and deploy them. And I think over time we're going to see both more of the simple stuff as well as ideas that are significantly larger. You know, I think, you know, there's a suggestion before that maybe the way that, you know, the token interacts with borrowers could change. Who knows? I have no idea what the future of compound governance holds. I just know that anything is possible. Well, I know the bankless community is absolutely excited about getting involved in governance.

Have had a lot of interest that I've seen in various channels that we monitor. So we will be waiting with bated breath on the plans to distribute to, you know, comp users and be looking for ways to plug in. So hopefully a follow up on that at some point, Robert. Excellent. You know, one other question that's sort of been on my mind a lot lately is this interplay between what we call kind of the crypto banks, the exchanges and the block fives of the world and the D5 protocols because sometimes it feels like they're very much competing with the D5

protocols. So, Binance, for example, while they're rolling out a Binance smart contract chain, they are replicating some of the functionality of DFI protocols inside their own Waldgarden exchange. That's on one side of the spectrum. The other side of the spectrum, you have exchanges like Coinbase that are actually, last week, we talked about this in the front of episode 10. Coinbase is actually rolling out their own DeFi price oracle to help support the ecosystem. What does this interplay look like to you, Robert? Are crypto banks competing against D5 protocols like compound? Are they helping you? What's, what?

What's the interplay? Yeah, it's a great question. So I think it's a little bit of everything. I think the industry as a whole is still extremely early. You know, when I say extremely early, I mean, we're all of, you know, 10 years into crypto. I think defy is about, you know, two years old. You know, it's so early that I think it's too soon to tell what the landscape looks

like, 6, 12, 18, 24, 72 months from now. I think there's going to be a lot of experimentation from crypto banks. from exchanges, from custodians, from every type of platform possible. My goal and vision is for compound to be neutral territory, for any exchange custodian wallet application to feel comfortable integrating the protocol, knowing that it's unkillable by the legacy team, and knowing that they have the ability to upgrade the protocol if they choose or would like to. it can be very stable ground to build on and integrate.

And that's the goal. And I think some crypto banks exchanges, whatever you want to call them, will experiment with integrating compound because, you know, they're able to then build on top of it and feel excited about that and know that, you know, the protocol does what they want. And others will compete with it. You know, you might see someone like Binance saying, you know, why integrate into sort of a shared resource?

Let's go our own way inside of a walled garden. and we'll see things in the middle. I would love to come back to this question in two years and see how it's evolved because I think however it did evolve will have surprised present days. Yeah, absolutely. Yeah, so you're probably just about to say it, David,

but David and I have this thesis and David's actually giving a presentation about it called like the Protocol Sync thesis. Maybe David, you should describe that. The Protocol Sync thesis references that the more decentralized, the more money robot-like, the more robotic-like, the less subjective a protocol is, the more it acts as infrastructure for people or companies or anybody to leverage.

And like the best example of this is like the internet, right? Like the internet is this ultimate agnostic platform that treats everyone fairly. And because of that truth, it's this platform that every, in addition to all the other features that are wonderful about the internet, it's this place of neutrality that everyone can go to access fairly and equally. And so like businesses come and we're starting to see this with Gemini. Gemini is starting to become really crypto friendly or defy friendly and Coinbase is already pretty defy friendly.

And so the theory is that we're going to start seeing these centralized companies start to leverage the returns or the features or the products that Defi offers inside of the company's service, inside of the company's offering. And so the company is able to leverage the value of Defi for their own benefit. And you would never really see this on a company to company basis, right? You would never see one company leverage another company in order to produce a new product inside of their own walled garden because there's two walled gardens.

It doesn't really work like that. And so the protocol sync thesis is that the more agnostic, the more robotic protocols sink down to the bottom and have things built on top of them. And I see that with compound, with your guys' efforts to be not really something that you directly interact with on a peer-to-contract basis, but rather it's obfuscated or abstracted away from the user and leveraged by other teams or other developers. And so how do you think about that? Do you think that that is a valid prediction, or do you see any problems with that?

