DeFi 2.0: The Institutional Era of Intelligent, Multi-Chain Finance

Transcript

Well well. Hello everyone. So, my name is James. I'm the founder and a CEO of DFG, so a family office. I start by 2011. We have been operating for 11 years. And they're focused investment to cryptos. I'm very happy to be back to Canas with a nice weather and also back to the conference. It ETHCC has been chatting with a few great people and they're having, you know, listen to a few presentation already. It's It's really great. So, today my topic is DeFi 2.0. It's about institutional era of the

intelligent Malaysian finance. I'm sorry about the clicker issues. So, I have four agendas today. First, I'm going to talk a little bit about the history. And the second is what is missing in the DeFi space before. And what kind of problem we have solved right now is the third part I'm planning to talk about. The fourth is the institutional adoptions. Just take a brief look at the DeFi. It's actually not a short time period. When we start to have DeFi back to 2017, it's almost 9 years, almost a decade right now. We have a famous a lot of famous OG

period of time at that time including Maker DAO, Etherdelta, Bancor. In 2018, famous project including Uniswap, Aave protocols. 2019, dYdX, Synthetix. And of course, 2020, the DeFi summer, Yearn Finance, Curve Finance. And 2021, GMX and others. We have been actually having a lot of great project coming to the device Uh ecosystem in the first 5 years. Then because of the over use of a leverage then the club of Luna and FTX have massive negative impact on the on the market where I think device do great.

For example, we have hyper liquid also doing very well in the in the recent 3 years have conducted more than 4 trillion dollar in the future trading and also 140 billion dollar in their spot tradings. So I think overall speaking device pretty pretty robust and the successfully passed the stress test after the FTX and also Luna crash. Initially I believe people want to use devices in the early days just because of the high yield.

Right? So in for example, because of the high yield we have 15 acts of the TVL which make it you know 180 billion dollar in the peak in 2021. I think somehow at that at that stage it's it's a bubble and also the the device industry is not very robust and not very mature but people are just moving in participating in the ecosystem because of the high yield. And also because of that we have a a massive like a incident in 2021 with with the over leverage. Then after Terra and FTX I believe device industry from the people outsider outside device is a required but actually we are making a very good progress and the data didn't

you know didn't data actually prove this point. We can see that you know for example the lending protocol clear more than 50 billion dollars after what happened in 2021 first and also exchange layer of settlement is actually more than 2 trillion dollar payment stable coin uh, stable coin transaction is even higher with a trillion dollar in settlement. These are all important, I think, fintech or financial milestones for DeFi, which prove that, uh, we have actually, uh, successfully passed the stress test and doing pretty well, I think, in the recent years.

Uh, but let's see. What is what If we want institutional investors to come into DeFi place, which they are doing right now, what what is the reason why they are not there, uh, in a in the past? So, I think there are six reasons why DeFi is uninvestable for institutional investors in the past. The first is scalability issues at that time in early stage. Ethereum only have, uh, 15 TPS, uh, in the peak in 2021. If you participate in DeFi, you will see the gas fee you you you pay is crazy, like two to 200 per trade. Uh, and uh, where else in in in in in Nasdaq, you know, the TPS is like 2,400, which is,

uh, way higher than the Ethereum at that time. Uh, second is about security. Uh, I think the the hack we we're facing in the early stage of DeFi is the main reason why, uh, people are hesitating whether I should participate in the DeFi protocol or not. Uh, the third is the risk framework. I think there's no actual risk framework at that time. Uh, the fourth, I think, is something which people don't really, uh, pinpoint or talk a lot, which is the government governance risk. Uh, because, I mean, a lot of, uh, protocol governance are actually very poor at that time. Uh, somehow the centralized, uh, foundation foundation entity have too much powers, which make the protocols no difference

than centralized, uh, you know, institu- institution, where else there's no actual regulation towards these kind of DeFi protocols. So, this actually make the, uh, the uh, the DeFi protocol even worse than the Centra's uh, institution at that time. So, governance risk is also one of the reason I think uh, we haven't done very well at the beginning. Uh, the fifth is people talk a lot about the uh, regular regulatory risk. Uh, there's no KYC AML in the in the in the early stage, but we have been discussed a lot recently among all the peoples whether uh, this should be applied to the DeFi protocols. Uh, last but not least is uh, usability experience. Uh, I I just heard her uh, I mean in in the

early stage it's terrible. Now I think it's better, but still things happens. Just like I heard a story a few a few weeks ago someone want to buy like a $50 million of RV tokens, but just like ignored her slippage and end up with doing pretty badly. So, maybe I mean there could be other reason behind it, right? Maybe this guy don't understand English, maybe this guy clicked the button too quickly. There could be there could be all kind of reasons, but you know, how to make sure uh, the users where use the protocol safely uh, is also uh, some kind of improvement we have been made in the past few years.

