Rob Hadick: Where Does DeFi Go From Here? (…And Why)

Transcript

All righty, guys. We are live in the tokenization tower with Rob. Rob, welcome to the nest. Hope you enjoy the view. >> Great view. >> Not bad. >> I've lived in New York for 15 years and never been in the Empire State Building. >> Really? >> Not once. >> Ever. >> First time. >> Wow. Well, welcome. This is a This is a non New Yorker here coming to the realization that I've got it. You know what? A lot of this choice to come up here was part product, part show, part like growing the business, and also part just lore. I just tell my kids like for some part of life, I was going to the Empire State Building each day.

>> That's great. No, I mean this amazing view. So, I'm glad I came up here. >> Well, it's good to have you, man. Um, as I kind of told you prior to starting, the unfortunate reality here is that the topic of the day is certainly this uh largest exploit in DeFi of 2026. Um from >> Yeah, there has as of late. >> Yeah. >> Where were you when the when this exploit went down on Saturday? >> Where was I on Saturday? Uh I might have been watching the Cavs playoff basketball. What happened? You know, I'm a big Cleveland Cavaliers fan. Okay. So, you know, game one, they had to go and take it to the Raptors. So, like, >> you know, beat them down bad. So, it's good. Great. So, go Cavs. Um but no, I mean it's like the weekend was it was

tough, right? So, you know, we've got a lot of DeFi in the in the portfolio. Nobody directly affected. Everybody's fine, but you know, you don't don't like to see this. Like, you don't want to have something like this happen to the whole ecosystem. It's obviously, you know, all hands on deck to make sure everybody is okay. And so, um, you know, it was a long weekend for I think everybody in the space. >> Yeah, it was. And it was and it's just kind of like a bit disheartening, but really just now we're thinking about the contagion and like how this spreads and who's affected and yeah, it's looking it's looking like there's a lot of potential affected parties here. Um, you know, this composability of DeFi, right, is a beautiful thing. It's an amazing way to create very unique products that

are just not available elsewhere. But when you come in, it also adds this kind of like layered risk, right? And we're seeing that play out real time. And you know, like the thing that's kind of, you know, upset me is just the the PVP on the comm side. >> Yeah. >> I I just don't like to see like the lawyer drafted memos. No one like it just doesn't seem like anyone's wanting to help each other. It's just like everyone's covering their own ass. >> Yeah. It's pretty clear that, you know, the statement that Layer Zero put out was heavily drafted by lawyers. Like I think that's very clear.

>> Uh I think you said this before, but I don't think we've seen a Kelp statement yet. No. >> Uh there, you know, there was like a leaked Coindesk article where they said they saw the draft of the memo. I am sure that has a bunch of uh legalies in it as well. >> I think there's I mean there's there's a real liability here, right? And so I think that's obviously what people are worried about. It makes complete sense from their perspective, their shareholders, you know, potentially their token holders that like they would end up doing this. uh and you know wanting to make sure that they're legally buttoned up. I don't think anybody looks particularly good in the situation right now. like there's very obvious issues around the 101 DVN setup uh that you know while the layer zero

team has been you know very adamant that hey they told Kelp that they shouldn't have had the one um you know it seems like you know something like 40% of people operating on layer zero right now have a a oneonone setup like you know documentation at least at some point has you know suggested that that is fine I think it's also we haven't quite gotten the full story from them around how the hack happened. It seemed like it seems like from like reading between the lines, maybe there was, you know, a infiltration inside the team or, you know, inside their their their security setup. That's unclear. That might be speculation. So, you know, don't um don't take that for for my word. But so there's there's that piece. And then, you know, obviously from the Kelp side, like they also deserve to like they

should have been more security conscious, right? for sure >> there's you know we've seen even if 40% of the DVNs are one of one 60% of people and you know and if what they're saying is true which is that the layers documentation said hey like this is what you should be doing there's still 60% of people who decided that they looked at the documentation then that is not what we should be doing like we should be more security conscious we should be more on top of it um there's a lot of people who have put in their own like throttling mechanism as well on the lending side and so there's a lot of teams that were much more on top of it than they were and so there's you know neither Neither of them look good.

