The Pomp Podcast - #496: Stani Kulechov on Decentralized Lending

Episode Date: February 19, 2021

Stani Kulechov is the founder and CEO of Aave, a leading startup in the decentralized lending space.  In this conversation, we discuss decentralized finance, improving user experience and user interface, onboarding more developers, disrupting the banks, and decentralized lending. ======================= Exodus is an absolute game changer in the crypto wallet space, and we’ve teamed up to offer an exclusive discount for you, as listeners of the podcast. Sign up for Exodus today using my promo code Exodus.io/. This is a no brainer for both newcomers and crypto heavyweights - go sign up today.  ======================= Diginex is the first company with a cryptocurrency exchange to be listed in the US. Their ticker is Nasdaq: EQOS, and they are the first crypto company that you can buy stock in. They also have a crypto exchange called EQUOS, which has been built to institutional standards, but is available to everyone. You can trade Bitcoin and Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees, by signing up using http://www.equos.com/pomp ======================= Money On Chain brings Bitcoin to mass adoption with solutions to meet the needs of different types of users: a fully bitcoin-collateralized stablecoin (DoC), a bitcoin on steroids (BPro), and a dizzying bitcoiner option for lovers of leveraged trading (BTCx). All this, without requiring the delivery of private keys. Money On Chain - Bringing bitcoin into the mainstream.  Visit moneyonchain.com/pomp to learn more

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Stani Kulechov is the founder and CEO of Aave, a leading startup in the decentralized lending space. In this conversation, we discuss decentralized finance, improving user experience and user interfaces, onboarding more developers, disrupting the banks, and decentralized lending. I really enjoyed this conversation with Stani, and I hope you do as well. Before we get into the episode, though, I want to quickly talk about our sponsors. First up is Exodus. They're leading the world out of the traditional financial system by

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Again, Exodus.com. They're leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. Go check them out. Exodus.com or Exodus on the app store or the play store next up is diginex diginex is the first company with a cryptocurrency exchange to be listed in the united states their ticker is on nasdaq eq os again their ticker on nasdaq is eq os and they are the first crypto company that you can buy stock in they also have a crypto exchange called equos eq uos which has been built to institutional standards but is available to everyone you can trade bitcoin and ethereum spot as well as bitcoin perpetuals and get a five percent discount on all fees by signing up using equos.com slash pump again diginex the

first company that has a cryptocurrency exchange to be listed in the u.s ticker symbol on nasdaq eq os and you can go and sign up today at equos.com slash pump or use the link in the description lastly do not forget bang bang money on chain money on chain got like a little song to it money on Chain brings Bitcoin to mass adoption with solutions to meet the needs of different types of users. They have a fully Bitcoin collateralized stablecoin called DOC. They have a Bitcoin on steroids literally called B Pro and a dizzying Bitcoiner option for lovers of leverage trading BTCX. All this without requiring the delivery of private keys. Money on Chain bringing Bitcoin into the mainstream. You can visit moneyonchain.com slash pomp to learn more. Again,

moneyonchain.com slash pomp to learn more. Head on over and learn why. If you are into DeFi, decentralized finance, you can be a Bitcoiner and be into decentralized finance at moneyonchain.com slash pomp. Go learn more there. All right, let's get in this episode with Stani. I hope you enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

All right, guys. Bang, bang. I've got Stanley here. Thank you so much for taking the time to do this. Thanks, Anthony, for having me here. Pleasure. For sure. Let's just jump right into your background. You've built one of the more popular DeFi protocols. But before you did that, you had kind of a whole other career. So talk a little bit about your background and before you found Bitcoin, crypto, blockchain, Ethereum, etc. yeah totally um i think i've been in the space now roughly in general building things in blockchain over four and a half years and uh pretty much uh kind of like smart project based applications credit finance and before that actually i was i was in the legal industries and also i started

to study law before that so i'm on my i'm kind of a by education a lawyer uh and the reason i actually went to law was because before that i was building uh financial applications uh web 2 applications so practically what fintech is today neobanks and so forth and i i started practically uh building products very early uh i i actually uh my brother uh was had a lot of influence on this uh he loved to develop things on on open source uh mainly on linux and uh And somehow I also catch up the programming there when I was quite young. And yeah, some of the applications were quite interesting, actually. It was more related to financing app developers who releases applications in, let's say, App Store or Google Play.

