Bankless - SotN 7/6 - Compound & the DeFi Mullet | Robert Leshner

Episode Date: July 7, 2021

Robert Leshner is the founder of the Compound Protocol, which is pioneering decentralized borrowing and lending. He is returning to Bankless to discuss Compound Treasury, which is set to offer Compound's services to institutions. Is it Fintech? Is it Banking? Is it Crypto? Slick back your DeFi mullet and let's find out. Robert on Twitter: https://twitter.com/rleshner?s=20  Compound Treasury: https://compound.finance/treasury  ------ 📣 KYBER | MAKE IT RAIN WITH RAINMAKER https://bankless.cc/kyber  ------  🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer  👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave  🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Hey guys, welcome to another bangless episode. This is State of the Nation. It's myself, Ryan, Sean Adams. Also, have David Hoffman here. I think David is dealing with some things today. David, how are you doing today? You okay? We got some funny little issues going around in the DJing side of this show. So you hear the fire alarm in the background, as well as some camera issues. So Ryan is going to be the face of the show today. So deep apologies about the day. that. Ryan, take it away. Yeah, all right. I am the face of the show. David will have to fill you in and everything that's going on his life at another date. But we're super excited about our guest today. We've got Robert Lesh Leshner here from Compound. And we're talking about Compound Treasury. And this is really exciting because Compound has just released an institutional product. And so this has been kind of a theme, I think we've seen in Defi, which is the institutionalization of defy. Are the institutions coming? Yes. And maybe they're coming to defy this time. So really excited to

dig into that conversation. As far as announcements go, have some really cool stuff going on the Bankless Nation. Our Mimetics podcast came out on Monday, Mimetic desire, that is. And this is kind of a hidden force behind almost everything that we see in crypto. So that is super exciting. Make sure you catch that just came out yesterday. We are also talking a lot about, Kiber. Kiber has just released their dynamic automated market maker, which is super cool in and of itself. But they also have a liquidity mining program going on called Rainmaker. They're giving away 25 million in rewards. That's 25 million over the next three months. What's cool is that's happening both on the Ethereum Maynet. It's also happening in the Polygon network. So we've got some layer one mining and some layer two mining going on.

You can earn KNC. You can also earn Maddock for awards. Check that out. There is a link in the show notes. I'm going to see if David's alarm is off, if he's able to tell us, what is the state of the nation today, sir? The state of the nation today is growing the mullet. The DFI mullet is a bankless favorite for metaphors, as far as metaphors go. And we have some pretty astounding announcements, I would say, out of the defy ecosystem in the last week,

one of which we are talking to Robert Lechner today, which is the compound treasury. And the compound treasury, to me, feels like the growing of the defy mullet. It is where we can have fintech or CFI in the front, but defy in the back, the way that defy has been meant to be used this entire time. So today, Ryan, the state of the nation is growing the mullet. We're growing the mullet. You know, during COVID, I actually wanted to grow out a mullet, but then I realized it was actually going to be much longer of an endeavor.

that and then I originally anticipated. So I decided to not do that. Hey, there's still time. I mean, you don't have to not do that, David, just because COVID's over. I mean, you can grow that mullet. It's, it's a D5 mullet season, so maybe you should. You know what's cool is Hester Purse actually mentioned the defy mullet when we had her on the podcast. Like she had listened to a bank list and had adopted this term into one of her speeches. So it is saturating and I think it's finally starting to come to fruition. We're going to talk all about that with Rob. But before we introduce Robert and bring him on and get into the discussion, we want to thank the sponsors that made this episode possible. The AVE protocol is a decentralized liquidity protocol on Ethereum, which allows users to supply and borrow certain crypto assets.