They're both pointing the fingers at each other. And then, you know, there's the the a situation which, you know, we can talk about, you know, what type of assets should be able to have a 93% LTV, right? But um you take all of it and you look around and you say there needs to be more thoughtfulness around the real risk of what some of these wrapped assets um you know present and there needs to be more thoughtfulness around you know what crosschain what it means to be you know having an unbacked token on you know when you're doing a crosschain bridge right and like how we should think about what that risk looks like and you know across the L2 ecosystem versus mainet and So there's going to be a lot of conversation around

this, you know, I think across um all of DeFi for, you know, weeks if not months. >> Yeah. I I'm sure you recall 2024ish we were in this era of like reststaking being the primitive that was extremely exciting for Ethereum itself, but also highly controversial, right? And it there was this kind of like this poses a systemic risk to Ethereum the protocol, not necessarily the DeFi layer, but like the protocol, but a lot of folks were pretty adamant that the restaking wrap tokens were also a threat. And I think now we're kind of seeing that systemic threat happen. You know, I I'm just curious like how much how much of this

do we think is is like this isn't a restaking problem. >> No, that's not I think that's a red herring, >> right? But think about like the dynamic of that era of like the points farming and the rappers and the race and the and the way that that that IEN and Carrick and Symbiotic were all kind of going at each other and this whole kind of dynamic like it it it kind of created this very frenzy like environment that was very fast-paced and and perhaps some of the lack of critical security thinking here from Kelp derived from that environment of like just ship and go because we're you know we're fighting Etherfy and Renzo and all these other teams and you know restaking is the hottest thing and we're going to go go

get a big token launch. It is a red herring, right? But I think that era caused a lot of like just FOMO and it Yeah. Yeah. >> I listen I like I think like putting any of this at the feet of restaking specifically I think is like pretty obviously wrong. Like any sort of wrapped asset that's going like you know across like the you know rollup ecosystem like very clearly this could have happened to. Yeah. And and so I I um you know I don't see that as a specific issue. Now I think there's well like what you just talked about is really like a a startup problem right and it's the fact that we have a bunch of technology startups that are not operating like they are financial services businesses right and so there's

this you know old adage of like move fast like break things right but that is a a software conversation and people think that a lot of founders and entrepreneurs think they are building software when they are building finance companies, right? And so there's not a enough thoughtfulness and enough just what I would say responsibility taken for software and for projects and for businesses that are at the end of the day securing and frankly in many ways operating or you know managing hundreds of millions of dollars, right? So there's a reason that the bar in you know call it traditional fintech or financial services is much higher for how you when you and how you roll out new software right there's a reason that

that is very high and it's because of the fact that when you lose money it is obviously a much bigger issue than if you're like whatever B2B software platform like doesn't work as the way it should be right and so I um >> you know I kind of tweeted this over the weekend but you know there are some founders who seriously understood the responsibility they were taking when they took in tens or hundreds of millions of dollars into their protocols and there are many many founders in our space who have not right and I think there's a lack of seriousness and a lack of responsibility across a lot of the ecosystem now this isn't meant to denigrate DeFi as a whole it's not meant to denigrate um all of the well-meaning and well- acting founders that are out

there but the problem is is this is a a space where you know a lot of the the way people have underwritten rolling out these you know BD partnerships or underwritten rolling out these um uh new integrations has been around to your point like how much yield how many rewards like how many like what do I think is like interesting from a you know can get this net new depositor and there's been not enough thoughtfulness around you know what it means to be you know set have the right security set up and to the the right opse and I'll make even a um kind of a a separate point which I think there's also been a lot of conversation on the timeline about AI

and mythos and like you know how the surface area is like much more it's is much more vulnerable in you know an age of AI but all of the big hacks we've seen lately are have nothing to do with AI at all absolutely they're all about a lack of seriousness at the teams themselves in terms how they think through their security setups >> yeah and I think that was very evident in what happened. While in the in the actual announcement from layer zero, it was a bit kind of vague and broad as to what happened, sources very, you know, very deep in this matter have have anonymously kind of passed several tips over that it it was indeed an internal compromise of a key of a of a certain internal process that allowed this to