And constantly with FinTech, I run into regulation. I was quite young, 18, 19 back then, and that kind of got me to study law. I just wanted to understand how the rules of business and rules of regulation work. And that was a good decision, because there I actually started to think about contracts, like legal agreements, and how to make them efficient, because they usually aren't. Many times, if you have a dispute, you are not going to the court because the system sucks, and you need to pay for it, and there's a high chance of risk that you get a bad decision from them. And what blockchain does and allows to do is that you can actually have a piece of code

so-called smart contracts that doesn't change. So once you deploy the code into a public blockchain ledger, it executes exactly how it's programmed. And this is, for example, how Bitcoin works. If you send a transaction from one address to another and you have the right, practically, instructions, it cannot go to anywhere else. And this is just a simple example of what may be inspired

to come and build financial applications. And I started with Ethereum because it was more kind of like an open system where you could do quite complex stuff and more what I wanted to build back that day when I started. Give us an overview of what you're working on now with Aave.

Like I mentioned, it's become one of the most popular DeFi protocols. What is it and how does it work? Yeah, in essence, What Aave is, it allows the users to come to Aave and practically deposit cryptographic assets and see them to grow. And that's how simple it is. So traditionally, when we look at cryptocurrencies and digital assets, we usually hold the market exposure. So it's kind of like we believe in the technology, we believe in the culture, and we believe that there is some future of the asset that we are holding,

whether it's Bitcoin, Ethereum, or Aave, or some other asset that is in a cryptographic form. And what's interesting here is that what Aave allows us to do is that you kind of get a cash flow for your assets. So not only you have the market exposure, but you also have the cash flow in form of interest rates. And this is what Aave practically does. So when you deposit, you basically start to see your balance growing. And at the same time, you can borrow from the protocol against your deposit. So let's say you could deposit from Bitcoin, which is kind of like Ethereum for Bitcoin or Ethereum in which you might be in a long position. But at the same time, you can borrow so-called stable coins, which are USD-paid currencies that you could use in decentralized finance, for example.

Got it. And so when you think through this, the idea of decentralization versus the centralized entities, talk me through the framework, right? Because the actual product experience or the product functionality that you're building here, it exists in the centralized world, right? There's plenty of companies that do some version of this. What is the advantages, in your opinion, between centralization versus the decentralization? And then why choose to build this as kind of a DeFi protocol rather than go build it as one of those centralized entities? Yeah, that's a good question, because I see benefit in the both system. I like the kind of like blending models that there is now, for example, in centralized finance, where we have BulkPy, we have Celsius and whatnot. And what there is interesting is that it definitely allows flexibility. For example, you can give loans against crypto collateral, for example, fiat currencies. But what's beneficial in DeFi is that practically because everything is on smart contracts, you kind of see all the transactions there and you can see also exposure there.

So when a user or anyone is looking at the Aave protocol, you actually see what's going on there. And that means anyone can audit, for example, what are the exposures there in terms of risk and what kind of collaterals there are used and what is the current liquidity there. And also, many of these things are actually built in rules. So because they're based on smart contracts, it actually means that you can't change those rules arbitrarily. If you want to change them, you practically need to deploy new contracts and invite that liquidity there, or then you have some sort of like a governance model, which is token-based, and the community governs how those rules can be changed. And what's surprising is that actually even centralized lenders are using DeFi in the backend, so they're also connecting to liquidity. So liquidity doesn't actually look at whether it's in centralized finance or decentralized finance. It just finds its way where there is arbitrage.

And centralized finance has different kinds of risks than decentralized finance. But some decentralized finance might have risks related to some amount of liquidity and also like the technical risk, which is practically smart contracts and so forth. But I think like the transparency and the fact that rules are built into the contracts is the main component here. Yeah. And so when you think through this, there's a couple of different aspects to the decentralized finance, right? There's obviously what I'll call kind of a base layer in Ethereum, which is serving as one protocol. There's then kind of other key components of infrastructure that applications will be built on top of. And then there's the actual applications themselves that have kind of built on top of a protocol and they're kind of the interface, if you will, or the user experience to the user. How do you think of Aave and kind of where it fits in that technology stack in the decentralized world? Yeah, I think kind of like Atal, we definitely have this – we have this horizontal approach in the sense that we're building – we build a protocol and that we are constantly improving with the community. And that means that that protocol is accessible by other smart contracts and other kind of applications that some of the developers might build on top of Aave. So it's practically developer-first protocol, mainly because it's developer-friendly.

It's very easy to integrate. The documentation is quite good in the sense. And that is kind of like how we went to the market when we launched the protocol last year. But we also kind of have always had the focus for the past years, whatever we have built, that we actually want to get touch in the end user. So everyone else was trying to solve in 2018, 2019, and 17 even, kind of like let's build a protocol that some other protocol will use. and kind of the end user aspect just disappeared somewhere and no one was taking responsibility of creating financial products for the end user.

And we always wanted to kind of like have this connection. And that is why we also built a user interface where you could connect with your own wallet. So it's practically bring your own wallet and you come there and it's Web3 connection. Then you can actually deposit into Aave and earn or borrow against. So we definitely do have both of the approaches. So most of the liquidity comes from other places.