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Defi Maximilus. He's the founder of the compound protocol, maybe the founder of modern farming, modern agriculture in Defi, possibly. He's been a previous podcast guest, but it's been a long time way back. You got to go way back like a year and a half, episode 11 to catch that. Robert, it is great to have you on bank list again. How are you doing, sir? I'm doing great. Ryan, David, thanks for having, man. Man, it's been a long time. And you guys have been busy, busy, busy, busy. And we want to talk about compound treasury first. I'm going to read out the announcement tweet or one of the announcement tweets about this new product. This is a product from the compound protocol. Treasury accounts

convert your U.S. dollars to U.S.D.C. We know U.S.D.C. a digital dollar stable coin and supplies them to the compound protocol to generate secure high yield interest. What does this do? It enables institutions to access crypto interest rates while abstracting away operational complexities, including cybersecurity, compliance, private key management, fiat to crypto conversion, and interest rate volatility. Sounds like you guys are trying to abstract all of that hard Ux, DFI stuff and bring this to the market. So Robert, I'm curious. Let's start here. Could you tell us, in your own words, what is this new compound treasury offering? And what does it bring to defy? Yeah, absolutely. So compound treasury is a new business created by

compound labs to serve institutional customers and provide an incredibly simple service, which is the interest rates from the compound protocol in defy without any of the complexity. And I think it's one example of what's going to be a trend of hundreds of new businesses being formed to serve as bridges between institutional customers and defy protocols. And so compound treasury is a new standalone business. And what it does is it abstracts all of the risk and complexity away from a protocol and replaces it with a simple process that institutions already understand, which is dollars in, dollars out without having to touch crypto, hold crypto, interact with smart contracts, understand smart contracts, or interact with the existing interface in the protocol.

So very simple dollar and dollar out product. Now, the really interesting things about this are that, you know, one is the product actually standardizes the interest rates of the protocol. So there's a fixed interest rate as opposed to the, you know, block by block floating interest rate of the compound protocol. Instead, there's a fixed interest rate, which is offered to customers. And there's, instead of having instant liquidity, which is something that you have when you interact with the compound protocol directly, there's daily liquidity. So there's this ability to process transactions within a traditional banking life cycle, which is daily settlement.

It's kind of cool. Like you guys are like smoothing out some of the rough edges of D5 for institutions, it feels like. So instead of a variable block by block rate, we have kind of a daily rate, you know, doing some of that work. Exactly. It's trying to put things in the terms and structure that institutions already know and understand. So they are used to dollars. They're used to daily settlement. They actually don't expect, you know, block by block settlement. And so, you know, we think it's a great product that, you know, gives institutions what they want. Robert, there are a ton of moving parts that it takes to make the compound treasury. And I want to go through all of them.

But first, I'm really curious as to the relationship between the compound treasury and the compound protocol. What's the overlap there? Are these two completely separate entities or are there overlapping employees, overlapping legal structures? Tell us that story. Yeah, that's a great question. So the compound protocol is a decentralized protocol that's governed by the community

of company token holders. It was originally built by compound labs, and that's the company that I work for. And at this point, COBS is just one of many organizations that are developing for the protocol on top of the protocol adjacent to it. We're basically a non-privileged member of the community at this point. So anybody out there could build a product like compound treasury. We're not special in any way for doing this. We just happen to understand that there's a great opportunity to help bring a defy application to a much larger audience. And so, you know, at compound labs, we don't, you know, manage the protocol anymore. It's really autonomous and resilient and self-sustaining. What we're doing now is looking to build new tools for the compound ecosystem.

So there's two tools that we're focused on. One is called Gateway, and it's a cross-chain bridge to bring more assets from outside of Ethereum into the protocol. And the second is Treasury, which is facilitating institutions to be able to access the protocol more easily. In the case of Treasury, this is actually going to be something that drives revenue for compound labs and creates, you know, long-term sustainability for the company that originally built compound because we actually don't derive any revenue or profit from the protocol whatsoever. You know, we're basically building a for-profit product on top of an open-source free, you know, protocol underneath. I know the subject of today's conversation is all about compound treasury, but I'm curious, Robert, about compound gateway. Is that the same thing as it's kind of the compound chain that we've heard a lot about?