happen. >> Yep. And then not only that, if you think about the way that, and look, I'm not here to to point fingers and to blame layer zero or kelp or just an objective look at how these DVNs have been talked about decentralized verifier networks to to kind of come out and say that they're this kind of like this decentralized immutable tech and then underneath is a one of one in-house signer. That also feels like a little bit misleading and a little bit wrong as well. not just from a security perspective but from the way that these products are talked about. So I think there's also a regime change in the way that marketing a certain products like nuanced decentralization is going to occur and there's probably going to be a

lot more push back and acceptance of push back from people who are going to say look no like you're this is not decentralized like let's look under the hood. >> Yeah. And and I think listen decentralization is part of the story. uh there's you know and there's like layers of what decentralization actually means and I I don't put it at like the feet of like oh we just not need to be you know entirely decentralized uh because there are obviously teams that are much more centralized that are doing you know uh taking this more serious as well I I do the one thing that I would say to what you said though which is um I don't know who looked at that statement but when you come out and you make the point multiple times the protocol worked as intended and the but the protocol working as intended meant

that you lost $300 million. Like >> maybe that's not the statement that you should be putting in there because maybe it worked as the software intended, but clearly there should have been some change to the software so that didn't happen, right? And so I I um that to me felt uh just like the wrong tone and defensive in a way that was um probably not appropriate for the situation. >> Yeah. Let's talk about the risk curation side. I mean I've been hearing quite a bit in the just at D and through rumblings through uh having conversations with institutional asset managers whether they be curators uh funds family offices etc. people are people from that world right are coming

and they want to provide better risk management services on chain and so when it comes to something like a allowing RS ETH to be listed and to not have identified through Chaos Labs uh through BGD or just through themselves that this was a one of one DVN asset like how how do we grow from here right like rather than being like this is bad we all messed up like like what is the necessary steps here to implement stronger risk management practices going forward. Is it just a you need to bring in smarter people, bigger money, smart like like what is the how do we do better risk management on chain? I listen it's not like we need smarter

people like you know the chaos labs team and the gauntlet teams like these are incredibly smart people right like you know these are some of the smartest people I've ever met in my life and most of the people that work those places are smarter than I am right >> and so it's not that is not the the problem I do think there is a broadly an incentive problem in the space which is that the oftent times I mean it depends on if we're talking about morpho versus a you know um and this has kind of been the point that's been made about um you know how curation works. But some of these curators obviously they get uh potentially compensated by percentage of AUM, right? And if you get a percentage of AUM, but then also you're you know call it tasked with making sure that

risk management is appropriate. Well, there is a push pull there because like obviously if you are the result if a hack results because of you like you know you might lose all of your AUM but you're obviously trying to always push for more AUM and this is the pro incentive problem that exists in traditional finance as well, right? which is, you know, we're seeing on the private credit side where, you know, people have an incentive to try to increase their AUM, but does that mean that they're out on the risk curve, right? Uh, and it's being too far out on the risk curve, you know, where does that break, right? And so there's there's that, right? And then there's just like broadly there's also there everyone else involved is also, I think, incentivized by just, you know, having more AU, right? And so that and and and

again I'm going to make the point this is not a cryptospecific incentive issue. This is a broadly like a finance incentive issue. um which is just that you know there are everyone who's gets paid more having more aum having more aumumumumumumumumumumumumumumumumumumumum typically means having more yield or you know more a higher APR and so getting more exotic products being further on the risk curve allow you to have you know call it that higher APR and in crypto relative to traditional finance most of the capital is probably less sophisticated in terms of actually pricing that risk right and because also the you know treasury rates have been so low and like the onchain like you know call it you know basic like USDC markets USDT markets um the return on that has

