DAS Transcript

DAS Transcript

I'm Diana Biggs, Chief Strategy Officer of Valour, and joining me on the panel to discuss the bridge from TradFi to DeFi, Shawn Douglass, CEO and Co-founder of Amberdata; DJ Chen, who's the CEO of Change Finance; Martha Reyes, Head of Research at Bequant; Johann Bornman, Group Product Lead at MetaMask Institutional; and Uddhav Marwaha Buaha, the CEO and Co-founder of Friktion. To kick things off, can you tell us where you're seeing the most demand coming from institutions and what they're looking for when they access DeFi? Let's start with you, Uddhav.

Top 5 Takeaways

1. The smartest people in traditional finance are entering DeFi and trying to understand and capitalize on the opportunity. They want to understand how to generate yield, make markets, and generally get exposure. 
2. There are protocols that they're doing permission, privileged, KYC, AML pools that allow financial institutions to stick their toe in the water and safely get exposure to yields that they can't in traditional markets. It's a safe way to engage, and that's bringing institutions into this space.
3. Institutional interest is everywhere in the world; it is totally global. The regulatory climate in each country, and the need for new banking products and currency, are driving factors in adoption globally.
4. Derivatives rule the world in traditional financial markets, and we're starting to see that in DeFi. Derivatives offer a surgical way to quantify risk, take positions, and build structured products. This will enable institutional adoption. 
5. As an asset class, DeFi hasn't really been explored. There's a lot of innovation to be done to create these structured products that are both transparent and capital efficient. In the future, there will be new products that will only be enabled by DeFi. This will bring a tsunami of innovation that will change the whole face of financial services.

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I think it's a great question. Because as you mentioned, we've seen the rise of things like the Aave Arc compound treasury, which essentially represents a permission equivalent of a protocol that exists today, fully on chain. And there are a couple of differences, particularly the guarantees you get maintaining the transparency that Shawn referenced earlier. And really, I think we will see a world in which they both live together because of the requirement for institutions to know their transactions and other counterparties. And I think one of the most powerful things about DeFi is the fundamental infrastructure it gives you. So you can take a smart contract that we deploy in Solana and deploy anything you need to track a transaction through it. I think that feature will always be there. The question is when these option institutions interact with Friktion or any protocol for that matter, they want to know not just the institution, but they also want another counterparty risk of that institution.

And this has been historically a huge challenge for CFI or traditional finance because that information is often. The risk there is generally reputation based, and it relies on trust. And when you come to DeFi, it wants to take things that are very trustful and make them trustless. So you don't need to have trust in a single institution, but for an institution coming in, let's say to borrow large amounts of capital in DeFi, they need to have some sort of privacy preservation about their reputation, their identity. And we've seen really interesting solutions. Things like X-Margin Credora, which comes in and aggregates institutional data, particularly on the borrower side, and provides real-time risk monitoring of their APIs or uses APIs across all their centralized exchanges and aggregate and pass that information onto on-chain protocols like ourselves. So people who are lending into these polls can have an understanding of what the risk of that counterparty is. I think that's a very novel solution, and I think we're going to see more of these things take off in the next cycle.

Johann Bornman:

Maybe just to bridge onto that. I think we see a lot of innovation within detention life identity. So one can make the point that most wallets go to KYC today. Custodial wallets, whether catering to institutions or non-custodial wallets for consumers, go through the field on ramps, go through OTCDS, go through custodians. And then often, as Shawn referenced, you have the Maples of the world that also apply an additional layer of KYC.

So through that process, a decentral identity can be issued that lives with inside the wallets that can make a claim in the same way that we have a driver's license that we use to rent a car or a library card to access a book at the library. We can generate decentralized identities living with the wallets that give wallets access to these DeFi pools. And then also to Diana's point, it caters to the decentralization to anonymity, and, very importantly, caters to the values of permission innovation. And this is something that we're working on with Cercle. We're also working with a bunch of other decentral identity providers to ensure we can give scalable access to institutions across DeFi.