Yeah, absolutely. So the original white paper for this idea was referred to as a compound chain. When we started building the product, we decided to name it gateway because we actually saw it as sort of like this gateway for assets to move between Ethereum and not Ethereum and the compound protocol and assets from other blockchains. And so, yes, it refers to what was originally the compound chain like they were. Robert, you talked about how compound labs is a non-privileged member of the compound protocol, alluding to how, like, you are, the compound labs team is just one of the many users of the compound protocol. Is that also true for compound treasury? Would you also describe compound treasury as a non-privileged user of the compound protocol? It is, exactly. So, you know, compound treasury, you know, gets to interact with the protocol on exactly the same.

terms as every other user. And I think this is actually, you know, really important for what I see is the future of finance, which is there's no special rights for anyone user. You know, we happen to be the ones building and launching compound treasury. You know, anybody else could, any fintech could say, hey, there's a big opportunity here and interact with the protocol in the same terms and without any, you know, privilege. And this is what differentiates, you know, what I would call mullet defy from traditional fintech, which is, you know, traditional fintech businesses, there actually is a lot of privileged access. There's a lot of, you know, moats that are deliberate. There's a lot of, you know, special relationships. That's not the case with defy in this sense.

And so, you know, we think that that's going to lead to more innovation and better products long term, knowing that, you know, compound treasury gets the same rates, the same parameters and the same, access as any application that anyone on Earth can build. I love that. Open finance at its heart is a credibly neutral financial system for the world. That's super cool, Robert. I'm curious because people always like to bucket things, right? And there are these existing buckets in the financial world. FinTech, there's banking, there's crypto. And traditionally, those have been sort of separate things that are on their own journey. I guess maybe FinTech and banking kind of have some intersection. But like, what sector does this belong to? Is it crypto? Is it FinTech? Is it banking?

Like, how should we think about this? Yeah. I mean, so my vision of the sort of future of financial markets is that you're going to have defy protocols and defy markets that are the sort of bedrock of everything. And eventually, there's going to be lots of applications and products built on top of this. You know, in a way, I think, you know, the customers of these markets are going to be other institutions, whether there are crypto exchanges or crypto banks, as you refer to them, or custodians or even traditional banks, you're going to have all.

these different, you know, entities accessing these markets, you know, building the interest rates or the trading facilities into their own customer experiences. But the stack is going to look like defy on the bottom and, you know, customer facing businesses on top. And I think it's a really powerful structure because you can have markets that are global that get combined into other applications and tools and interesting ways that everything is running on chain, I'm at the heart of it. So all transactions are auditable. The health of these markets can be in spite in real time. And it just builds a much better back end to financial services than anything that can be built, you know, traditionally. And so, you know, I think it's crypto at the heart. I think it's Ethereum and

Defi at the heart. And on top of it is what people are used to in terms of like traditional products, where they interact with them using the tools they know, like dollars. So, so Robert, we're going to get into more definition of compound. Treasury, but like I'm really struck by sort of the definition that you just gave with sort of defy at the base layer. I'm wondering if you could help illustrate this with some real-world examples, maybe using compound treasury. So one thing I noticed, by the way, was the same week compound offered a 4% yield. Coinbase offered a 4% yield account. Now, I don't know that these two things are related. Could have just been a good week to offer 4% yield accounts. But in my mind,

I could envision a crypto bank, a coin-based exchange, tapping into compound treasury or the compound protocol to offer that. You also have, I saw a tweet from current bank, maybe, and they say they're not a bank, and this is some kind of a fintech. I haven't gone deep into what current is, but they are tapping into the base layer defy compound as a protocol to offer a better money market saving style account, high yield interest rate to their customers, directly to their customers, 4%. yield interest rates. I'm wondering if you could give some early examples of where you're seeing

this defy Mullet thesis play out. Yeah, I think that those are great observations. So I think we're very early in seeing how this plays out. There have been examples of like exchanges offering, you know, the interest rates from defy to their users, but it was more of like a pass-through basis. They were basically just saying like, we're going to basically serve as a, you know, a tool to access these markets. I know buy-ins did this. A few exchanges have offered. the underlying interest rates. I think, you know, what you're seeing with like Coinbase, with current, these are early examples and proofs of concept, you know, which markets they use, how they use them, you know,

the long-term interactions are still being worked out. But I think long-term, you're starting to see the very first example of, you know, customers indirectly accessing defy without using smart contracts themselves and without interacting with the blockchain themselves are custodying their crypto and their own personal wallet themselves. And it's really exciting. I mean, the trend over time is going to be, you know, these financial markets get abstracted away to make it as simple of an experience for customers as possible. And making it a simple experience, it seems to be kind of the compound treasury's core purpose,