I love the protocol sync thesis. Thank you for sharing that because I think it describes exactly what we're hoping to achieve, which is very neutral, unopinionated, independent infrastructure for others. And it has been sort of the guiding direction for how we've thought about rolling out governance and transitioning from developer-led product and protocol to one that's community-maintained. Huge fans of the thesis, it'll be really cool to see which other projects sort of fit in and sink down to the bottom and wind up being sort of like the bedrock of other projects. The most credibly neutral protocols win is kind of the heart of that thesis.

Robert, what's kind of the end game here for compound? I mean, where do you see maybe we'll start with compounds? Like, where do you see compound in the next, you know, two years and then five years and then maybe a decade out? Then I want to ask you about Ethereum and then crypto writ large in open finance. Yeah, that's a great question. So I think over the next couple years, the community is going to be able to upgrade compound in entirely new ways. So I think, you know, or at least I hope that the community can start to bridge compound with other blockchains. I would love to see better bridges between compound on Ethereum and, you know, other platforms like Cosmos and Bitcoin.

I think there's a lot of really exciting stuff that can emerge there. So, you know, that's one. one that I'm excited for the community to pursue. I'm excited for the community to improve the underlying contracts that compose compounds. I think applications will want to see improvements made to the gas cost and efficiency of the protocol. I'd love to see, you know, the community start to upgrade just the, you know, the sort of core of the protocol itself. And I'm excited to see the community debate, propose, and implement new assets on Ethereum. There's quite a few, and defy is moving so quickly that there's probably going to be some defy,

you know, tokens that are, you know, fantastic additions to the protocol. So it's going to be really interesting to see compound, but I think two years from now, the protocol is a little bit faster, more efficient, and cheaper to use. There's more assets. And there's possibly the early traction on integrating compound with other blockchains. So that's what I think the future of compound looks like. in terms of the community and the governance and the interactions, I absolutely think you're going to start to see some,

you know, whether you call them politicians or experts emerge, that take sort of an unstructured process and turn it into a structured process that sort of, you know, through the organized chaos that is the blockchain create, you know, essentially, you know, like a board of directors or a parliament, you know, that helps govern the protocol. And I think there's going to be some really great evolution there. And lastly, I think that there's going to be more applications built using compound that experiment with what you can do with being able to instantaneously earn an interest rate on any Ethereum asset

or borrow any Ethereum asset and package them in entirely new ways. I think we're going to see the continuation of this golden era of defy experimentation play out. And I think there's going to be products built with compound that just don't even exist yet. One thing I think is interesting is with this comp token, with the maximal success of the comp token, doesn't that mean the end of compound labs, the centralized company? And so like, you know, Jake Chernisky, him and I chit chat and telegram, and he was on my other podcast. So he's a good friend.

And it's kind of weird just to see like, well, Jake, if you get this right, if you get this comp token right, like you're going to be out of a job. So what's the future for compound labs after comp token is successful? Yeah, that's a great question. And, you know, the community should know that our goal is to not be involved in maintaining and managing the protocol. We want you, the community, to step up and own that. I think in a lot of ways, you know, it's kind of like if Satoshi first made Bitcoin,

and then once Bitcoin was successful, Satoshi then went out and created Coinbase. In a lot of ways, that's how we see our own role. It's creating this underlying protocol that's neutral that has all the tools it needs to grow and then building out the next thing on top of it. And that's exciting. Being able to move on, being able to allow the community to sort of focus on making the protocol as great as possible and then being a team with no advantages over everybody else

that's able to then build on the protocol. So that's exciting. And I think that's the future. There's kind of two camps in the, I guess, maybe I'll say the digital asset space, right? large Robert Schro. There's the one side which are kind of crypto anarchists. Let's get all the centralized parties out of the money system, you know, government out, banks out. I'd confess

that the bankless movement is probably a little more on that side. There's another side of the movement of the digital asset movement that is a bit more Facebook, Libra, you know, Central Bank of China, digital currency. No question of my mind. mind that our future is going to be digital. But how do these two sides intersect? Does one side have to win and the other lose? Do you see a more blended world? What's your take? You know, me personally, I'm somewhat in the middle. I believe that Ethereum and blockchains have given us superpowers that allow us to reinvent finance for the better to make it faster. cheaper, more fair, better.