been so low there's been this you know I think real just hunger for like you know better um uh more yield >> and so that's I think what's driving a lot of these decisions I don't think we solve that by like I don't think there's a cryptospecific way to solve that there's just a you sometimes just have to learn the lesson the hard way right when you look at traditional finance like how did we learn the lessons around to think you know trunching mortgage back securities right like we we went through the this really bad thing and then there was regulation on the other side in crypto there is no regulation that stops us from doing that and so we have to self police well how do we self police that's a hard problem right and there that requires a lot of

coordination probably it requires some sort of call it like independent body that we try to have people you know call opt into that reviews maybe lending and um markets that you know call it you know it goes through a first review from the risk manager or the curator themselves then it goes through independent review of some sort of you know uh whether it's like a Moody set rating agency or or something like that. >> This is something that people have been thinking about in the space for a while. You know, again, it's all about incentives and maybe we've reached a point where after what has happened uh the last, you know, call it, you know, few months that people will want to opt into something like that. I don't know if we have.

>> Yeah. One of the lessons that I've heard many investors come on the show and say is that investing is path dependent, right? You get you get these certain outcomes based on, you know, circumstances and events that are almost out of your control or entirely out of your control. This this is a very good example of a of how the future of DeFi going forward is path dependent on something like what's been happening for the last couple months. And there's luck involved in that, right? Like a lot of the Sky guys and the Spark guys are like, you know, kind of kind of out there like not cheering but, you know, saying like, look, we avoided this and we did this with our markets and this is safe and this is safe and then then you've got other folks who are obviously having to

deal with these losses. in terms of this kind of path dependency, like is there is there a a way to anticipate what the maybe incumbence of DeFi will look like as a result of this event in the future or perhaps like how you would think about um this path dependency of exploits or unfortunate events as it pertains to like the longer term uh investing outlook in the in the space. um as investor, how would how would this kind of change your your views?

>> So, I don't know if it actually changes my views uh at all. >> Okay. >> But that might be because like, you know, I already had maybe different views than than the market. I think the reality is is that I I'm not sure that I have seen the general feeling around DeFi be this bad since FTX probably or maybe Luna was worse because you know that was much um more DeFi contained. It's very clear that there are a lot of people I mean you listen to every podcast in the space right now people are saying oh like what is the riskreward of being on chain like at all appropriate anymore you know they're

seeing tweets about this from some of the you know largest like you know DeFi traders etc and I I think there's >> this mentality is going to continue going forward now I also think you know I go talk to the all of the large you know investment managers and the banks and you know uh everybody getting you know call on the traditional finance side who's looking to get involved in the space and all of them see how much or how interesting of things that they can build if they're doing it on chain now what's not going to happen is that like there's never going to be an Apollo pool that is using collateral from restate teeth like that's just not going to happen right and so in some

sense like it it matters less to them about some of the stuff that's happening because they're going to have segregated pools for their assets and it's going to only be paired against pristine collateral like a USDC or USDT or something like that. And so, you know, their perspective is like, well, I can actually build better product on chain. I can build a more modular product on chains. I can serve my customers better. I can go more global. Uh, and I will continue to do that on, you know, Morpho or a, you know, upshift or Midas or like one of these things, right? Uh, but I will only um do that in like very tightly controlled more segregated markets. But that was already what they were thinking about doing like that is not net new. The the broader stuff that's happening around you know some of

this like more exotic collateral like that is a very crypton native specific thing and I I do broadly believe that that market is going to be much tougher from here on out. you know, we we invested in Athena in um I guess it was like July or or maybe June of 23, right? And at that time, you know, everybody looked at us and was like, man, this is crazy because like Luna just happened. Like, isn't this the same thing? You know, we were like, no, it's very different. Like, there's from a risk perspective, like this is why it's different. This is why we we wanted to invest in and then Athena basically kicked off this new market, right? So obviously like you know you mentioned Sky and and what they've been doing but

this new market of you know um having you know different types of of collateral for uh different types of you know ways to get yield on chain Athena basically reinvigorated that and that's basically been they were the beginners of what we've seen over the last few years in my mind and um people saw their success and they went further and further down the risk curve. they went, you know, call it um they were less focused or more focused on on growth and less focused on security and that part of the market, these people are taking as much risk as possible to grow as quickly as possible, move as quickly as possible. I think we're going to have just a a repellent from a lot of those >> very very interesting point because I