I would say. We all know how to use defy. We're defy natives. We all have our own private keys. But that is over the hump. And there's a lot of customers out there who are not over the hump. that seems to be what compound treasurer is really going after. Except there seems to be so many moving parts that's required to get there, right?

Because you have to have banking because you need to take in deposits. You have to have custody because you have to custody private keys. There's compliance with auditing and reporting. And then there's even customer management. How is compound treasury managing all of these things? Like who's doing all of these things? Is this just a brand new startup that is kind of solving each of one of these problems individually? Yeah, that's a great question.

So there is a brand new startup, but it's not solving all of these pieces. So a core part of compound treasury is a partnership between compound labs and fireblocks, which is, and fireblocks, you know, does MPC wallet, you know, transmission of funds and custody. And for years, it's actually offered a compound integration to their customers. And we're basically- I kind of think of them as like a BitGo-ish, but they're a bit more defy-friendly in advance, possibly? Yeah, exactly. Imagine if BitGo were extremely defy-friendly and almost defy-native.

And so, you know, we're basically partnered with them very closely on this initiative. And so they're the ones that actually have, you know, regulatory licensing, and they're basically the ones handling the customer funds and moving them into the protocol. And we're providing, you know, a user experience wrapper around all of that. So that to an end customer, you know, all they know is, you know, here's how it works. This is how the flow of funds occurs. You know, they're opting into this process. And the entire, you know, flow is actually being managed on the back end by Fireblocks.

Okay. So let's talk about that 4% interest rate because I just checked my wealth account this morning, Robert. And you'll be pleased to know this is still 30x what they offer for a savings rate. And I know it's not quite the same as sort of a savings account, doesn't have FDIC guarantees and that sort of thing. But 4% yield is hard to come by on USDC and dollars in stable coins. So can you tell us where that yield is coming from? Because we kind of know the core is coming from compound money markets, the protocol. But there seems to be like this fixed rate that's being provided that is above and beyond what compound the protocol is providing.

And it seems to be at times a higher rate. then compound natively provides on USDC. So where's this yield coming from? Yeah, that's a great question. So right now is a user. You know, if you wanted to use the USDC market and compound right this second, the all-in, you know, net interest rate of compound USD coin right now, you know, on Thursday afternoon is 4.13%. And this is a combination of the natural USDC coin interest rate and the comp distribution to users. This 4% number is pretty much the low end of what we've seen over the past few years. You know, in general, one of the things that we've seen is that the median across market

cycles and across, you know, different interest rate, you know, periods of time, you know, is much higher. And it's actually a 80% range or so. And so what compound treasury is doing is it saying, okay, looking at all the different range of financial outcomes, you know, what do we expect, you know, on a long-term time Horizon the protocol to offer to its users. Right now it's 4.13%. You know, last week it might have been 3.3%. You know, next week it could be 7%. It's variable and it's floating. And it changes actually every Ethereum block, you know, in very minuscule ways, but every block it, you know, updates in a dynamic

fashion. And so what compound treasury is doing is it's offering a fixed interest, 4%. And taking And so if long term, you know, the protocol is offering more than 4%, the compound treasury as a standalone business is profitable. And if long term the interest rates of the compound protocol are less than 4%, then it's subsidized by compound treasury. And in this way, it smooths out, you know, the interest rates that are offered by a variable interest rate protocol. So, Robert, that goes over how Ethereum and compound allows.