I mean, there's over 100 different integrations and products built on top of Aave. But we are very proud that we also kind of like focus on the user experience and try to get all the way to the end user as well. So it's kind of weird doing two things at the same time, but it makes sense as well. Talk a little bit about kind of the governance mechanisms that you have. Talk a little bit about kind of, you know, the token versus the protocol. And for those that are unfamiliar with how some of these decentralized protocols work, just kind of walk us through it. Yeah, so kind of like now many of the DeFi protocols are based on kind of like a governance. And there used to be before this whole governance period that is very fascinating at the moment, there used to be this idea that once you deploy Decentless Finance, the contracts, you should not change them.

You should not upgrade protocols and that should be immutable code, which I kind of agree because in the sense, you know, you want to have this certainty and use the blockchain power and kind of like the immutability. But at the same time, I understand that kind of like when you deploy something, you might want to fix some sort of bugs or you might want to improve the protocol because innovation is something that constantly evolves. And I think whenever you deploy code, it means that your code, because it's public, it has an expiry date. And that means that someone else is looking at your code and they're developing the next innovation. So you need to kind of like continue innovating. And what governance allows you to do is you can actually deploy a code, and it's not immutable completely at that point, but what it means is that you can control how to upgrade that code based on the token governance.

And the beauty here in the system is that you practically can't go arbitrary, change those parameters. For example, our risk parameters in the protocol might be how much you can borrow against Bitcoin or Ethereum. What kind of assets could be elicited into the protocol? And this is kind of like what the governance decides and all the token holders in the process. And this is kind of interesting because they are actually controlling a protocol now that has roughly over 6 billion worth of value locked in those contracts, which is kind of

like fascinating at the same time. And all the interest that the borrowers are paying partially is set aside into the protocol DAO treasury. So DAO is this organization which practically governs it. And in the future, it could be distributed anyways, giving grants or practically back to the token holders or however the community decides to end of the day. So when you think through this, a centralized entity would essentially build a product. They would have users come in. They would have that revenue generation from the users. And then decentralized entity has a centralized P&L. And that's where kind of all of the profits would reside. Right. When it comes to these decentralized entities, in many cases, it's going into a pool and it's either being distributed on kind of a pro rata basis of ownership of the tokens or there's some sort of voting mechanism as to what to do with those funds. How exactly does the revenue that is generated by Aave, where does that go?

And then kind of how does that get distributed to stakeholders, whether it's people who have the equivalent of equity, the governance, the tokens, et cetera? Yeah, that's a good question. So each and every asset that is in the protocol has its own so-called reserve factor, which basically means like based on risk assessments of the community and also partially of the Aave team, actually it's decided uh what what should what could be the the reserve factor uh which means what is the amount of interest generated to the depositors is set aside actually to the treasury and currently it's it started to accumulate uh in the version two launch which was uh during mid of uh december and and actually those ones are sitting in that uh treasury now treasury so only the the our token holders can decide what to do with the treasury but the cool

part is that uh the treasury is growing in the form of a token so uh quickly to explain what what are a tokens is that uh as a depositor as a normal user when you deposit into the other protocol uh let's say uh usdc uh 100 usdc you get in return 100 a usdc which is kind of like certificate of of what you deposited kind of received into the protocol and and that's a usdc grows in your balance algorithmically all the time whatever your story and and that is practically interest-bearing tokens so if you send it to your friend it still keeps going and so forth it's kind of like a very interesting uh concept and kind of global permissionless savings account so the treasury actually also grows in a token so even like they're not uh allocated yet and where they

still are working there and growing uh in balance as same way as the a token holders are getting getting their balance increases and the other government is practically what we are now working uh uh quite a lot is to create a grant program from the dow that practically some of the a mechanism where community developers could just come and get grants. And how the process is actually working in terms of voting, you actually don't need to vote

yourself. So let's say previously governance, decentralized governance, you expected that everyone would participate and vote, but the truth is that not everyone wants to actually be part of participating actively. So you could actually

delegate your voting power to someone else so-called protocol politician and separately you could actually uh delegate your proposition power to to that developer that could create those uh proposals and put them uh into the blockchain practically pieces of code and the protocol uh politicians will vote on those uh proposals uh whether uh whatever is kind of like their agenda and your mandate that you gave them so it's it's It's a very fascinating part of the whole DeFi part. For sure. And so let's kind of play devil's advocate for a second, right?

There's a bunch of people out there who would argue, hey, why do you need a token? Let's maybe start with that first, right? So when you've got the token element to this, talk through a little bit as to is there a possibility to do it a different way? And if not, then how you thought of the design of the token specifically. Yeah, definitely you can do it without a token. And practically, you have some cons there. And one of the things is, for example, when we, and I will go into as well, tell an example why a token is also important in the kind of like backstopping the protocol.