just had Shu Yao from Mega Ethan here asked her about you know she they built Mega Ethan in a way was just single sequencer juice the hell out of it you know forget all this decentralized sequencing crap just go in make the the most performant possible you know L2 Hyperlid has been dominating 16 nodes in Tokyo. Nobody cares. Hyperliquid's winning in fact and people are tweeting at me like, "Oh man, you're virtue signaling now, but you've been speaking about Hyperlink for the last three months, man. You got to, you know, get your facts straight, right?" And so there has been this like, you know, no decentralization doesn't really matter, you know, speed, performance, product does, and like the like the market is like seemingly kind of accepted that,

but you're saying that's going to get a big push back in the cryptonative space specifically. >> No. So, so that's not what I'm saying cuz I actually I actually think people still will not care about decentralization. Okay. >> Right. And because I actually like decentralization is a form to a form factor or a way to be more secure. Yeah. But um it not necessarily needed to be more secure. Um in so much as like the way that crypton natives talk about decentralization, right? It's meaning that like you know you can have a you know whatever like a 15 of a 16 multisig right and be a centralized company, right? like you know so it is it is it is not necessar necessarily that you were going to and I definitely don't think we'll actually have a um a kind of a revolt or repellent away from you know

the the people who are centralized if people think that they are taking their jobs more seriously right what I do think we will see a and I guess what I my point was more specifically around um like the lending lend borrow money markets and collateral because there's been a a push to use more and more wrap tokens more and more call it like further out on the risk curve like you know call it you know we're calling these stable coins or or or wrap tokens that have you know something that's less and less stable underneath them right to to proliferate that in DeFi and I think that part of the market is going to get rerated uh because of the risk people are going to be less open to taking that type of risk um listen for you know

there's a lot of tweets about hyperlquid you know I'm I'm Uh I you know having known Jeff for a little bit and you know I think like they will do hopefully as good a job as possible on the security side and it's been on their mind um a lot and so >> but I don't think um I still don't think people will I consumers just do not care about decentralization. >> Yeah. on that. So is is it fair to say that the vault isolated lending model is going to reign superior over time to the poolled model that there's obviously pros and cons of both and we don't even need to make this a moro a I think because a is already kind of thinking

about this with v4 but you know in in instances like this in this kind of heightened risk environment right I remember in 2020 a had like five assets ETH, Bitcoin, Chain Link, USDC, and USDT. That was the only five. Yep. >> On V1 and V2 >> every time. And then, as you say, it kind of, you know, grew and now grew out of proportion. Do you think that the isolated model even though that it has its cons is going to be the kind of leading growing model for the institutional adoption for larger allocators because they want that control or kind of how do you envision >> institutions like that? That's the only way they're going to vault. Yeah, that's the way they're going to operate. That's the way they've been operating today.

This type of stuff only makes them want to operate like that, you know, more more more cleanly. >> Um it it it obviously does have, you know, drawbacks, right, relative to like how we think about capital efficiency and um and and being able to make, you know, call it, you know, full set of like more most wholesome returns um and, you know, broad composability, right? But they're you're never going to convince a Fidelity or an Apollo or even like a Revolute who you know they might just you know maybe Revolute just wants to have a Bitcoin product like Coinbase has on Morpho right but you know Revolute is going to want their product to be segregated because it's going to there one there's regulatory reasons for that but an accounting reasons for that but there's also just risk reasons for that

as well right um and so I I I think if if your perspective is the same as mine which is that call it this next phase of growth is very institutional then and when I say institutional that also means call it you know distribution channels through fintexs and through you know banks and things like that to consumers so like B2B TOC then um that is the only way that that proliferates >> yeah interesting and then you know we had this rise of these you know quote unquote stable coins yield coins you could say um also different types of rappers and different types of like uh collateral backings. Uh Athena actually notably just came out and expanded their