compound treasury to offer really high interest rates to its customers. But on the compound treasury page, it boasts two more properties as its competitive advantage, both on-demand liquidity and transparent reporting. And overall, how would you say that Ethereum helps compound treasuries product gain a competitive edge versus its more traditional advantages? Where does Ethereum come in as a key player in this story? Yeah, that's a great question. So the things that make compound treasury extremely attractive to institutions, which is having, you know, the ability to monitor the balances in real time and the ability to have pretty much constant liquidity comes from, you know, the benefits of Ethereum and the way the compound works. So this goes for pretty much any defy

application. This is why I think, you know, the foundation is going to be defy. You know, compound the protocol itself is open source, it's transparent, it's instant, and by instant, I mean 15 second Ethereum blocks. It's auditable and, you know, it's program matter. And, you know, you can build applications on top or businesses on top that, you know, can offer that or, you know, slightly worse parameters. But the foundation is extremely solid being defied. And so compound treasure because it's just built on, you know, the compound protocol gets to offer, you know, at a minimum, you know, what compound offers. Now, when you see, you know, start interacting with, you know, dollars in the real world, things might slow down into,

you know, daily settlement. But at the end of the day, you know, the starting point is going to be, you know, the fast, transparent, you know, accessible defyre protocol army. I was just, the other day, I was getting funds from a traditional investment vehicle I was a part of. And I had to speak to real world bankers. Like there was a whole support team of people. And, you know, people who were doing something as simple as giving me some funds that I was owed. And I went through like multiple levels of support. And it just struck me how, wow, banks are like filled with people. Office, like buildings and offices full of people. And I, you know, I love kind of the difference between the, the, you know, the coin base to the, to the Wells Fargo example, where you've

got Coinbase, where you got Uniswap has got 15 employees. It takes Coinbase, you know, 1,500,000 to do essentially some of the same things that Uniswap does. And then it takes Wells Fargo, another order of magnitude, like 50,000, 100,000 employees to do all of that. Is that what the play is here? Is Defi all about a banking efficiency play? Are we essentially like automating? Is this software eating the world? Is this the story here once again? And now it's coming to institution. Yeah, it's all of those things, right? You know, at the heart of it, you know, the human processes that you described are liabilities to the bank and to you, right? There's so much room for human error. There's so much room for fraud. There's so much room for mistakes to occur

when there's that many people and steps along the way. And the advantage of a financial market being built using smart contracts instead of all of the processes that exists at Wells Fargo means that, you know, it's autonomous and it's operating 24-7. And if it's built correctly, it can run forever without flaw. And this is like the superpower of smart contracts in general. When it gets applied to finance, you know, you start to say like, wow, okay, yeah. Like, you know, a protocol like compound, you know, it can scale to 100 times the assets without anything changing, right? It can process 100 times as much, you know, assets without anything changing.

A single more, single additional person is needed. In fact, no people are needed, right, at all for the daily operation of it. And that's really magical because it means that, you know, you're able to, you know, over time, you know, have complete confidence in a blockchain-based financial system to not mess up. If it works today on Tuesday, you know, you can be sure that's going to be working on Wednesday if nothing has changed. And, you know, it puts more of the burden of getting things correct up front when you're developing these systems. You have to develop them so that they can

run forever. But once they're built and once they're operating successfully, you know, they can always operate without flaw and without error. And you can trust that to a bank, you know, that has thousands of employees and thousands of employees or thousands of opportunities to get things wrong. And you can see what defy is going to completely eat, you know, all of traditional finance. I'm reminded of a quote that we read from Vitalik on the Bankless Weekly Rollup last Friday, where he talked about how Ethereum is actually destined to remove a lot of just the middle management and CEOs or just, you know, bureaucracy out of organizations and make organizations more lean with people more on the periphery than rather at the center where there's supposed to be code in the

center. So I just want to hammer on this point. a little bit more before we move on. Robert, do you have any like napkin math about like how much does it cost to operate compound treasury or how many more times more efficient does compound treasury can achieve the same goals versus legacy counterparts? Is there any sort of napkin math that you could share with us there? Yeah. Okay. I mean, if you want to use napkin math, you know, you can start by looking at the compound protocol. You know, today there's, you know, approximately $11.5 billion dollars of assets inside the protocol earning interest. This would make it in like the top 100 U.S. banks, right? The napkin math is, you know, on a daily basis, you know, there's zero people