Okay so beyond like what I'm talking about, what has changed as in quality in the past few years, which is actually pretty impressive. Uh, the first is about cross chain solutions. Um, you know, initially I think liquidity is pretty fragmented among all the protocols. Uh, but now if you check the data right now, these kind of uh, other bridge or other solutions actually uh, done pretty well in the recent recent uh, in the recent years. Uh, we have processed uh, the monthly volume for that is $40 billion, which is not small. Analyze is $500 billion.

This is a massive number and which already you know, I mean in in you know, in a large part of the uh, liquidity uh, fragmentation problems in the crypto space. Uh, the second uh, and third I want to say is more about we have built also start to building the connection between the crypto asset also the also the traditional asset. For example, the Chainlink cooperation with with the Swift system is also you know important or great example of that. You know, now I think with that kind of integrations we can work with more than 11,000 banks together with

these with crypto and blockchains and we will see more cooperation and partnership happens in the future. So I think this is the first things I would say make great improvement in the past few years. The second is the body wax UI. That's my That's my thought. I think now if I use a product right now it's 10x better than when I use this like when the D5 begins. There are few few things has been made and improved. The first the the outcome basic execution is very important. It's about what? It's not about how. So this is the first things we have been improved. The second of course, you know,

if we want institutional investor to invest they are not a accredited investor. Basically one single person just do whatever she or he want to do. There could be situation that institutional investor want more to seek right? Pragmatic compliance and more to seek is also important and we have made this progress in the past a few years. And the last one I would say grab abstractions. If anyone use the you know, the on-chain D5 protocol you will feel it's it's very bad before cause you basically need to buy the small amount of token at at a random centralized exchange and send it to order

protocols as a gas fee, right? So this is a terrible experience. You're basically wasting your time on that. And the with the gas abstraction, I think this will you eliminate in the problem in in in a whole and also institutional players, you know, it doesn't even make sense for them to holding this kind of small coins on their balance sheet just for the gas purpose. Uh the third part is about intelligence on chain. I think the intelligence on chain also is the great progress we have been made in the past few years. Uh the first one is AI agent. Uh I think previously it's all about narrative, but I think now we are at the stage about moving these about AI agent moving from speculative

concept to the, you know, more like practical utilities. Uh for example, uh ERC 804, you know, that makes the massive uh scalability possible. And then now we have uh more than 100,000 agent right now. Uh some of them are doing pretty well. For example, uh the the the the newer ones, BitTensor subnetwork, and and others. Uh the second part of the intelligence on chain we see about the votes. Uh if you check the data, actually the AUM for all the votes actually has been doubled to more than 10 uh billion dollar. And there now because of you putting the the more like AI integrated since they it can do smart

things like, for example, I want a certain number of UI, but I want to control my risk, right? This this can help you do that. Uh so, this is also a something I think which we have been made great great progress in the past few years. Uh there's a few example like a, you know, there's uh Beer Wise copper with smart for protocols uh on that. The the the TVR is more than 2.5 billion dollars. Uh Chaos Labs have processed more than 5 billion dollars in transaction volumes. Um The third part of the inter intelligence on chain is about security. Uh I mean, according to CertiK, the data alone for for the hack back to 2012 is 3.35 billion dollars. It's a It's a It's

a massive number of hack. What AI can do is helping you do auditing and like behavior intelligence. For example, also can detect fraud. Cuz once you like a human being, you cannot always check every data on chain. What lot of things AI can help you do that. So, this is actually the third part of intelligence on chain I want to talk about. So, what is the really the the the key change for for for institutional player to come into place? I would say now I see the layer two scalings as well as the formal securities turn DeFi from a retail play to a institutional play. So, this is very important and also plus the institutional KYC procedure and the

regulation clarity. These are also helping us moving from the DeFi 1.0 to DeFi 2.0. So, here's a graph that I can show you clearly what's the what's the difference between the early early stage and nowadays. It's still getting scared for 100x. The security is is much better right now. The KYC at least we have some of the solutions like on chain KYC investigations chain less. For the governance which I which I mentioned before, it's more anonymous before, but now we have time like for example time locks, professional management, more decentralized like governance.