Martha Reyes:

Yeah, certainly. I mean, we're a regulated entity, and we take the KYC thing very, very seriously. And so do our clients, and being based in Europe, EU Parliament recently passed a regulation that means you have to know who your counterparty is when transacting on the blockchain. So that's very important, and we use fire blocks for the whitelisting functionality, and blacklisting is also possible. So once a client's been onboarded to Aave Arc or UniSwap V2 and V3, even though they've been onboarded and KYC, it's a constant monitoring of every transaction, even within the permission pool to give that extra layer of confidence. It is by far the most important thing on the institution. But as more innovation comes, DeFi has only been around less than four years, so it's very early days. So.

DJ Chen:

Yeah, I think in the smart contract level, a lot of things can be done not only to keep the privacies, but also need some more sensor-like. We only allow some addresses, which pass to the KYC, can interact with the smart contract leader. So these could be done in the future, but at this moment, everything in Web 3.0 is transparent and decentralized. Anyone, even if wallets, some wallets, you have some KYC process, but I can use my terminal to interact with the smart contract, anyway. So it does not stop any hackers or bad guys from using that. So that would be a problem, but when the policies and regulations are clearer in the future, then we can develop some more features in a smarter contract to support that.

Diana Biggs:

So at this point in time, it is still, as you said, a very experimental space. So certainly, risk management will probably be on the minds of many institutions. How can a non-crypto native institution navigate that within the DeFi landscape?

Shawn Douglass:

So from a risk management perspective, there's this concept of transparency in DeFi. We just went through this liquidity crisis where we had our long-term capital management moment with three arrows, and a few lending platforms blew up. You don't know what's going on behind the scenes in those lending platforms, but with many of the public lending protocols; Aave, Compound, Maker; you knew exactly where people, how leveraged were they, were people being liquidated, were people adding liquidity, were people removing liquidity, it's completely transparent. So from a risk perspective, there's regulatory risk, there's KYC, AML risk. But transparency and understanding liquidity and flows, inflows, outflows, relationships leverage; it's actually pretty leading edge. Also, then understanding the stablecoins that are basically underlying for all of these assets, can understand their variance from pegs and their flows. There's actually really, really good telemetry into what is happening in DeFi better than traditional financial markets anywhere, I think.

Martha Reyes:

Right.

Uddhav Marwaha:

I think there's also a challenge when you just think about risk management in DeFi today, there's no place, there's no protocol-wide standards or chain-wide standards that say, this is what you need to report, you need to report your strategy performance in this way. There's no standardization of these metrics. And I mean, at Friktion, this is quite important to us. Our focus is portfolio management and you can't manage your portfolio without knowing what the VAR of your book is. Let's say if you're trading, and if you're in DeFi, that term is probably alien to you. So the first step is probably just a language, is getting over the syntax and the kind of crazy words that people use in DeFi today. I think the concept of staking is now getting a lot of attention because it's easy to understand, and it is one of the most simple but uniquely defi-nated forms of getting yield.

I think one thing we work on a bunch at Friktion is education for these institutions. The process of onboarding, it can take months, but at the end of that, we know this institution is competent and capable of touching most DeFi applications and being able to assess the risk of that protocol. Because the new idea of counterparty risk is in DeFi smart contracts, if it's true DeFi. And being able to vet and audit a smart contract is not a skill that everyone's going to have, or that we should expect everyone to have. So we need to build institutional access to audits for example. And I think there's a lot of things that are being done to enable that right now and being able to, beyond the price risks, explain what's going on in DeFi is going to be super important.

Johann Bornman:

Yeah. I think we think about it in terms of the typical transaction flow process that organizations go through. So how are they thinking about research? How are they thinking about compliance, executing, monitoring, reporting, custody. And through that, I think that our first principles is access. So, how do they get access to the long tail of DeFi? And this is obviously through the wallets and with minimal institutional. We think also very deeply about what is that curated safe city experience for institutions. And then lastly, programmatic access, how can they trade programmatically? So for us, that's kind of very much the first principles. And then on top of that, the next layer that you need to find is that institutions think very deeply about custody. How are they doing key management? And that normally coalesces around which jurisdiction they're in, the compliance requirements they might have, insurance... they might have to work with a licensed custodian, for example.