who are, you know, corner brick and mortar locations necessary to operate compound. If it were, you know, part of the existing financial system would probably have, you know, hundreds to thousands of employees. And it wouldn't operate 24-7. It would operate, you know, you know, during daylight hours when those, you know, human employees can make it work. And if I have to estimate the increase in efficiency, I would say it's, you know, three orders of magnitude more efficient than traditional financial entities. This is incredible. Already assets under management, closing it on the top 100 banks, zero people required to

operate this thing. And it operates forever continuously as long as Ethereum is live and stays live. Let's talk about this because we're really excited about new markets opening up and new users coming to defy and new capital flowing into defy. What type of customer does compound treasury and maybe even more broadly this thing we're calling institutional defy where we have, you know, fintech in the front and defy in the back? What kind of new market does this open up? Does this finally open up to some of the fintechs like, you know, the squares and the paypals of the world? Does it open us up to banks? Does it open us up to institutions?

What do we mean when we stay in institutions? Talk about that for us. Yeah, it's a great question. So, you know, when I think really long term, you know, like 10, 20 years into the future, you know, DFI is going to be at the heart of all of the market. It's in all of the customers. And it's going to look almost, you know, you know, retrospectively guaranteed that, of course, you know, like, you know, it's obvious that, you know, every bank, you know,

and every, you know, institution in the world will eventually be interacting with, you know, decentralized financial markets when today it looks very early. But in 20 years, you know, I think every single institution is going to access these markets because voluntarily not accessing these markets means that you're, you know, willfully cutting off access of your own to, you know, important tools. And I think eventually you're going to have the largest, slowest, stodgiest institutions, you know, accessing these markets. But it starts with the smaller, the more nimble, the more forward-thinking institutions, and the ones that don't suffer from these, like, unbelievably long roadmaps, where it takes,

you know, a decade to, you know, make a small change in the way their organization works. And so eventually everyone's going to be accessed in D-Fi. You know, today we're starting with, you know, we started with two years ago individuals. And even amongst the individuals using D-Fi, I mean, it was a very small crowd of people that was even comfortable using a smart contract. And that's grown rapidly. Now there's a huge audience of people that understand and are comfortable using smart contracts. And we're at this sort of stage right now where you have smaller, more nimble, more, you know, professional organizations and institutions accessing defy. You have hedge funds. You have trading firms. You have, you know, firms that, you know, don't have a lot of customers of their own,

that they can make decisions very rapidly, accessing defy. And now we're starting to see in the era of, like, all of the exchanges and custodians, you know, accessing defy. And, you know, these are starting to be larger organizations, but like, crypto-native, you know, larger players are becoming, you know, hooked on defy, right? And so I think it's going to be a while, you know, everybody accessing these markets. I think compound treasury, the goal is to really work with firms that don't yet want to become

a crypto native. They want the economics of defy. They don't want private key custody and security. They don't want, you know, smart contracts, complexity. They just want the economics. And so I think this is going to open it up to a large amount of smaller, you know, institutions. But I think the ball is going to, you know, tumble down the hill pretty quickly. And once large organizations, the small organizations,

you know, accessing better financial returns and building really nice products on top of it, I think you're going to start to see, you know, a little bit of envy from larger organizations over time. And eventually, you know, Wells Fargo is going to be using defy. That's my point of it. Look, this is, you're definitely speaking our language, Robert, as we say all the time, everything is going to be defy in the future. And when you hear what Robert just said, you've realized just how early we still are, how much opportunity there still is to onboard the world into Defi. Robert, we are going to come back. We're going to talk a little bit more about the institutions. We're going to talk about compound chain and finish with some of your

thoughts on Defi in 2021. But before we do, we want to thank the sponsors that made this episode possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswop ecosystem is the Uniswap Grants program is now accepting applications for grants. We have been saying this for a while and we'll say it again.