Also about the custody, we have more than six solutions right now. Regulations, there's literally zero regulation at early stage of DeFi. Right now we have EU's, Genesis Act and Clarity Act in US and all kind of like a sandbox in different countries. Cross chains, you know, the volume is significantly and the right now. It's much safer right now and also the risk I think we have more professional risk managers right now. So all these things has been improved quietly in the last few years which will bring which I actually already bring international sorry the institutional player coming to place of the device.

So they are here. They are not a future. They are moving in but they were moving more capital into into the device protocol in the future which people will notice this. So already we have a great a few great examples for example BlackRock working with Uniswap on the on the beautiful is power cycle 2.5 billion dollar in TVL and also as the largest asset managed company in the world they buy a certain amount of unit token as a strategic reserve. Also Kraken with Nasdaq basically they integrate integrate into the X stocks like your tokenize active gateways for Kraken's. Maple Finance working with Candle and the Japanese Bank SMBC workers North Point

there's all kind of great examples we see traditional big places is working with the device protocols right now. We will see more in the future. There's a few others you know here on the plum candles. I think one thing I want to mention is about RWA. People are talking about RWA a lot. I think it's it still have a long path to go but certainly RWA is helping bridging the gap here. Because you know for traditional world I mean the the size of the assets much bigger than the native crypto assets. There's no harm about bringing these assets on chain and then letting these kind of people using the device protocol to trade to land to do all kind of

financial activities. And then for the traditional traders or like investors it makes a ton of sense for them to actually using the device protocols for this. For example the device settlement is definitely the speed is much quicker. Uh you can trade 24/7. And also there there's a programmable yield distributions. So, there's all tons of benefit for that. But to move such a massive amount of asset on chain, you will face so many hurdles. So, it takes time for that. But I suddenly think RWA is bridging the gap here. We'll be helping DeFi protocol to become better in the future. We already see like great growth like a 40X on the on the TVL side for these tokenized

RWAs. Uh 640,000 tokenized participator. And the 20 more than 20 banks participating into this. Yeah, so I think overall speaking, uh for for for for the DeFi protocol, of course, we want uh uh more people's traditional investor to come into the place. But for them, also it makes tons of sense. Uh this is the uh graph I I wrote. Uh ba- basically, what I'm trying to describe is for them, it is something that going to help them maximizing their capital efficiency in a safe way. So, that's what DeFi does. And for them, it's make perfect sense for them. This is the opportunity they will

get, which is no longer no no way that exists in the traditional world. Yeah, this is the index. So, what I described or like above seems to be very positive. But the reality is like her uh the the the the the index shows actually DeFi don't have a great performance. Uh but that's the I think that's the I think for for investor like me, that's the right time to make the investment. Because I think in 2021, we can see there that's that's actually a bubble, right? You usually that's how historical repeat, you know, you have a bubble, then push the price to very high, then it suddenly goes down. And the better industry actually is growing

in a very solid way, but you don't see the price moving up. But for investor, a small investor, this is the best timing to make the investment. Cuz eventually, if you believe and if you think this is going to be the future, and there will be more people, including traditional investor, will invest in the DeFi, this is the best window. So, I firmly believe in the next few years, we will see actually the the graph of the index to be very different than than the recent few years. Okay, so what is the To summarize a little bit, what is the what is the bottom line here?

The first, DeFi is not a speculative technology anymore. The second, the barrier are down right now. So, it's not very difficult to enter the DeFi, and the infrastructure is much more solid than early days. The third is institutional investor are here. They just They just start doing this thing in a very quiet way, and people are not notice. So, they are here. We are keep talking about institutional investor investing in the place. They are here already, but they are just going to deploy more capital in the future.

And then let's see. Last I will say let's see what happen in the next few year. I think the next 24 months will be very important and very crucial to DeFi protocol. I feel I feel like this will be the, you know, very good 24 months for the DeFi protocols and the industry to grow. So, thank everyone. This is always the last sentence I will say. Now let's on board in the next billion user. I will keep saying that until it, you know, the industry hit this milestone. Thank everyone.