Is DeFi Inclusive? Reimagining DeFi Towards Financial Empowerment

Transcript

[Music] all right so our next speaker second time on stage today uh is a lawyer and also an important link between the builders and The Regulators uh she is also co-founder of Kum protocol so welcome back on the stage Anna Grace thank you it's here hello everyone hopefully you're all awake on this rainy day and doesn't slow down your interest um so I'm back as mentioned but this time for a very different topic uh I'm asking the question is defi inclusive

and what can we do to revamp it and make sure it does um does include like Financial Empowerment and it's you may ask like why is a lawyer and someone working in the defi protocol actually tackling that question rather than someone who already works on imp related issues well I had a past life where I worked on collaborative practices when sharing economy was a thing we uh investigated how these practices could help to achieve some of the sdgs so um basically this is the whole path that led me to now Defi and trying to reconnect it with what I've done in the past and when I think about what happened yesterday on stage if I managed to change the slide

it works perfectly I found a quote on LinkedIn that is pretty useful so I really thank the person for summarizing IT we had a great fire side chat yesterday uh that precisely introduced my topic by asking why is it that only less than 1% of the population still uses blockchain and if we ask like uses defi it's even less well one of uh the answers was that it's a technological and financial tool that places High demands on the user and therefore it's not relevant to most people it's just too complicated to adopt well if we think about it another presentation yesterday highlighted how the promise of blockchain was Financial inclusion we

can create an alternative Financial system where no one asks questions no one is excluded unduly so there was this beautiful idea behind it but where do we stand today and in one of the slides of that presentation yesterday uh there was a just an emoji questioning because we don't have really many answers there um so the first step would be to Define what is financial inclusion because inclusion is a broad word um so I went back to the source if you scroll through uh the website of the United Nations uh you realize that those four points uh included as part of financial inclusion so we need tools with universal access at a reasonable cost to a wide range of services both um that are provided by sound and sustainable institutions now

let's maybe go through all these four points and check is defi anyhow providing this currently uh well first universal access well thanks to public blockchains actually for peer-to-peer it's great uh thanks to decentralized applications for the rest too so it should be fine here it well actually when you think about it because Mass adoption of crypto as means of payment is lagging there are dependencies so for real life use cases the ones where you could really use some uh some defy in your life you need on and offr solution most of the time like you need to if you don't have tokens that you get through some air drops or because you somehow generated them for your work you simply need to buy them

somehow you need to get them so you need to onramp and then we still cannot pay for rent you cannot pay for like supply of stock you cannot pay for a lot of things still with crypto it would be too easy so you still need to offramp and there you have a blocker too so in terms of universal access great you access the crypto ecosystem but then you still kind of stock if I'm paid in crypto but I cannot offramp it I may still get kicked out of my apartment if I'm not paying rent overall may have a huge savings in crypto um so is there a potential solution if you take for example the the example of Landing uh projects tokenizing assets let's say I tokenize um crops for example uh and issuing their tokens which could in turn be used

as collateral hey I have crops being tokenized I can get some usdc and by chance someone accepts uh usdc for payments of bills um then there would be no need to onom right uh well practical issue the Practical issue here is who will accept to create a pool actually for this and in terms of risk like you may be able to create your own pool with a lot of uh tools allowing you just to bootstrap uh pool without having any selection process but still they may be not enough liquidity those assets are still considered as risky they could be manipulated um so it may be tough and then how do you track liquidity to this kind of pool this is always the question that will come up and Kim has a lending protocol uh as part of the the offering

like how do you attract liquidity why would you create a a pool where barely that barely anyone uses well actually when you think about it well if you know that people will utilize that liquidity immediately because there's a need like those Farmers actually going to deposit those tokens because they're going to uh borrow immediately using them as collateral well this should be actually a major incentive um to deposit for example usdc so that people can borrow it because after all rates are influenced by utilization uh at a reasonable cost well when you think about crypto and I found like a nice uh comparison here fintech apps are the worst in terms of how much you pay and anyone who used one of those uh very

easy Tools in terms like hey let's purchase some crypto for revolute or like for swissborg you kind of pay a lot at the end and if you compare it to defi it's less but then you have still fees that you cannot deny you have the gas fees and depending on how many transactions uh you have they may amount to a lot you have potential service fees like by service fees I mean transaction fees in general whether these are swap fees or others you may have conversion fees on top of that if you need to convert thir P to be able to use um that specific service and then also off like on and off from fees if you cannot access the service simply because you don't have crypto yet and on top of that it's not mentioned expressedly when you