But you could actually deploy the very same code and put it on chain. But the thing is that if you need to change the code and all the liquidity that is there, and you deploy another practically pool. What you need to do is you need to then migrate all the liquidity. So you need to say to the user that we draw everything from this pool and put it to the another pool. So it creates a bit of like a user interface issue. And I think kind of like being able to upgrade pools in the future,

but which is kind of like you have a high threshold on what can be upgraded and what can be changed is very important in the sake of innovation. Because if you stop innovating and you find someone else comes and continues that innovation, which practically means that that other community has more innovation kind of like an influence and might get better network effects. But in terms of like the governance token that we have, in essence, the Aave token holders, they are practically making risk-based decisions all the time. And that means that if they're voting for listing new assets that could be used as a collateral, they're voting for risk parameters. For example, how much you can borrow against a certain particular asset. So they're adding constantly risk or removing risk.

And once they're doing that, actually, there's an ability for them to transfer the risk themselves. So we have this kind of like a safety module where the Aave token holders can deposit their Aave tokens there and get rewards in Aave. And what they're actually doing is they're backstopping the protocol. So let's say if there's some sort of like exploit hack that leads to a deficit in the protocol, in that case, up to 30% of that stake can be slashed and covered the protocol. And this is kind of like something that was very important to add, because we were thinking during the beginning of 2020 that what's the most important thing to us and to get the protocol to scale? and that's practically deposits and liquidity and how to get the liquidity is that we have to provide as safe as possible protocol for the depositors and and and also beyond that like we have to have a way that if there's some sort of a mistake happening and could be an exploit or something

because people code and also like uh it's not always we've we've seen it defy quite a lot of hacks and we have to achieve comfort level if you go to the mainstream and also institutional adoption. So what the protocol governance is actually doing, not just risk-based decision, but they're backstopping the protocol as well from this kind of like a risks. And so when you think through kind of how this has grown so far, what are some of the high level statistics, right? Just in terms of market adoption, because one of the things that I think is really important conversation is there's a lot of tribalism. There's a lot just kind of kind of religiousness in crypto. Whether that's good or bad, I'll leave that debate to other

people. But the one thing that is very clear is that in many cases, we can just see what the market is adopting. And so whether it's on-chain data, whether it's companies revealing kind of their metrics and their growth, when you think of Aave, kind of what are the high-level metrics that you're proud of? And then also that you think is important for people to understand just in terms of validating the market adoption? Yeah. What's important, of course, is that the market size itself in Aave, so we have probably just 6 billion worth of value locked in the contract, which means that's the collaterals used for the borrowings. And of course, we have this so-called flash loan functionality, which means that you could borrow from the protocol

without a collateral for one block, one Ethereum block. And it works in a way that you can do in one block many kind of transactions, but then you need to settle on that block, which practically means that you can borrow from Aave with a collateral, buy an asset in exchange one, and sell an asset in decentralized exchange two, and then return the kind of like a flash loan. And if you don't return, all of those transactions will fail because you failed to fulfill one of the conditions of that first transaction.

So that's, in essence, the flash loan. There's a lot of information out there in the internet about flash loans and way more technical explanations. I will leave it to you guys. But that's kind of like we had $2 billion worth of flash loans last year. So that's an important metric. But even more important metric is that we have, so far in this year, $2 billion worth of flash loans. And so that kind of shows how intense the growth is. But I also like to emphasize the interest rates, because that also tells what kind of

liquidity crisis there is at Aave, because apparently, the yields are at 8%, 9% in the past 30 days, which practically means that there's not enough liquidity in Aave or in DeFi in general, and this is the moment where actually now institutions are looking at those yields and looking how they can participate and kind of like quantifying, assessing. And it's not hard. I mean, it is hard for institutions to participate because it's just DeFi is a bit bespoke and everything is completely new. And I think like, for example, the Tesla practically taking Bitcoin, their balance sheet and those

Those moves, they just strengthen the narrative of what blockchain, what cryptocurrency is, what Bitcoin is, and eventually, it expands the idea that actually, you find opportunities not only in traditional finance, but in this completely, for them, it's new world. For us, it's like we've been here for a while and trying to spread the message. Absolutely. When you think about what you're building, it is decentralized finance. It's on the cutting edge. If it is successful, it will disrupt a lot of what goes on in the traditional world. How do you think about interfacing with that legacy world, with any of the legacy banking institutions? Is it something where you just say, nope, we're not even going to really worry about them and we're just going to go build our thing? And if it disrupts it, it disrupts them. But they kind of have to catch us as the innovators. Or do you see ways that you can work with them and interface with them that's in a kind of a win-win or mutually beneficial manner? Yeah, I think in the ideal world, practically, you know, traditional finance and decentralized finance, they pretty much need to work together in the sense.