And so a big focus for us is being custodian agnostic and connecting to custodians in different jurisdictions. And then on top of that, you have things like monitoring reporting. As I've mentioned, I think we're seeing a lot of innovation in this space, making sure there's detailed transaction reporting that they can provide to their fund admins, make sure they monitor their risk positions. Ultimately though, I think DeFi currently is still incredibly fragmented. It's still a very hard ecosystem to allocate to, unless you are DeFi native or crypto native. And I think because of a big focus we're seeing as now, it's not just innovation in this space and we're building these tools in terms of risk management, but also thinking about standardization. And this is something that we focus very deeply on. How can we make sure we can sort of standardize that institutional user experience?

And I think last thing to say is that I think we're seeing a lot of innovation around to Shawn's point, smart contract risk management. So how do you know that you're interacting with the right smart contract? How do you know that the transactions you're signing has been decoded, that you know that you're interacting with the right pool, you're calling the right smart contract, you're not being rugged in any particular manner. And if a pool is being hacked, that you can have some sort of smart contracts in place that protect you from that. So we're seeing a lot of innovation in the space. And I think as the market matures, you'll see more institutions step in because the tools will be there to support them to do so.

Martha Reyes:

Because we provide lending to our clients, we're very focused on the risk management from that point of view, that making sure that the clients, if they're market neutral, then we sort of look at slippage. If they're taking directional positions, we monitor the leverage. And this is one of the great things about DeFi that we can monitor the wallets and see what they're doing again in real time, if we can reduce the leverage, if we think it's not appropriate, and we use the same sort of metrics or instruments that you would use in traditional finance that we use for the centralized exchange trading. So for directional trades, we look at value at risk. We do stress testing. We look at maximum drawdowns and then the additional layer we would say to that is the protocol risk, the smart contract risk. And there are providers out there now in the space that are looking in at that providing scoring like some situation you get in traditional finance, they provide scoring, there's auditing that we have to do also in a continuous basis.

And that provides us with the risk management tools that we require. However, I mean, there will always be risks and I think there are different sorts of investors and investors might have different buckets of risks for their capital. So they might be willing to deploy just like in traditional markets, you might have a client who's willing to deploy into, I don't know, RG bonds back in the day and others who are only comfortable with allocating to Canadian bonds. So I kind of view it in that light as well. You'll always have different risk appetite.

DJ Chen:

I think the reason why the institutions are interested in DeFi is because the high yield, it's nothing to deny. But from the very beginning, I think the institutions needs to take a very deep dive into different protocols. But of course the institutions, they will only try the established and well known protocols like Compound or UniSwaps, something like that. And the very limited access to those non-unknown protocols. So this is the first thing they will do, try some well known protocols. But at the same time, I think not only the institutions need to know the features of that protocol, but I think the institutions needs to dig deeper, like hire more technical people, to understand how these different protocols they are built on each other.

For example, I think most of the institutions, they probably will not know there could be a kind of flash loan attack on some certain protocols for the first time, from the very beginning, but they were learned little by little and only when they have a technical team to understand these are the fundamentals and how different protocols they interacted with each other. Then they can manage their risks and try to use different tools to maximize their return at that time.

Diana Biggs:

I think it's interesting that you bring up yield because I think with that, it can sometimes be a double edged sword and might actually have been an aspect that was scaring some institutions off. I don't know how the rest of the panel feels or what you saw in that. And especially now given current market conditions and some of the things we've seen.

Shawn Douglass:

I think there's no free lunch. High yield generally implies there's some risk involved. I don't think anybody was really surprised when things were doing 20, 30% yields, and it blew up. Crypto, for me, is less about decentralization. It's more about incentives drive behaviors. And these protocols have incentives structures that incentivize behavior... Maybe that's to get you to lend so somebody can borrow so you can generate yield. And then institutions are interested in this because they can generate yield that you can't get from US Treasury bonds, which are a joke today. And they can also build structured products around some of the options protocol that are going to change the game. People are going to build very sophisticated financial products based upon these yield generating derivatives and what have you, and be able to package those and spread that risk and make those institutional assets. So it's an interesting time.