And in some cases, that means, you know, it's going to look extremely cooperative with existing financial services and existing financial products. You know, I'm not sad if a bank wants to leverage a blockchain to do things better. I don't think it has to be a system in which, you know, it's just an us versus them type mindset where, you know, it's our way or the highway or, you know, it's only for, you know, a libertarian bent. I think, you know, this is a tool for good to make financial products out of thin air. You know, some will look like old products and some will be entirely new. And I think there's going to be everything in the middle. So I'm actually just most excited

for tools like compound to be embraced by, you know, traditional participants. I think one day, you know, you might see a bank integrating the compound protocol as a means of, you know, interacting with users, you know, in Ethereum land. And I might, see some people say, hey, I don't want to use a system that isn't just for us. And I don't think there's a right answer. You know, I just want to see more products come to life that you know how they work. You know that they work. It's fair. It's transparent and it's affordable. And I think that's exciting. So I'm kind of in the middle. I think neither camp is right. And I think I think we still have a long way to go. So Robert, one last question before we wrap this up.

What about defy or Ethereum or Compound keeps you up at night? What are you scared of? So my biggest fear is apathy. I think this has always been the primary threat to DeFi and to Ethereum, which is it stays a tool for a select group that are really excited, really aware, really educated, really bought in, and it fails to break out into the mainstream. That people don't recognize. the superpowers and the tools that we've been given.

And the thing that keeps me up at night is that defy today is the same size as defy in two years. That's the fear that, you know, I get sweats just thinking about. And, you know, I'm grateful that there's bankless and, you know, people that are looking to change that. And my biggest fear is that, you know, we don't succeed fast enough and far enough. And that two years from now, defy is still a niche where it's for a group of people that just love you know, new, faster, better, more fun financial products. And they're not yet adopted by our friends or relatives and the public at large. Robert, that was such a good answer. I have to ask another follow-up, sir. How can the bankless community help you with that? That's our mission, too.

There's about 150,000 defy users today, maybe if we're being generous. How do we get to a million? And how can the bankless community help you? Yeah. So the first thing you can do is, you know, as we start to roll out compound governance, just get involved. Help make compound safe enough and useful enough for a larger, more mainstream audience. Ask tough questions. You know, try new products. And, you know, as products become hardened and stable, you know, start to encourage others to build on them, start to use the products built on them. And, you know, just stay excited. Those are things we can definitely do. Bankless community, you've heard it from Robert. That's what he wants you to do. Stay excited. Keep trying these protocols. Keep listening to the bankless podcast. Keep reading the bankless newsletter, guys. We can achieve

what Robert's talking about as a community. Robert, David and I want to thank you. It's been an absolute pleasure. I've really enjoyed this conversation. So thanks so much for joining us. Yeah, thanks, Ryan. Thanks, David. Really enjoyed being on the show. Thanks, Robert. Fantastic. Well, action items, guys. So a few things I think you can do following up on this episode. The first is actually try compound. Go to the compound website. We will include it in the show notes. Actually dabble with it. So use your Metamask wallet or even an Argent wallet, take out a loan or blend some assets to compound. See how it works. Also, a second action item in the future will have more information about compound governance and how the bankless community can get involved, both in the newsletter and hopefully

in the podcast too. So stay tuned for that. David, we still need some five-star reviews, don't we? We absolutely do. In order to grow the bankless political party, we need people to listen to it and help govern compound when it comes time to govern it. So in order to do that, we need more people to listen to the bankless podcast. And the way that we get that done is by giving us those five-star reviews. And so if you want to make sure that compound is, adequately governed, make sure that we show up on the top of the crypto podcast chart. So when you type in search terms like defy and Ethereum, and the way that we get that done is by giving bankless five-star reviews. So if you could go to iTunes or wherever you listen to podcasts and give us those

five-star reviews, we would really appreciate it. Awesome. All right, guys, risks and disclaimers. So everything we've talked about today is not financial advice. Ethereum is risky, crypto is risky, D5 protocols, including compound, have risk associated with them. You could lose what you put in. Be careful out there. We are headed west. This is the frontier. It's not for everybody, but we are excited that you are here with us.

This has been episode 11, How to Go Bankless with Compound. Thanks for joining us.