collateral backing uh as a result of kind of the basis trade changing, you know, more RWA backing and more kind of interesting commodity based uh trading strategies, etc. you know, curious like when people are thinking about risk here for these wrapped, you know, Ethereum assets, they'll probably start to naturally start to think about the risk of USD and of other stable coins, USDS, and all these kind of yield coins. And now that the the stable coin markets are being affected in a where a lot of these looping strategies were being ran, I'm curious kind of how you think the market reacts to these, you know, not stable coins, but yield coins, not these genius compatible things, but these actual like yield generating stable coins, if you

will. Is there going to be push back there? Is there going to be more acceptance? Is there going to be an opinion or is this going to kind of be the same thing? No, I think it's like the teams that have proven that they take this seriously and have proven that they like understand how to manage risk like they will continue to be the assets that people, you know, that people flock to, right? It's going to be harder for what I would say like a net new startup to win I I think the trust of people today unless they go about way uh things in a in a certain way. But, you know, for something like an an Athena or Sky, right? you know, the the Athena guys and and and Guy and his team, you know, they were ahead of the curve pretty much

every step of the way in terms of how they thought about security, right? And so they've done, you know, when it came to, you know, even like 1010 with USD when they had the, you know, isolated the um USD peg on on Binance, you know, they were specifically telling Binance to um that they needed to have direct me redeem uh enabled and that they needed the to um when they thought about how they were thinking about their uh oracle setup that you know it couldn't just be to their own order book that it needed to be, you know, much more broadly and and and had Binance gone and done those things, we wouldn't have had the Dback on Binance, right?

>> And so when we think of through, you know, how that team has operated, they've operated with a level of professionalism that has put, you know, these other teams over the last few weeks at shame to be honest, right? And so it's important to understand the risk that you're taking in these products whether it's you know Athena or Sky or you know any of the other numbers of of challengers out there and to understand what underlies you know that risk but it's also important not to reflexively you know kind of I I would say like you know try to act like you know this is like an issue because it's you know is non-standard it's like non US dollar risk right and so you know from a if you

are going to enter into a position that says okay well like I understand that this is the basis trade I understand that the base trade to turn negative I understand that there this thing is you know call it you know has a triparty agreement so none of it is um you know actually on uh is is posted to the you know exchange itself but that there's this you know 2hour period where I could lose that P&L if you know things went um if things went ary like when you understand that risk and that risk is very clearly laid out for you then uh you know these products they they're just financial products right and they serve an important part of a you know big financial ecosystem that's building

around you know DeFi and crypto um but it's just about understanding what those risks are and some teams have been better than others about being very clear about what they're doing some teams have been better than others about being very clear about what their Oracle setups look like about what their custody setups look like how they think through managing, you know, times of dist of stress. Um, and those battle tested teams, I think, will actually be better coming out of, you know, everything that's happened the last few weeks. >> Yeah, I would anticipate a consolidation of capital as well, right? you know once these once these funds on a become unfrozen I anticipate also kind of a changing of capital structure and in terms of people allocating there or elsewhere but generally like you know seeing more of the creme like creme of

the creme kind of be become more enshrined become more of an incumbent >> I I wonder what you think about this the trust deterioration as a result of the frozen funds for the last 48ish hours right I'm kind of for one a bit shocked that that that the main ETH market and a lot of the stable coin markets are still bricked on a um I think as every day goes on like the the the trust you know it it goes down a lot and users are the ones that are suffering from the PVP comms and lack of cooperation here. At the end of the day, Kelp has to make a choice here I believe is kind of what the sentiment and and what the common

consensus is. I'm just curious how how you think about the trust as it pertains to the frozenness of these funds. And then this is going to kind of take us into a conversation about rate limits, about T+1 settlement, about these funny things that Tradfi has that we've kind of avoided, but now are seemingly coming back into the conversation as like a way to kind of backs stop and to prevent what's happened to happen again. Yeah, I I uh I I maybe take a little bit of a different view here, which is that everyone is working tirelessly behind the the scenes of like figuring out how to get the best possible solution for depositors, >> right? And so the this is taking a long time, but if you allow a run on the

