DAPPCON 2023: Driving Mass Adoption for DeFi - Mona El Isa

Transcript

thanks John you pronounced it perfectly I know you were practicing backstage so thank you everyone for joining us right after the launch slots and thanks very much to dcon for having us here today I'm going to talk about driving Mass adoption in defi um for those of you who don't know me I founded enzyme a few years ago in 2016 which was a decentralized asset management protocol and after it decentralized I founded avangard Finance um and my team still performs some core development to enzyme but more recently we also uh started an asset management arm and we look after Dow treasuries as well as uh having launched the first

ever regulated and decentralized um onchain Asset Management platform so I'm going to start off the presentation with a a sort of bold maybe daring claim um and say that I believe that defi is not as composable and interoperable as people like to say it is um I agree that it is composable with the rest of defi to an extent um but when you think about uh defi being composable with the rest of the world I think we're just not there um so in today's presentation I'm going to start off by telling you a little bit about the state of defi today and why I think it's not interoperable

with the rest of the World by showcasing some examples um and then I'll tell you a little bit about the work we've done with enzyme over the last few years to inter com to to aggregate dii with defi um but recently we've recognized that that's not enough if we want to bring defi to the masses we also have to think about the tools that we need to do that so um see if this works yeah so I think you know when I think about the state of defi today I think we've been built brilliant micro solutions for micro problems in finance so when you look at stable coins we've completely

revolutionalized the payments industry when you look at protocols like a compound maker we've completely changed how borrowing and lending is done we've uh when you look at you know protocols like kyber ZX Paris swap we've completely revolutionized uh trading and made it peer-to-peer and Unis swap curve other protocols similar ER have made it possible for anyone to become a market maker but there's still an unsolved macro problem so let's take a look of at a few examples and see what I mean by that if we consider a dow treasury for a second um there's still no userfriendly tools for a DA to contract an outside manager a specialist whilst keeping full

custody of the assets and managing that manager on a day-to-day basis it is possible if you're like a smart contract wizard but they just the tools aren't there the Integrations that we need with Tally Aragon open Zeppelin and other Dow treasury management tools just do not exist today there's also no easy way for a dow uh to access offchain assets if diversification like in the true sense is something that they desire there's also no way for Dows to track historical and current onchain performance in 247 real time um we have the tools to do that in the asset management sphere of defi but we haven't built the link to Dow treasury uh interfaces and there are no sophisticated SDK and API which help

automate strategies if that's something that a DA wanted to do another example that I like to uh focus on is Quant funds so um anyone who comes from the traditional world will know a traditional Finance world will know that uh quants like to um build their strategies in Python um and python is largely incompatible with web with web 3 and defi today there are no back testing tools available for defi or Defi and CI strategies which are also very popular and there are no tools to aggregate Def and tii behavior by that I mean again historical performance Financial metrics Etc so that's my second example and my last example is a fund administrator so

for those of you who don't know what a fund administrator is quick like 10 seconds on that um any hedge fund in CI will typically have a fund administrator and their job is to handle Investments redemptions uh their job is to independently check and verify the nav that's a legal requirement so that you know uh there are no problems with the fund manager misreporting nav and Ponzi scheme Etc and also to check um that the fund manager isn't misappropriating assets so for CF funds traditional funds that want to get into defi there's actually no way um to to easily interpret histo historical trading data in defi so it's difficult to see them

easily getting in there's also no way uh for fund administrators to easily perform their governance and oversight obligations which they are legally Bound by and also fund administrators have to report um to Regulators to investors in specific formats and those formats are not what we or how we see things in defi sorry that was premature but anyway so we um so we talk about composability and interoperability with defi all the time but the question I have is are we really delivering and my view is defi to defi yes to an extent we can deposit eth into a curve pool for example um we can then

take the curve LP token deposit into convex and then enhance our yield etc etc so yes def to defi composability interop interoperability is great it's a beautiful thing it works works but defi to the real world um the examples I just shared hopefully give some inclination or some um demonstrate how I don't think that we're succeeding at that so I've talked a little bit about the state of Defi and uh how I think we're failing um at bringing defi to the real world so my question is how do we aggregate these brilliant micro Solutions into a macro Solution that's coherent manageable and speaks to real world