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Gemini since I first got into crypto in 2017 and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide and on Gemini there are markets for over 30 various different crypto assets, including many of the hot DeFi tokens. And it's one of the first few exchanges that has liquid dye markets. Gemini just launched their Earn program where you can earn up to 7.4% interest on 26 various crypto assets. If you're tired of paying fees in Defi or you don't want to worry about defy exploits, but you still want to earn interest on your crypto assets, Gemini Earn is the product for you. Another product I'm stoked to get my hands on

is the Gemini Crypto Back credit card, which gives you 3% cash back on all of your purchases, but paid to you in your preferred crypto asset. get my Gemini credit card, I'm going to make sure that I get my cash back in ETH. So whenever I buy something, I get a little bit of ETH bonus back to me at the same time. You can open up a free account in under three minutes at Gemini.com slash go bankless. And if you trade more than $100 within the first 30 days after sign up, you'll be gifted a free $15 Bitcoin bonus. Check them out at Gemini.com slash go bankless. Hey guys, we are back with Robert Luschener. We are talking all about compound treasury. This

thing we are calling the defy mullet, let's start there. Robert, compound, as David said, is famous for kicking off defy summer. You guys started the whole thing with the compound governance token, with comp liquidity mining. Now you are at the forefront of launching one of the first institutionally ready defy applications. But I have a feeling that this is the sign of a bit of a bigger trend. Do you want to reflect on that? Do you think many defy protocols, all DFI protocols are going to follow compound into the institutional space. And what does that even look like? It's a great question.

I think first we have to appreciate that DFI as an idea and as a phrase is only three years old. You know, version one of compound launched at the end of 2018. You know, Si from MakerDAO, you know, launched that year. I mean, defy itself is like incredibly early. And I think there's still a lot of experimentation. that's occurring and needs to be encouraged with how these markets and products get built and how they get accessed and what gets built on top of them. So is this going to be a trend? Yes and no.

So I think what's going to be a trend is you're going to have protocols that wind up getting, you know, institutional products built on top of them. I think that trend only goes in one direction. It's going to be more and more and more. I think in a lot of cases, it won't be, you know, because these are open systems, it might not be like a team building both a DFI protocol and an institutional product on top. In a lot of ways, you know, I think the long-term trend is going to be, you know, people building an open protocol and other people coming in to build on ramps on top. They just have to see how it's done the first time.

And in a lot of ways, what I hope we're able to do is launch a product the first time the serve as a playbook and a template for, you know, everybody else in the space to follow. And so I think there might be this breaking of like a one-to-one relationship between, you know, building a protocol and an application on top of it. I think it might look like, you know, people building just a protocol or just a business on top. But I think there's going to be more of these types of products that emerge, where at the bottom, you know, or in the back, it's defy. And up front, it's a very simple experience.

Robert, you know the Money Legos meme. it's something that we use frequently on the bankless world and all of Defi about how these applications really just allow themselves to build on top of each other. My mental model for what's going on with compound treasury and the overall institutionalization of Defi is there are some centralized teams building out centralized products using Defi in the back end, and they're exposing that money Lego to the legacy world, right, to the legacy financial world and allowing the legacy financial world to build on top of the same money Lego that we find in Defi. but now what's going on in the old world.

Does that metaphor or does that mental model resonate with you? It does. You know, we might have to add a new term to the mix of, you know, the Lego to make, you know, the other Legos more accessible. But that's exactly what's happening. So there's always been this meme about the institutions are coming. The institutions are coming. I always get this metaphor of Paul Revere, like riding on his horse going,

the institutions are coming. But this really seems to be that, defy is actually making the move here like the institutions are actually staying where they always have been but it's defy that's taking the step towards institutions uh again does that metaphor reflect with you as well it does i mean you're in like this is a product that's trying to meet them on their own terms in the ways that they're already comfortable so you know uh fixed interest rates daily liquidity, you know, facing, you know, a simple counterparty, you know, not having to learn new skills at all. But I agree with you. It's defy moving outwards as opposed to waiting

for institutions to, you know, figure it out. And look, you know what seems like it's going to draw them in is the yield. I mean, 4% yield on stable coins. That's irresistible in free markets. The liquidity is always going to attract to the highest yield, low risk opportunities. Well, it's funny because we've been hearing for about 18 months or so from, you know, all types of potential users that they want to earn the interest rates from compound. And they don't want to or don't know how or don't have the processes to actually use the protocol itself. Like three years, years now. The only reason why we created Treasury is because, you know, this has been like this constant like, you know, a drumbeat that we've heard of like, we really want the economics, but we don't want to touch. like the smart contracts directly.