think about cost but there's also just the cost of understanding the the dep and what you want to use and this is an initial cost like do you have time and resources to Simply understand what you're about to use um in terms of cost I uh digged out yesterday numbers actually from the Czech uh the Czech banks on loans provided to Czech residents since we're in Prague thought about being local um when you check at households and consumer credits you're at a rate is just like above 8% if you check on other if you want to for example uh borrow usdc you're at 9% so we're kind of in the same range when you think about it at the end of the day maybe you would expect to have better

rates but is it so bad if it's actually comparable I wouldn't think so plus depending on the asset you can go below um a wide range of services well here what is a wide range of services uh if you look into some of the financial inclusion uh reports uh you can see the service I listed here like you need an account to store the value you need payments loans Investments Insurance um if you check some other classifications um as the one I posted here it's phrased somehow differently but when you think about it in defi well we have a wide Choice uh a wide choice of um non-custodial wallets but is that choice suited I'll come back to that not everyone will be able to use that kind

of Wes because when you think about it there's a lot of information and if you're not that crypto it's still a blocker uh payments you have a wide Choice indeed so that's good loans well it depends what you're looking for I'll come back to that too Investments well you have a wide choice but you don't have adequate filters normally you know whether this investment is risk here or not like a lot of people still that are not that crypto savors simply select Investments based on oh someone recommended that to me like who has received here messages from people asking like what is the next token to invest in not sure it's the best way to proceed with of handling your savings by investing them according to what someone recommended to you just because I don't know maybe they invested in ethereum

back in the time um so there's still some progress to be done then on how we present those investment opportunities and then Insurance well there are solutions you can H your positions and so on but in general let's maybe talk about it next year because in terms of insurance and defi we're not there yet and on top of that it's good to have a wide range but this range needs to be appealing to people so first of all clear use cases what's in it for me if you ask your neighbor about a landing protocol like hey would you utilize a landing protocol Shan say all his first question would be what for um so if I need to finance for example a co- housing project there was a great presentation about it yesterday uh or a farm but the protocol tells me how to

gain points from the new Quest I'm not sure as's a match in terms of how we present things so we need to present Solutions we have in a way that's appealing actually to real life use cases because many still simply don't understand how to leverage the potential of Defi and numbers show that I mean defi like for example Landing Protocols are mostly used for trading like you don't use those Landing pools to finance your next crop to finance your house to finance any purchase of tools you use them to go long and short and this kind of things so um they're going people going to focus on the specific user base um so these are examples of

how some Protocols are trying to really appeal to real life use cases so invest Farm is an example of loans for example for Farmers um and so on so this is like a real life use case but you could perfectly use compound for this kind of things if you simply understood the whole process and the fact that you can access the liquidity from there same uh for this example I found that actually never heard about before uh researching education and Landing uh same you could do it with using existing protocols why do you need additional Solutions while you have solutions that already exist it just complexifies and fra um adds fragmentation to the space um so appealing Services also means they need

to be same or better that would be even better if they are better what exist that than traditional Finance so for efficiency speed blockchain certainly allows for that available 7 days a week 24 hours you don't need to wait for the bank to settle uh the transfer and those kind of things and transparency you see exactly what's happening so you still need to understand what's happening actually and here we go back to crypto literacy and capability it's great everything is on chain but most people won't actually be able to read what is the process uh and then risk is the risk the same as in the other Solutions or have we improved anything I'll come back to that later so once again in terms of appeal I took the

interest rates but this time on deposits on savings accounts um well for uh overnight deposits they are not great uh if you check for example in other countries sometimes they're close to zero basically so great you have savings but you get nothing out of it if you don't invest it uh if you supply your assets to Landing protocols well you may get an interesting uh yield on that not always for some assets it's pretty low it it's actually comparable to Banks but in other cases it may be interesting now I'll come back to why some people still why we don't use necessary Landing protocols as a savings alternative there are reasons for that and this is the slide well sound and sustainable so if

we go snorkeling in the defi space uh we might discover some things that are not that uh appealing which is basically there is no one and it's B basically enter the space at your own risk so there's no one to control and exclude you this is the nice part in terms of inclusion but there's also no one to save you if things go wrong and one of the things I've NIS in legal practice is when for example the terror events happened where you well people were turning to anyone just to get a solution even if this person was not the right person because we are used to being able to call someone to save us and to remedy um existing issues and then also um well the risk of a centralized entity doing f