applications I'm going to take a pause here and just tell you a little bit about the work we've done with enzyme um over the last few years to aggregate dii with defi before I get to defi to the rest of the world so enzyme is a protocol that enables people to build a tokenized portfolio manage that portfolio and it handles all the operational and administrative elements of that that portfolio can be for a fund an index or just for an individual idual or an organization highly customizable and four unique features of enzyme the first is that it uh is a tokenized representation of a portfolio so when you deposit funds into your portfolio you receive an erc20

representation of that um which is redeemable at any time for the underlying assets the second uh key feature of enzyme is that um we have spent the last few years building very sophisticated data pipeline underpinning the protocol that enable 24/7 real-time reporting uh which is verifi verifiable auditable um but also historical reporting and that's on any data metric not just performance but also Investments redemptions management fees performance fees whatever um and then another aspect of enzyme is automation when you set up a portfolio um using the interface you can configure

things like like management fees performance fees you can set rules around who's allowed to invest how much are they allowed to invest is there a minimum requirement a minimum deposit amount you want to impose uh who is the delegated Trader what is um you know any and basically anything you want and all of these things are um embedded in smart contracts and automated and enforced at smart contract level so you get a really high level of automation which brings down your portfolio management costs and makes you just a ble to focus on the thing you hopefully like doing which is the asset management part and last but not least is the security aspect um enzyme has a suite of policies which enable you to um delegate trading to a

third party uh or people on your team whilst uh giving very stringent rules and instruction roles and permissions on what they can and can't do so whether that's allow list of assets uh dii protocols or disallowed list or uh cumulative slippage Toler an so if they uh consecutively do trades which incur a lot of slippage you can stoploss them p&l stoploss etc etc sorry we skipped forward again um anyway so that's what we've been doing with enzyme um and as I said um that's been great for the last few years but we're realizing now that if we want to graduate from our little bubble in the defi space and actually bring defi to the masses we need to do more and this

year we've been focusing much more on building out a tool suite for composability and interoperability with the rest of the world that toolkit currently consists of three things on our side avanguard Finance although there are other people and other projects in the ecosystem building other tools which I'll touch on um the first uh is the API enzyme API which we just launched the enzyme API allows users to uh extract data from the enzyme protocol in a really simple way another uh tool we've been working on or package that say we've been working on is compliance so um compliance tools enable trading with known counterparties or assessing risk

of pools before trading um to enable more use cases than just defi but also maybe institutional players regulated Banks and also very recently we launched uh the first regulated onchain platform for fund managers that want to launch completely decentralized funds but with a regulatory wrapper around them and last but not least we launched an uh we're about to launch we're still working on it an SDK um the enzyme SDK allows users to build transactions and automate sophisticated trading strategies or or just build their own front ends on top or apps on top of enzyme so that's the stuff we've been working on um I will just uh caveat that with there are other great teams in the

ecosystem building great tools too which I'm um I'm going to talk about one of them later and just to zoom in on the API for a minute because we just launched this a couple of weeks ago basically the enzyme API API enables you to import your JavaScript or typescript project uh sorry yeah import data into your JavaScript or typescript product uh project and the the client package runs both in the browser and nodejs environment there's two ways to use it if you're technically capable you can use the pre-built API client um otherwise you can send standard HTTP requests to the API and the API enables you to fetch data on any onchain trading data uh

historical or current in Defi and it's all standardized and you can also use that to calculate Financial metrics like nav uh performance sharp ratio Etc and it also enables you to fetch data like assets under management Investments redemptions management fees performance fees um and so on pretty much any um if events on chain that you can think of so we've talked about uh the state of defi today and I've made the case hopefully that it's not composable with the rest of the world I've talked about some of the tools we've been building um to help aggregate compose and make defi more interoperable with the rest of the