DJ Chen:

Yeah. I'm quite awakened by this question. High yield, I think, especially in DeFi the high yield doesn't mean high risk. Sometimes it doesn't necessarily mean high risk. Let's think about a lot of centralized finance projects, they fell in the past two months. A lot of even centralized exchanges and some kind of CFI, they fell, but none of those well known DeFi protocols were affected. So that's the truth, because the decentralized finance, they build the mechanism in the code, and everybody can see it. And when something happens, it will be very well known what these protocols will do. So I think it doesn't necessarily mean the DeFi high yield means high risk.

Shawn Douglass:

But you have to tease apart what's the source of that yield. Is it spreads across time? Is it spreads across products? Is it-

DJ Chen:

That's correct.

Shawn Douglass:

What happens when a liquidity dries up and you're long this and short that, and you can't sell that. And all of a sudden you're like, oh shit, that didn't work out. So there's always some trade-off, understanding the mechanisms.

Martha Reyes:

I would agree that some of the yields that we saw, to us, seemed unsustainable, and let's face it, correlated with some of the fafiness we were getting in traditional markets and to do with a lot of the liquidity, which is now getting taken away, and guess what, the yields have converged more with traditional finance. Yields are part of it, I mean our clients, particularly their traders, their arbitrage, it is largely speculative, but that is not the only purpose of DeFi. DeFi could eventually end up being the, in a best-case scenario, the back end of the financial system. I'm sure a lot of people here would love to see that. It could be, people could be borrowing for working capital purposes, for investment purposes, companies that need access to capital, for example, accounts receivable. And then tokenization, which I think there's another panel just around that.

So I think the yields are a part of it. It was attracting liquidity. We don't think that those yields are necessarily going to go back to those levels, but DeFi has so many other advantages. I mean, one advantage of DeFi, the fact that it's permissionless, anyone can build on it, doesn't necessarily go well with the regulatory. So we're going to have to compromise on that, but there are other strengths to DeFi, which is: you have instant settlement. What we talked about before, complete transparency, so we can monitor and you can see every loan, who's borrowed what, what the collateral is. It's all there.

DJ Chen:

And I want to add on this. Besides the high yield, I think the flexibility is also an advantage of DeFi. Just for example, our product, Chainge Finance, we aggregated liquidity from all the decks on all the chains. And at this moment, we are able to provide more than 70 billion US dollar value of liquidity at the same time. So you cannot imagine even in a centralized exchange, if you want to convert, for example, 500 million USDC into USDT, it will take you maybe one day or even two days, if you want to get a very, very small slippage. But in our application, or all through our API, you can just convert 500 million US dollar of USDC into USDT within 0.1% slippage and finish in two minutes. So, this cannot be done through a centralized way, but in a decentralized way, it can be done.

Martha Reyes:

And you don't have to worry that you're placing a trade. Someone's selling that order book, the float to another party, or you don't have to worry about, we have the LME situation recently. I mean, I'm London based. They just closed the market down because the trade's going against them.

Diana Biggs:

Interesting. I think those are fantastic examples of the types of innovations that we're seeing. What else can we expect from DeFi that institutions will want to go for that they're not able to get out of traditional finance? I think Uddhav probably in product innovation, you're at the forefront there. What are you seeing?

Uddhav Marwaha:

Yeah, I think in terms of innovation, I generally think about to touch on the point of yield too, yield just talks about the upside you can get. I think you miss the risks of valuing what the trade off comes with that yield. And generally in DeFi, right now there's like five ways to earn yield. And this is something that every institution coming in is asking us. And we simply tell them these five ways, we go to the five ways. The first one is liquid staking. So you're validating transactions in a network in order to receive an emission in the native token of that network, let's say the Soldano network. And second is lending or borrowing. So you're lending into a platform that's in DeFi today's completely over-collateralized, which is a massive innovation space for us. At Friktion, we think about getting yield to users in many ways.