X style manipulations is replaced by the risk of the code being simply exploited by Third parties which is a risk you cannot uh exclude which risk is bigger which one do you feel more comfortable with well at the end of the day if you don't have access to decentralized uh environments you don't have much choice you need to uh endorse the other risk so someone asked me once the question why would I even deposit my funds into a landing protocol to get a small interest if instead of that I could safely keep them on my noncom a your wallet and simply hope um for the value of these tokens to grow right in one case because of that setting I could lose it all in the other well I could still lose it all because of some fishing scams and so on but chances are smaller

right um this is also a major hurdle like Financial inclusion grade but if you already don't have much savings if you put all your savings in Defi and then you lose them all not sure it's the perfect solution so how can we revamp defi that's the interesting part well first of all let's think longterm uh defi currently and this was um luckily highlighted by some other presentations uh today and yesterday and I'm quite happy to hear that well for now we're solving our own problems like problems that are created by the defi Community like how can we improve services that no one else actually cares about so we are serving our own crowd in dii um and the system as it exists does not really provide incentives to change

that because we are all chasing tvl how do you attract investors by proving you have traction with tvl and where do people want to invest in protocols that have a higher tvl because it's like platform effects if it's bigger it means it's better right um and you cannot focus on two drastically different crowds you cannot focus on those small wallets people that just need financial inclusion and at the same time focus on dents whales institutional investors you can't do that and on top of that most of these protocols simply don't have the tools to do that like how do you deal with freea clients how do you deal of people who will complain because they don't understand your product will ask you thousands of questions need additional support they may reach out to you on Discord asking questions you

never thought about because it's not going to be a technical question but something very potentially basic um the end result is that we have big players in the defi space that grow and could be utilized for impact purposes but then you also have impact-oriented projects like the one I've show like for example investor FM that try to bring solutions that are better fitted to real life use cases but they have their own shortcomings how to attract also liquidity uh sometimes maybe from a technical perspective they are less Advanced um simply because they need to bootstrap everything like you have this big player that could maybe be integrated or utilized somehow it's all open source protocol so why don't we use that and simply uh create a new interface to access it

um the other thing is when you think about it once we start thinking long term the required changes are actually not that big so because of the what I've explained on the previous slide no protocol alone will think about it like no one having a team of five and defile will all of a sudden and say hey let's hire someone thinking about impact doesn't make sense but once you reach that stage the changes are not that big so first of all the idea of non-custodial well it's like defi is all about being non-custodial and this is great but it's too complicated as I mentioned so for now maybe let's promote alternative access means of access it's like a necessary evil to Kickstart thing things and um I mean for example telegram is a big uh a big way of

accessing um some solutions like here I include the example of bong but this is actually a trading bot which I believe is is quite funny just because of how simple the presentation is this is the kind of solutions we need like oneclick Solutions not something that's complicated with lots of information people just don't get it they get lost they don't know where to click um so a Sleek dab per crypto standards is not necessarily the right one for this type of crowd seeking Financial inclusion you need to adapt the interface not the tech which actually makes it easier it takes time but it's definitely less time consuming expensive that Reinventing the entire protocol then also you need to boost understanding and it doesn't mean

necessarily uh explaining the entire Tech which is great and you have a lot of initiatives working on that but it's a slow process it's simply providing the right information that's relevant like we most of us drive a car use a computer without necessarily knowing how to fix that car or to fix the computer but at least we have access to the relevant information to know what we are interacting with where we need to click uh and so on um so it's basically a translation and presentation enhancement and then finally this is maybe like the ultimate step once all the other ones are implemented just enhance risk mitigation um as I wrote Think provable compliance and Beyond provable compliance is the narrative I presented

earlier today but basically the idea is to say maybe defi could simply change its mindset instead of providing those solutions that are non-custodial that no one officially controls and simply are not subject to any regulations we proved that it can also be built in a more responsible Way by taking into account regulations but defi still instead of saying we don't need to think about reserves we don't need to think about protecting consumers we do think about it but we implement it in the code because currently there aren't that many guaranties in the code so we started thinking about prevention of economic exploits we start to think about insurance we start to think about these kind of things but there's a long way to go still to avoid hearing this question

of why would I deposit my funds in the landing protocol why would I trade uh on the Dex why would I do these kind of things if there's this risk of my funds simply disappearing because of an exploit and um with the pro like I invite you to check out the the presentation at did this morning with the probable compliance idea we could actually become better than trefi and CI because if the code does everything and actually prevents um some sort of manipulations and risk instead of Simply detering them because regulations rely always on a centralized entity uh just overseeing things and sanctioning when something goes wrong we could be better so ultimately and this is uh one of the the side projects ideas I'm