world what does aggregation success look like um that's what we're going to focus on next so I'm going to revisit the examples I gave at the beginning and try to share how we see that so for a dow treasury um it's now possible with the API to integrate performance apis from their treasury management as long as they're managing an enzyme bolt into a dow tooling interface very easily whether that's tally Aragon or even your own kind of um you know dap website um it's also possible to integrate a module within enzyme to price off chain assets where needed from a trusted source sorry and last but not least there um

there are um we can integrate uh we can use the sdate to um improve the user experience and interface uh on on Dow uh Dow tools uh to enable roles and permissions to be granted to third party asset managers whilst the Dow still um keeps full custody of the assets at all time and uh using things like um stop loss or maximum cumulative slippage policy you can uh have guarantees that um the fund manager doesn't um maliciously or uh accidentally extract value From the Vault the second example I gave uh at the beginning was Quant fund um so there

is a project in our ecosystem really impressive project called training strategy um which have now built out a completely web three native um um defi python package which supports automate automated trading on enzyme and they've also with that provided sophisticated back testing capability for more than 2,000 assets um and together with the work they've done and the apis that we're going to be providing them they can now integrate uh reporting metrics and historical data for Quant Traders in defi whether it's D to defi or D to CI strategies so this is another really um I think cool way that we can expand defi into more than uh you know kind of trafi CI funds and and

strategies and last but not least um I had mentioned the fund Administration uh example um recently when we launched our the our regulated onchain funds platform we actually had to um partner with a fund administrator uh because legal requirement is that I don't know why it keeps jumping sorry um legal requirement is that a fund administrator has to uh independently check the nav so that required us integrating our entire system with their entire system um which took a few months but now they're able to um independently check the nav by calling the contracts uh the enzyme contract the portfol the tokenized portfolio and basically uh verifying it

against their own price feed and they can perform their oversight and governance requirements because they know um they're actually in charge of the um the parameters which the fund manager can um which can be configured at the The Vault level and they can also use the API to produce compliant reports as needed so in summary I think we need to stop thinking about defi as composable and interoperable um because we're still uh very early days in that respect um and I think that real adoption is going to happen when defi is integrated in everyday tools and people don't even realize they're using it so in order for that to happen

aggregating defi is with defi isn't enough and we believe we need tools to help bridge defi to the rest of the world our approach with that has been building out API SDK regulatory wrappers and much more and other projects in the ecosystem like trading strategy have been building out python packages uh for uh Quant strategists so if any of you here are developers and excited by this idea um of using these tools we have recently launched a grants program um and we're definitely interested in hearing your ideas of how these tools can be used to um uh to to uh integrate dii with the rest of the

world um you can scan that QR code if you want to find out more and also um if you want to learn more about the API which we launched a couple of weeks ago um there's a blog post we published and we're always really happy to speak to you about it in more detail and with that I'm going to wrap up if anyone has any questions I think we still have time um have three or four minutes left is that right I have about five minutes for questions so uh here's your chance to ask Mona uh any questions and I'll call out Whoever has a question for you right there um hey good presentation thanks um

just curious about Like Us Versus European mindset when you're building for compliance and you know are you focusing on a certain area where you from where's the company based you mean with the compliance tools or yeah I mean I'm most interested in the the data um you know the transparency that you were talking about for reporting but I'm just asking like are you focused on us or Europe are you trying to cater to both we're pretty agnostic I mean the tools like we're just trying to integrate with as many um you know real world apps uh apps uh outside of dii um or within defi but you know the focus I guess going forward is more outside of defi um we've certainly explored us-based