And the idea of under-collateralized lending hasn't scaled and DeFi yet. I think in total, we've really only originated like 2 billion of under-collateralized loans. And given the transparency benefits we mentioned before, I think that number should 10x by the end of next year if we do our job correctly. And I think what we're really excited about is how can we bring that digital identity on chain, the reputation that a market maker, a borrower, or any institution has off-chain onto Sauna and other blockchains. The third form of yield is liquidity provisioning into automated market makers, which DJ was talking about. This basically democratizes the idea of market making, which is traditionally kind of held by five institutions in CFI and lets anyone provide liquidity to a pair of two assets and makes those assets tradable and very accessible to anyone in the world. And in order to do that, oftentimes you get incentives from the protocol and through what's called liquidity mining.

And that has been a big part of the rage and why DeFi summer took off in 2020, and maybe, there's many debates on whether that's sustainable or arguably, it's not very sustainable. And then there's this new category that's emerging, which is derivative arbitrage. And this is something that everyone in the traditional world is pretty understandable over. They see where the yields for that come from... requires a lot of skill, requires customization of strategy, it requires iteration on the design space and good execution. We're focusing on things like this at Friktion, which largely take advantage of volatility. As an asset class in DeFi that hasn't really been explored, I think there's a ton of innovation to be done to create these structured products that are both transparent and capitally-efficient. And also being in a new league of what we see that are only enabled by DeFi.

For example, you take a covered call strategy and use that as collateral in another place, or you take a basis position on one exchange and you can put that up against a centralized or a decentralized exchange. So just the design space for yield in DeFi is pretty exciting to us. That's just some of the examples that we often refer to institutions with.

Johann Bornman:

Yeah. I think if one thinks about the first principles of DeFi, what offers is a fundamentally better infrastructure to manufacture risk, to manufacture financial products. And with that you have then obviously the creation of risk, the transferring risk, the storing of value, and the transferring of value. And that is fundamentally better within DeFi compared to CeFi. And then on top of that, I think some of the panels have mentioned this already, this idea that we have interoperability, we have transparency. These are really big deals, obviously compared to the openness we tend to find in centralized markets.

One thing that I want to leave the audience with or think about is that we wrote obviously at the DAS summits, most of us come from TradFi backgrounds. We're talking about trading. We think of DeFi in terms of asset allocation and owning DeFi tokens as part of a more broader asset allocation strategy. We tend to think a bit slightly differently. We think of it in terms of: we have the birth of a new internet called Web3 and similar to what happened in web one and web two, we will eventually live within Web3. We will transact within web three, we'll communicate within web three. And with that, we need a financial system. And that is what DeFi is.

And so we talk about innovation within DeFi. I think we are very much in the starting point of what web3 and what DeFi will create. We're one or two cycles into this space and given permissions of innovation, the sky's really the limit of the use cases that will emerge in the future. And so it's almost impossible to predict the future, especially in our technology. But I think the important thing to think about as an institution is that essentially every single transaction, every single store of value, every single transfer of value, will be within DeFi, will be within Web3. And I think if you have that mental model, that's incredibly powerful.

Martha Reyes:

Yeah. I think I echo that sentiment and I think, not just us, but other exchanges are kind of seeing that our future will be the gateway to Web3 and to DeFi for clients who access our platform, they want to be introduced to that. And whatever form that may take, we think lending and borrowing in particular, it's more mature within DeFi of the applications. The under-collateralized lending certainly help make it much more efficient. But yeah, derivatives trading is a very profitable side and insurance has not taken off maybe as quickly as we'd like to. I think it could. Of course, regulation, we're still kind of waiting on that.

And that's a big uncertainty that could potentially be a positive at this stage when and if it does happen, but we're more kind of focused on just getting the clients accustomed to the blue chip protocols and trading on that and finding new ways to arbitrage. I mean, another area that we have also looked at are NFTs, so we've had the launch of sudoswap, which UniSwap has integrated into their protocol. And that's a way to trade NFTs more efficiently in a down market when we're seeing a lot less liquidity, it's finding ways to make trading more profitable and more cost-efficient. The downside of that particular project is that artists don't get royalties. So the fees, the fee structure is more competitive. The downside to that is there's a trade off there.