working on currently what if we managed to build a one for impact the like because we want Financial inclusion and as I mentioned it's all about revamping the way we present in the first place not actually rebuilding um the the protocol the underlying protocols what if we aggregate everything in an interface that actually caters to a different crowd instead of just having those thousands of aggregators that allow you to have smaller fees better yield and whatever just having an interface that presents the potential of those Solutions I want to deposit my funds and have a small interest as on a savings account or on the contrary I want to be more active and trade more but then still be aware of the risks and

understand how things work what if we had one interface where you connect all of it and allows a more retail um oriented crowd to access defi in a more convenient manner it's basically defi on Rails like helping people to navigate those Waters without spending hours on Discord and Twitter and trying to figure it out because currently let's face it defi is complicated and you need to really spend time on it some people will have time uh the previous presentation was referring to uh the organization of hackaton and like mentioned a great data set of demographics for example in Africa how many people are still young willing to code and this crowd could actually use defi they have the time and

the willingness to discover the entire Tech but not everyone does so let's think about it and maybe think how to on board the masses and actually meet this goal of financial inclusion uh through defi uh thank you very much for your time and uh if you have any questions let me [Applause] know uh thank you for the talk um I feel like a big part of making dii useful and better is under collateralized lending and you know that's how you get your mortgages that's how you get all the capital for credit lines that you get

that for things that that are useful how are you thinking about under collateralized lending and where does it fit into your you know legal framework of things legal framework is different than like here Financial I mean there are some new means thanks to ZK proofs on someone of trying to bridge the gap where for oracles you could fetch data for example and then frks to ZK proofs uh for example decide on whether you want to ground that grant that long without accessing the data so there is potential for defi offering this kind of Solutions in a fashion that mimics traditional Finance without the exclusion but there is still exclusion because if you have no assets to back and those kind of things you will not access them so it fits to a certain

extent but in terms of universal access well you will not be able to Grant this kind of services to a whole bunch of people who simply don't have anything to provide as collateral at all even for an under collateralized loan um so it's interesting I would say but not um the ultimate solution probably over collateral SS are better because it simply allows to if you have enough assets to provide on chain fine and it works but then I would say there's a leeway in terms of maybe um having smoo for liquidations if you can on top prove that you have some assets off chain for example thanks to these systems because otherwise like one of the um this is

Maybe another risk I could have mentioned is the risk of liquidation like what if I deposit something as um as collateral and want to get like an interest just because I supplied and then I also managed to finance something for that but all of a sudden there's a major drop and despite all the mitigations meure mitigation measures you still get liquidated there's a problem there like why would I do that but if for example we put in place systems like hey you don't get liquidated for I don't know a couple of days if you had on top of that provide that prove that you have some collateral offchain that could be utilized it could be an interesting solution just to make defi for landing like more uh approachable and useful for a different

crowd like especially for farmers and businesses so this is I hope it answers the question any other questions uh yeah I I have just a question about the legal perspective do you think it's even possible to have this kind of platform in future if you think about the legal perspective because if you consider for example like ethereum ETF what kind of issues they have with it with the staking and why they they should like basically you know turn off the staking to have the ATF so do you think it's even possible like to have a future for defi uh from the legal perspective let's say it globally because there will be a lot of um I

think issues with that in the future about the regulation I mean there are two things like just defy or like aggregating defi maybe it depends like I'm I'm just talking about the platform yeah about your in general um there is a problem in terms of how defi like what is defi because for example if you check the European Union well they said that defi is excluded but for them defi is fully decentralized protocols whatever that means because we don't have a standard yet for this um so it's possible but there's certainly a risk for at least the upcoming year so by the end of the year the EU is supposed to hand in a report on what is considered defi coding to them there is some

movement in the US as well some other jurisdictions have more clarity like Switzerland is pretty good for that so in Switzerland actually it would be quite not quite easy but like still reasonably easy to set this up in other less so yeah it's not easy from a regulatory perspective in general to tackle anything that's defi related but this is why I suggested that idea of maybe just simply aggregating things it could also act as a um selection of like quality projects because in defa you have a lot of things so if you take into account regulatory constraints you basically for example connect people only with defi projects that had a clear structure had a legal opinion even reached out for example for some non-action letter or something like this

where you know that they will not uh for example get a notice like an enforcement not is the next day because you need this kind of um security to feel comfortable about using Defi and there are projects like that so it's not a bad thing and um this brings me to this comment of basically how do you research defi projects if you don't know much about the space you're going to just type down landing and then you have Google result results and just going to select whatever is recommended or you write something on Twitter it's not the best it's not how you select investments in traditional life so why would we do it that way with defi just because you don't have better tools right um so it's not easy but I think that we have enough uh let's say Tools in hands to make it

work out thank you any other question last call then I guess no thank you very much for your attention