I think there's been kind of like many years that we have been doing best of both things. we have a different kind of terminology, we have a different kind of culture, we have a very strong meme culture. That's the product of the freedom if you can innovate and have fun at the same time. And with traditional finance, I think why DeFi is growing so fast and also building protocols in general, underlying protocols as well. If you take a look at what kind of development there is actually in Bitcoin, in the Ethereum protocol, and in DeFi in general. I don't know about other protocols. I don't follow them. But this is mainly what I actually keep my eye on. And the reason that it's moving so fast is pretty much because the technology is open source and anyone can

contribute. And that practically means that there's no competitive modes. We all are there in DeFi in a war zone in a good way. You know, we look at what others are doing. We try to improve our protocol. And if you look at, like, the only thing that matters is this constant innovation and how your team is able to do and innovate constantly. This is the kind of a thing I'm looking in our team

and also, like, in other teams I'm trying to help in this space. And if you look at traditional finance, there's a lot of molds. And this mold thinking is exactly what, for example, Warren Buffett and the previous financial advocates are telling that you need to find your mode. But in DeFi, there is no mode.

It's just like you need to constantly innovate. And the only way you could survive is you need to contribute as well. And this is what has happened in Linux, because it's not anymore in Linux that there's 2,500 contributors contributing for every release. But a big part of those contributors are actually people working in bigger companies and contributing to Linux because it's mission critical software. And I believe like in the future, also traditional finance and banks are also contributing into these open source protocols. And that's good for them as well, because it kind of shifts the legacy systems that they have into this kind of like a better backend of finance. And they can focus on creating better services for their own user base.

and so when you think through um kind of the regulatory framework right so we talked a little bit about interfacing with the banks and the cooperation there uh you guys have this uh kind of license uh in the british financial system maybe talk a little bit about the license that you have uh why that's important as you continue building this and then kind of how you think about even though it's decentralized um you know kind of by nomenclature you still have licenses and so does that mean that all of DeFi will eventually kind of have regulations around it or just how you think through that? Yeah, so practically what we have, so there's two things. There's the Decentralized protocol that is running autonomously on the Ethereum blockchain and it's governed by

the whole community, token holder community. But also we basically have an entity that is responsible for integrations and building businesses on top of the protocol. So there's like two separate kind of like a thing and uh with this entity that we have in uk we basically went and applied for electronic money license and the idea is there that we we want to build gateways into the decentralized finance and and that means that means for the mainstreamers that actually don't have direct access to defy they could actually uh convert their pounds dollars euros into stablecoins, and then interest-bearing stablecoins, and get the DeFi exposure. But in terms of regulation, these are two different things.

And it boils down to this bigger discussion, like how to regulate protocols. Because if you think about it, so Bitcoin is a protocol, Ethereum is a protocol, and DeFi, Decentralized DeFi protocols, they're all financial protocols in one way or another. They have some inflation, which is kind of a way to reward the upholders of the network. And then many DeFi protocols, they have just wider functionality than, let's say, securing a network. What our system does, our contracts, basically secures lending and borrowing, platerals, and so forth. So in this sense, if you think about all of these DeFi protocols, it's kind of like an ocean. And I think when it comes to regulation, what's the best thing and most efficient to regulate is actually the ports that provides the access to the ocean.

And that's the kind of exchanges of the world and the front ends that take custody of the user funds. And I actually believe this might be actually happening is that the biggest boards will be those centralized participants that are having now, let's say, centralized exchanges or centralized lending services. And I think those will be the kind of like a gateways to DeFi. So when you think about the biggest obstacles, right, is for the developing of this ecosystem and specifically Aave and the decentralized protocol that you're building, what are the biggest obstacles or challenges moving forward? Yeah, I think kind of one of the biggest issues, in my opinion, is definitely that we are trying to build, like we are trying to use the same security into, you know, all the transactions that we have. For example, if you take a look at the Bitcoin network, so what's interesting about Bitcoin is that, you know, you have this network that uses the most sound and kind of like a security method to ensure the store of value, right? So practically, it's very difficult to break that protocol because of the consensus mechanism and you're using electricity to kind of like secure the network. And that's very good in terms of storing of value.

And when we look at, for example, what's going on in Ethereum, what's interesting there is that all the transactions are not equal. So let's say you might have trading functionality or you might have lending and borrowing. You might have actually gaining their collectibles. So it's just like operating system where you can have any kind of application. It depends how you code it. And what's the challenge there is that it's kind of like a traffic jam at the moment because everyone wants to build and use the same level of security, which practically means that the network gets congested and everyone is paying the same price, which is actually the high price. So now the kind of like a question is that how we solve the scalability, so how we can apply the security where you need it more and apply less security where you actually don't need it that much. This is like where the discussions of layer twos come in.