DJ Chen:

I'm more expecting to see the decentralized, the derivatives in the future because the derivatives in the traditional finance is not that transparent. If I tell you there is a derivatives, but nobody knows what's behind. And it also needs the settlement when the time is in place. But in DeFi, we can build protocols on another one. And if we can build some kind of derivatives in the decentralized way, everything could be transparent. We will know what's behind, what kind of assets they are behind. And even when time is, what time is in place, we don't even need any settlements to turn it into spot or turn it into anything we want. Everything could be settled automatically in the future. So that's the future of DeFi I'm looking forward to.

Shawn Douglass:

I think this is a really hard panel to follow on this one. This is heavy hitting, but I think it'd be like you talked about there's five primitives that matter for generating yield. And you talked about this is going to touch every person and every business on the planet. And this is the new financial fabric of the future. And if you think about that context of FinTech, 1.0, they factored payment out of bankings that became FinTech. This is factor all financial services out of all traditional financial services, and make the barrier to entry zero, and make that the total addressable market, every person in every business on the planet. And then by the way, large bank, if you want to be in this business, don't spend six months or nine months of infrastructure engineering costs and a hundred thousand dollars a month in AWS. Deploy it and let your customers pay the transaction fee. This is a tsunami of innovation that's going to change the whole face of financial services and people that don't realize that... they just don't get it yet.

Diana Biggs:

And then in terms of where we're getting it yet, obviously DeFi is inherently global. But since we have a panel here where some of you came in from London, US, Asia, where are you seeing geographically, the most institutional demand? And then also on the flip side, where do you feel are the geographies where from being a service provider or a platform it's the best to be based out of?

Shawn Douglass:

So we're seeing interest everywhere in the world. There's not a specific geographic location. There's a lot of entities that are set up in geographic locations. But I think that there's interest globally. The smartest people in the room are all studying and talking to their friends, and they're looking where can I do the jurisdictional arbitrage or stay within the rules in the confines that I must to learn, get smart, participate, put a toe in the water, put a foot in the water, jump in. Many of them quit their jobs in TradFi and end up in DeFi, right?

DJ Chen:

How do you see the market?

Martha Reyes:

I mean, that's an interesting question because we're quite global. Again, we have people all over the world because crypto's 24/7. We have to have people all over the world to provide support. And we don't really have limitations in terms of where we go, it's just where the demand is. Obviously, the US is a huge market in comparison to Europe, but Europe is still an interesting place to be. Maybe we have less exposure to Asia. So because we didn't start out there, but we do see still potential to go in that direction. So we really don't think about it in geographical terms, I think. It's more like type of institution and type of product they might be attracted to. But I think the US and the UK, because of regulatory reasons falling a little bit behind, but there's a lot of potential there as soon as that's kind of sorted out. Other European countries have been more advanced or had a more crypto-friendly approach. And so there, it's easier to do business in those jurisdictions.

DJ Chen:

I think in the short term, US and some markets, any markets that use US dollar, would be more interested in this. Because today we only see the USD-backed stablecoin. They are popular in this industry. We hear some other countries... they want to have some other Fiat pack, digital assets, public blockchains, but none of them will have these types of potential or these volumes. So that's the reason I think the first batch of application probably will lies in the USD market. So this is what I see in the near future, but of course, geographically, we can see a lot of interest from anywhere in this world.

Johann Bornman:

I think the MSCI all countries world is a really good proxy for capital markets more broadly. And you've seen DeFi being deployed in regions roughly in line with the MSCI, MSCI all countries world, so most allocations within the US, APAC is the second largest region. Europe is the third. It broadly follows that trend. Now, what we've seen over the last six months is, despite that broad allocation within DeFi, definitely a global allocation with more digital organizations. And so we're seeing a lot of traditional organizations, whether it be sports franchises or luxury brands, allocating to NFTs, for example, and that's quite global. And as I pointed out earlier, we find that tremendously exciting, because it points to us crossing the chasm of DeFi, Web3 more broadly.