Partnerships um and I think the way we see it is it's it's all tooling being provided to a lot of people in the US are already doing defi so if we can provide them tools to just make their lives easier or to um make it less cumbersome um and then that drives more people into def5 because the ux becomes better than that's something we definitely want to encourage oh sorry it's not my any other questions right here uh so today a lot of protocols who need to generate liquidity have maybe committees that are appointed by the da or other forms of kind of people making

decisions uh I think one one use case for enzyme could be running this kind of manage programs for liquidity so do you envision like the tool being used by maybe committees running this or maybe even not having those committees from the Dow in the first place but having more like yeah pushing that on external entities the the fact that you can um impose policies um which the Dow can agree on so things like which assets are you allowed to trade which Protocols are you allowed to interact with so maybe it's uh balancer and Unis swap for example um and maybe arus if you want to automate liquidity Pro provision um you could also impose like stop losses and

things like that lends itself really well to being able to then delegate to a third party which still trustless it's still non-custodial um but you're actually getting the efficiency and expertise potentially of somebody external who can manage your assets and you know we've seen examples like avangard Finance U does some dou treasury um management for protocols like Nexus and this is this has been really useful they can keep custody at all times but just uh delegate management uh to to avanguard treasury for that reason knowing that there's no way we can run away with the funds or misappropriate the assets because the appropriate policies are in place and smart contract based think there's over

there Hi um I know you guys have a regulatory rapper for Bahamas um are you guys looking at any other jurisdictions yeah we're working on several jurisdictions in parallel um uh you know some are faster than others like Switzerland is taking quite a long time uh but it's something that we've been exploring for a while um we also are just setting up an office in the UAE uh currently so that's uh where I'm going to be basing myself in two weeks after New York um with a couple uh of members of my team and we've also been working um in the BVI I think I've covered all of them but yeah there's definitely um an intention to experiment with other jurisdictions and see um you

know ultimately our goal is how can we give the best user experience to people but still keep it regulated compliant because the truth is with passive Asset Management there's a lot of workarounds when it comes to you know um compliance but with Collective investment schemes when it's actively managed it's much more highly regulated and that's why you don't see many actively managed products on the market at the moment so that's something we've been trying to crack we've been working on it for 2 years Bahamas was the first one we cracked um but we're very confident that we'll crack others um in the coming months let's say perfect thanks uh we have a few more minutes here for questions there you

go what what's the plan for um if a fund manager wants to use a centralized exchange obviously cuz everything's on chain and um what's just the general solution for enzy that yeah interestingly we've had a lot of people asking questions about that and it's been a difficult one for us because when you obviously go offchain with a centralized exchange you're um compromising some of the promises that enzyme makes on self non-custodial transparency Etc having said that we've seen a lot of demand for it so we are researching a module that will be available on request hopefully when it's complete um which will enable because and and one of the reasons for this by the way is a very very popular strategy in defi is uh arbitraging def CI and so

there's no um if you if you really want to capture the market in you know defi Asset Management you have to be able to service both so it does come with some trade-offs and it might not be for everyone and it will be probably an optional module subject to completion of research and development um but it's something that we've actually spent a lot of time uh quite recently on because we've seen a lot of demand for it well one more question here you go are you expecting um how far do you think the decentralization uh is going to go when it comes to Asset Management do you expect the demand to be more driven by individuals or by uh fund managers and institutions it's a really good question

um at the moment let's face it uh you know decentralized asset management is a very small Market um and we're seeing that you know there's Maybe two or three protocols that offer decentralized Asset Management uh enzyme I think is the largest index is not far behind but that's only passive and D hedge which is active which is much smaller um but all great protocols um and you know different chains and different you know um uh features but we're all actually you know if you take the aggregate Market of all three of us I think it's like 170 million or something of tvl uh obviously that's down a lot from the peak but still it's very small dot in the ocean compared to the asset

management market so I think um the the the demand we're seeing now is I guess mostly from Dow treasuries um and uh from small to mediumsized fund managers who have been blocked until now because of the the the legal questions around it um going forward I think um in order to bring more tvl into the decentralized market you almost have to do it without people really sing uh that you know like almost like the user experience has to feel almost exactly the same as in trafi um because it's just it's still a bit too complicated for a lot of people they have a lot of questions if you go to an allocator uh a fund of funds for example

there's no way they're going to invest in a fund that doesn't have a ddq a subscription dock a terms and conditions all of this kind of stuff and so um this is something that we've just cracked and I I'm I think it would be interesting to see how that changes now that this kind of option is available um hope that answers the question great thank you so much Mona for your time and your informative talk thank you give a round of applause to [Applause] Mona