So, for example, if you have site change on Ethereum, that you actually could actually do most of the transactions and settle into the Ethereum network and keep the state that way. So I think that's the kind of like a current challenge that we have in the whole ecosystem. Got it. And then when you think about kind of the user experience or the user interface,

Obviously, when you compare it to, I don't know, let's say Square or Robinhood, right? Maybe the functionality is different, but just the kind of slick design, the gamification, there's so many things that they've done really well that make it dead simple for users to use those kind of fintech platforms. DeFi, Bitcoin, Ethereum, and kind of all of the products, they don't have a lot of that same kind of design superiority, if you will. is that going to change how will it change what is needed to kind of drive that change just kind of talk a little bit about you know what's going to happen from a user experience in your

user interface standpoint yes definitely i agree and like a few years ago i mean the user experience was a little more horrible so it was so difficult you don't have even stable coins and and it's very like uh everything was way more clunkier back then so we we have we have improved quite a lot But even now, like in terms of like user experience, it's not that super actually bad because, you know, depositing into Aave is just one transaction away if you have already assets in your wallet. I think like, and same if you want to swap tokens, there's very easy way to do it in, for example, in Balancer and so forth. But the kind of challenge is like, how do you enter into space when you are not like crypto native? So for crypto native people like you and me, it's just like, it's that simple, right? But then when I go to someone else, to a friend that isn't in the ecosystem, like how they

will understand and how they understand to store their keys. And I think it's a question also a bit about education. So I really liked the tweet recently on what Elon Musk actually tweeted that, you know, you should kind of like avoid wallets where you don't have the keys, because that's the kind of like a thing. And I don't think that actually you need to avoid, I mean, you need to choose, but that's like the main thing

that people need to be educated in. And I think like in terms of like the approach, why Robinhood and how they're improved the kind of like user experience is because those applications were invented to basically fix the user experience the same way as financial technology, FinTech, is invented to improve the normal banking experience.

And what DeFi was invented, and let's say Ethereum Bitcoin was invented actually to fix the backend completely. So the approach is completely different. We came here to fix what actually is a very legacy system and make that better. And now we're working our way down all the way to the user experience, which is kind of like now the last part that is going to get fixed. And in fintech, Robinhood, they actually started from the user experience. So they have an interesting approach there. And that's why they get traction. But we're working towards fixing that. It's the last step, but it's the most important one. I love that. If you zoom out, you look 20, 25 years from now, talk to me about the future of DeFi. Is it the dominant financial system? Is everything decentralized? It's all open protocols and users are using it, you know, and kind of the centralized system is completely forgotten and they've had a transition to the DeFi world. Is it a coexistence? What does that world look like? And kind of how do you just think about the future of DeFi, you know, 20, 25 years out? I think what will happen is that DeFi will be quite big so definitely like it will be a kind

of like an ocean liquidity ocean and you could plug in you could draw liquidity from from this ocean and you can supply liquidity but I don't think like I don't think it replaces completely like centralized providers or centralized finance because in essence like it definitely brings efficiencies but uh kind of like you don't want to put everything on on chain because it's costly and in some cases you want to use a database um and and you know and settle just periodically in in the main chain and most of the financial transactions might happen in a trust network so let's say if you have circle you have revolute you know they could interact between each other by using uh the the the blockchain but also if they have a trust network and and they have funds

in, let's say, Bitcoin and Ethereum, they could also decide between each other that, hey, we trust each other, so let's just move database numbers and save some transaction costs and we both have a good relationship. So it doesn't need to boil down all the way to practically that let's have all the databases

in blockchain because you won't have to apply that security cost. And I'm not sure all the billions of people want to pay for that. But it will empower a lot of people. So now, if you take a look at the A tokens, for example, it actually is a permissionless global savings account. So anyone who holds those tokens are actually getting USD-nominated yield. So they actually have access to stable currency, USD-nominated, and that increases in balance.

And that's quite a cool thing, especially in places where you have local currency that sucks completely. And like has this kind of like huge inflation. And I think it will empower quite a lot of people. And I think we're doing very well in the deposit side. And now where we kind of like are trying to work is in the borrowing side, how we can make underprivileged loans and how we can make this system work and empower people. And I think DeFi is just one thing. I mean, there's more in life than finance, right?

So it's pretty cool that if you can empower things that are non-DeFi related, NFT space, creator economy, you know, like creators that are creating art and accessing to the space or through labor and helping there out and off-chain as well. So I think like there's way more cooler things than finance, and I hope like we can empower it to some extent. Absolutely. What do you think is the other interesting projects in the space? I know you've done a ton of angel investing, and you probably can't name all of them that you think are interesting, but just two or three that off the top of your head you find fascinating, valuable, and worth paying attention to. I love the project. It's called Paraswap. So practically what they're doing is they're – I mean, DeFi liquidity is all over the place.