Just because if you're a hundred person or a thousand person or 10,000 person organization, like just setting up, you know, key management, you know, is oftentimes incredibly complex. And the custodians are just starting to figure out how to offer defy experiences. And so, you know, having to launch a product for them was a way to, you know, reduce the amount of time

before they became used to. Our friend Jim Bianco, Robert, you know, tells us that he gets taxed all the time from people saying, I'm in coyd base, but where's the D-E-Fi button? I don't know what to do next, right? And that's exactly what you're talking about. One last question on the institutions, and then we'll get your thoughts on D-FI,

and we'll close it out. So institutions first, let's talk about regulators. Does this start to get regulators a bit more comfortable with maybe what some of them are early to understand, which is this kind of open finance D-Fi movement? Does this help in that regard? I think it does. And I think that is a great embodiment of what I think,

you know, the long-term market structure of Defi is, where you have these open, transparent, autonomous, composable money Legos that are the foundation of everything. And access, you know, starts to be done by, you know, professional grade services on top. Where, you know, compound treasury, you know, yeah, it's working with a licensed partner and it's for a small number of, you know, customers that go through KYC, AML that, you know, are accessing this in a very traditional fashion. And I think long term, what you're going to find is that, you know, this is a great market structure because it means that you can build the best possible financial market that's fair and open to everybody. And yet,

you know, the primary users and on ramps to it are going to be things like exchanges, right? They're going to be things like coin base, like the defy button, you know, where, you know, regulators understand that, you know, the users that go through these easy button approaches are known and they're not, you know, doing bad things with it. Now, it's extremely hard to do bad things with defy in the first place. Like, defy is like the absolute worst possible tool for like money laundering in a lot of ways because, like, it's radically transparent and there's very few ways to, like, hide your trail. But I do think that that's going to be the market structure is you're going to have, like, organizations and exchanges like Coinbase with Defi Easy Button, right? Because at the end of the day, you know, like it's going to follow Bitcoin's market structure, right? People don't regulate Bitcoin, right?

But the businesses that serve as the on-ramps to it, you know, wind up, you know, being compliant. And I think that's a pretty good market structure for everybody. All right, Robert, let's close with this. This has been super informative. Thanks for guiding us through this. We want to hear, it's been about a year. We want to hear your final thoughts on Defi in 2021. Give us some insight. What does Defi need now? Where's the next inflection point going to come from? Just general thoughts on Defi into 2021.

So it's funny because I actually think in 2021, we're already far ahead of where I thought we would be for the year. You know, like even crossing $50 billion in Defi was like shocking to me. I think what Defi needs this year is, you know, one, you know, more tools for, institutions to be able to access it. But I actually think that, like, you know, improvements in the underlying blockchains themselves are going to make a big difference. So, you know, ironically, I think gas costs are some of the most important, you know, leading indicators for the usability of DFI. And I actually think that, you know, if, you know, we're successful with, you know, 1559, and if, you know, the gas market on Ethereum improves, I actually think if DFI is cheaper to interact with,

and more accessible to all. I actually think that that's what's sort of needed for the next major inflection point. And that can occur through L2s. It can occur through side chains. It can occur through all of these different approaches. But making the cost of defy interactions going as low as possible, I think it's the next major infection point. Awesome. Robert, it has been an absolute.

Thanks for joining us on bankless. Thanks for having me. Guys, there we are. Robert Leshner. We are on the precipice of DeFi summer V2. Maybe that's layer two summer. Maybe that's the summer of 59. That is EIP 59.

We will see lots of bullish news ahead. Guys, claimers, as always, ETH is risky. Defy is risky. All of crypto is risky. You could lose what you put in. But we are headed west. This is the frontier.

It's not for everyone. But thanks for joining us on the day of this journey.