Uddhav Marwaha:

I guess I'll take the other side of all this globalization and talk about something from perspective. You probably don't hear from a DeFi protocol. So you just need a front end to access Friktion, which is a user interface. But we've spent a lot of time recently thinking about which regions are important to DeFi as a world. And I think the one we're zooming in a lot on right now is Latin America. We see the demand or the lack of supply for financial services as being very enticing as providers of these financial services. We kind of saw a first wave of the success of New Bank, which took about a decade. They bought in five to 10 million people in Brazil, out of having no bank account or no bank access to a simple financial world that they could live in. I think we're seeing crypto curiosity out of New Bank and other similar folks in different parts of the world.

And we want to be there for them when they decide that and we even help them onboard into the world of DeFi as they ask these questions, how can we get off of our native currency, which is obviously dealing with inflationary problems and get into a world in which we can earn real yield for our users or take real risk to get real return. I think our focus on Latin America has largely been because we see the market so fragmented. And in some sense, when you offer a DeFi product that really is full stack, you can bring all these participants together and they can work in a world where they just haven't been able to access before. So provide the access and you provide the services and we think they'll come, so Latin America's pretty exciting for us.

Diana Biggs:

Great. So we've got two minutes left. I'd love to hear from each of you just over the next one or two years; what are you most excited about, or what's your prediction for institutional access coming into the DeFi space?

Shawn Douglass:

I'm most excited about derivatives. I think that derivatives rule the world in traditional financial markets, and you're starting to see that come in. It gives people a surgical way to quantify risk, take positions, and build structured products. And I think it's going to be what really enables a lot of institutional adoption. So I'm super excited about derivatives.

DJ Chen:

I'm excited to fortell? I think in the next five years, the scale of the DeFi will be at least five or 10 times more than today.

Martha Reyes:

Yeah. That's a tough question. I'm particularly excited about staking. I think if all goes well with the merge, we have the panel earlier on the merge, and then that will allow, I think, institutions to come in and do more staking. The prediction is that could more than double the amount of ETHs being staked. And you can have a yield that is lower risk, and then you can build products on top of that, and we'll have the charting hopefully the next year too, which will allow more scalability on Ethereum. And then we will probably also have, I think, other blockchains that will provide maybe solutions for particular niche markets. It doesn't have to be one player takes all.

I think we could have segmentation, and maybe some of the other blockchains will mature and grow into their own, and we'll have more development of the rollups, to layer two solutions. And then, at that point, we'll have more of the demand come back, and the infrastructure will be there and waiting for when the market turns again. And we get more activity, because at the moment activity has been relatively low because people have taken a step back. There has been a de-leveraging, we all got the memo from the fed. So when we get that pivot, then that infrastructure should be in place.

Johann Bornman:

Yeah. Mentionable, what Martha's saying, I think so we have this north star goal of how do we bridge every single organization on planet earth into Web3. And I think of what we are excited about as very much the crossing of the chasm. I think we've seen sort of the early adopters, our thousand true fans being dos, crypto native institutions, like DeFi funds. And I think over the next two years, as these markets build, as it develops, as we scale, as we get layer twos, you'll see more traditional organizations step into this space. So this could be TradFi. This could be enterprise. And I think within two years' time, we'll see that happen.

Uddhav Marwaha:

Yeah. If I have to make a bold claim for adoption, I would say I want to see if we can hit a hundred million active users in DeFi in the next year or two years. I think we're about a 10x away. It's not way more, but I think that'll come on the heels of a really nice on-ramp experience or a really nice experience of getting into DeFi. We talk about how easy it is to use DeFi and how all you need is the internet, but in reality, it's a lot harder than that is, as we've discussed today. But yeah, particularly excited about structure products, as Shawn mentioned, too.

Diana Biggs:

Great. So derivatives, scaling, staking, bringing the world on board, and getting those users. Well, thank you, everyone, for joining us. Thank you to the panel.

DJ Chen:

Thank you.