So you have these decentralized exchanges that work in an audible fashion, which are very complicated to use. And then you have this kind of like automated market makers, such as, for example, Balancer, Uniswap. So there you just provide liquidity and then other users can just swap their assets. And what Pyroswap is doing is that they're pulling all this liquidity into one place. So you just don't need to shop for your liquidity and just exchange assets without getting this slippage. So this is, like, a very powerful thing because it actually, like, pulls all the liquidity into one source, and you can integrate that into whatever you're building if you want to access DeFi liquidity. And I think the interesting part is that they do it in a very gas-efficient way, so that's something that they're very proud of. And another project, which is quite fascinating, is called Opium Network.

So the name is a bit funky, but what they actually do is they do derivatives on chain. And what's interesting there is that they have a system where they can list different kinds of tickers and actually provide insurance, because insurance is derivatives. And that is what the DeFi space needs at the moment. So when we have institutions, they are looking at what, you know, if they're depositing into Aave, they're kind of like trying to quantify what's their risk, how they can hedge their risk. And that is why like insurance plays quite a big role in space. So those two things are, for me, something that has been progressing recently quite fairly well.

absolutely uh before we finish up i ask everyone the same three questions uh the first is um what is the most important book that you've ever read most important uh i i think like recently i would say the the book's name was empire of cotton and and you know interesting there was because it was like cotton as a kind of like community uh you know we all wear cotton so uh practicing was like how it affected kind of like our lives over the centuries and like how it has been like part of everything that's almost everything that's happening in this space and this is it doesn't just tell about cotton but it also tells about like instrument in general so let's say cotton is just a community uh in one way we see like

the currencies as a community or whatever we're creating and how we place like a lot of importance in our culture and i i think like uh that was one of the important books and i don't read much like that's i have to say uh it out loud because like i would love to read but it's just like being in this space it's just like horrible like if if anyone is going to defy like like don't like think twice like you will like have no personal life so you know this is something you need to think of very seriously i love it uh the second one's more personal uh sleep um i uh i've got friends over at eight sleep and they've convinced me to uh to not sleep five or six hours but more like eight or nine uh and they've built an awesome product suite uh including this uh

thermoregulated bed which basically allows you to make it hot or cold i sleep super cold um and absolutely love the product and have gotten much much better sleep because of it what's your sleep schedule um and and kind of how's that evolved over the years yeah so uh i have to say the sleep is the most important thing for me so if i if i can't get enough sleep i like my my performance gets it's going to be very very weak so it's really like if i don't get like enough dream or enough like rest like i i definitely will will will be like a weak person and it's just something like it's very frustrating for me because you know it's sometimes i need to wake up middle of the night and help someone and and uh or just like i have

long days and you know early wake-ups and it's it's just killing me because i know that i'm kind of like angry to myself because i can't function properly and and this is something is very difficult so i think sleep is the most important thing you you need to have and if you sleep well you can actually have more healthy diet as well because you know you don't your body is working uh better biologically so i think that's that's that's that's something i also if someone is looking to come into the fight you might say say that it's not easy easy to get some sleep But sleep has completely converted me. I like to joke that I'm a convert to the sleep religion, so I'm all in on it.

Last question is more fun. Aliens, are you a believer or a non-believer? Well, I do believe that there might be some other people looking maybe like us or not like us. So definitely there might be somewhere. I haven't seen any, so that's the problem. like i i would like to see at some point if there is but the probably issue is that traveling from other place might take some some time but not to sound too too crazy like crazy person i mean there's there is like a little value in the protocol at the moment so i would say that

i believe but i haven't seen any any anyone anyone that looks suspicious absolutely not suspicious uh what what uh one question do you have for me to finish up you You could ask me one. What do you got for me? Yeah, maybe I would ask you kind of like a question about what do you think about DeFi? Yeah. Look, I think that it's very obvious that decentralized finance is going to be a thing, right? And it's probably going to be the main thing. I think that there's lots of people who want to put me into different buckets, right? For years, people have been like, oh, he's a Bitcoin maximalist. And I've always kind of said, no, I actually don't think that I am. It's just more so that most of the things that I saw in the very, very beginning of DeFi, frankly, just seemed unsustainable to me, right? And so one of the examples I always use is if you go back to 2010 to like 2015, there was a ton of companies in venture that would go when they'd brag about, look at how fast we're growing.

Look at how great our growth rate is. And then what you would realize is like they weren't actually growing fast on an organic standpoint. They were simply just spending a bunch of money to drive users, right? So if you look at like the direct-to-consumer companies, all that kind of stuff. So when they shut off the advertising, growth shut off. And so what I think that, you know, let's look at like yield farming, for example. One of the big kind of knocks I've had there is saying, look, it's unsustainable to simply say, hey, if you come use our product, we're going to give you, you know, 200, 300% annualized returns. Because we're essentially just using paid marketing, right?

It's a new version of paid marketing. Once I stop doing paid marketing, then like that kind of mercenary type user is just going to go find who's paying 300% today, right? They're just going to go run to the next one and kind of just leave the protocol to do it. again, that doesn't mean that DeFi is not going to work. It just means that that specific application. Another thing that I've been very kind of critical of is ICOs, right? And so in 2017 and into 18, I kept telling people like, look, people are going to get in trouble for this stuff. It is the sale of unregistered securities in the United States. I don't think that that's the best thing that people should be doing. Therefore, be careful. And again,

I think people took that as like, oh, he's anti, you know, innovation, whatever. Look, I'm just calling it how I see it and ended up being right on that. And so with all that said of like, I've been very, very critical of some parts of it. Ultimately, I look at decentralized finance as if you take everything in the traditional world, everything's going to get digitized. You're going to have digital stocks, bonds, currencies, and commodities. That's been my thesis for years. Where that plays out, I think, is where a lot of the debates, like when people say, like, what do you think about DeFi? like everyone wants to go debate like what technology stack it gets built on to me it's

like before we even get into that debate it's just like of course decentralized finance is going to be a thing like you got to be an idiot to not think that at this point what that entails though i probably have a nuanced view right like digital uh digital decentralized money right a kind of an open protocol like bitcoin to me is defy right so like that is part of decentralized finance it's not the totality of defy but it's also not excluded from DeFi, right? It's one piece of it. You've got to have decentralized kind of sound money. Then if you start to go and you look at, let's take what you're building or maybe with Uniswap or something like that. Like I always just say to people, I don't think I'm smarter than the market,

right? And like, you can't argue against $6 billion locked in value. You can't argue against, you know, take a Uniswap where they're doing between 600 million to maybe a billion dollars and annualized fees on that exchange. Like those are big numbers that are very, very compelling. And so I think that everyone gets caught up in this like religious war to some degree. And to me, it's just like, look, I actually don't care if it gets built on Bitcoin,

if it gets built on Ethereum or gets built on some protocol that hasn't been started yet, right? Like at the end of the day, I just know that we're gonna have a decentralized, open digital financial system and really just a digital, open, decentralized system in general,

not just finance, but everywhere. And so for me, I'm not a developer. I'm not going to be the one to go build the overarching dominant platform. Instead, I just want to understand who's building what and where is the market adopting things, and then just go and accelerate what's already happening. As an investor and someone with a large audience, that's my greatest contribution is I can provide capital and then I can provide distribution from an awareness and user acquisition standpoint. And so I've been spending a lot of time kind of just trying to understand, you know, what's working, what's not working, kind of what's do people think is sustainable? What do people not think is sustainable? But, you know, it's just a foregone conclusion, if you fast forward, you

know, 2025 years that like, everything is going to be decentralized, everything's going to be digital, and everything's going to be on these open protocols. I think that just people get caught up in like the debate today of, you know, which one wins on this fact or that fact. And at end of the day like a lot of them are doing different things right like it's you wouldn't say that ave is competing with uniswap you wouldn't say that ave and uniswap are competing with bitcoin right like those are all different things going after different use cases different problems and so i think that people just have to remember that like the world's not as black and white as they want it to be uh and the nuance is important here so that's kind of my general

thoughts on it yeah i definitely agree i mean those were pretty good points i mean like you have different kinds of protocols and different kinds of applications and and i think uh the device kind of like wider than than we see and and that's something that uh people need to go over with with this kind of like tribalism because like there's like there's so many things to build you know so many people to help it's just uh it doesn't make sense to stop kind of like and and you know push back because there's just uh there's just innovation and opportunities everywhere like and you can build them very well. And that's the cool part.

Absolutely. I completely agree. Where can we send people to find you on the internet or find out more about Aave? I think on the Twitter, Aave, Aave is our handle. So following that,

there's a lot of stuff. Our Discord, you'll find our Discord there as well, Aave.com. You will find Braids and also our social media, Telegram. I'm pretty active myself. it's it's but people get quite amazed that they can actually reach me out and i like to keep it

that way uh you know can't can't you know be discussing whole day on topics but you know but but still i like i love to talk with people so that's pretty cool i love it you're doing a fantastic job uh people obviously find it valuable so keep going and we'll have to do this again in the future yeah definitely thanks for having me here anthony Thank you.