bank, uh it is literally it's it's net bad because it's literally just bad for the markets. It's bad for um whoever the last person out is, right? And it's not it it usually doesn't allow for us to, you know, get to some sort of agreement that is maybe probably the most EV positive thing for everybody, right? And so there's I I think a general understanding of that is okay. Uh I'm probably going to get like blown up on Twitter about this because like everybody's, you know, wants to get their uh their money out, but I I think like that's fine. And there, you know, I I can tell you I can't tell you exactly what, but I can tell you that, you know, we've been part of conversations I've been or people

have hit us up about things that they're trying to do to try to figure out what's what's what's best going forward. And so people it's not as if there is no work happening right? >> Of course. >> Now, um that maybe goes against like the general ethos of of a lot of people think about when they think about DeFi, but the reality is the space is getting more institutional. Like we talked about earlier, everybody's clearly lawyered up. there's everyone's trying to figure out how to, you know, formulate a response. Um, and I, you know, what ends up happening in terms of like, you know, who takes what losses when and how and how much, um, is still very much, uh, up in the air. But I, you know, I think it

will be whatever it ends up being, it will be better than if we had allowed, you know, these markets just to have a run in the bank, right? >> Yeah. Um, so I guess that's point number one. What what was your second question? >> Then the thought was around, okay, you know, this could have been prevented if this mint function on RS had a $10 million per 10 minutes. Yep. >> Or $100 million per hour even, right? Or if a had a uh a limit on the amount that you could pull out or deposit at at at a given time. Could be every hour, every block, even something, right? just something to make it harder than just like a, you know, a false soup of a button and boom, and all of a sudden you you deposit 300 mil, you pull out 200

and then you're gone, right? It's it's there's also this kind of like meme going around. Mert tweeted it like, "Oh, so this is why Stratify has all those middlemen, right?" And people like, "No, buddy. That they're the they're the cause of the problem." But talk to us about kind of how you envision rate limits or more kind of concrete onchain security practices to prevent large scale exploits. Obviously, you can't prevent everything, but how would how do you envision the space evolving from that perspective as far as like maybe learning a bit of something from traditional world or at least implementing more guard rails up upon the true ultimate open liquidity dark forest that exists today?

>> Yeah. So I sort of I I responded to merch tweet uh cuz the if you look at the last like five or six years of DeFi the people in DeFi learning about what happened in Tradfi and like learning the same mistakes uh is like probably the like the most undefeated thing that has happened over the last five or six years because you have a bunch of like you know like interested technologists who like haven't worked in in a lot of them have not worked in in finance and are like oh how would I build this thing if it was in first principles and then they're like oh like this is how you manage risk like that's a lot of what's happen. Um, and unfortunately it's happened with a lot of other people's money, right? And I the and I guess getting back to the what we talked

about earlier with some of the more serious teams like people like Athena, they had already done that. They already had weight limits, right? Agoras said that as well. >> Agora said that as well, right? I think I'm sure there's a bunch of others who have done it, right? Because there's absolutely no need and it makes absolutely no sense for someone to be like, "Yeah, I gotta, you know, full port 300 million right now." Like that makes no sense. Yeah. No. Right. Like and that would never happen in any market. There is no institutional real investor who would be like, "Oh yeah, this has to happen this way, right? There you would never, it's a little bit annoying, but it would never get real push back from anybody who's thoughtful about it." And so I think the reality is is that you don't necessarily need, you

know, a bunch of middlemen like uh like like Mert talked about, or maybe you need, you know, more, but you do need, you know, um like fully being able to allow people to do whatever they want at any time they want is like clearly not like the best solution, right? So doing things like putting rate limits in there, like I think that's going to be standard from here on out, right? Um I I I don't know why anyone would not have had that and I don't know why it wouldn't have been the standard on um for a lot of these markets and this is not a new conversation, right? Like a lot of the teams were building this themselves already. Uh and so like if they were building it themselves, obviously there was already conversation happening about it at you know a and morpho and you know um etc. Uh and so I

I do expect that, you know, with how much damage has been done over the last, you know, few weeks and over the last few years, I do expect that we're going to have more wholesome conversations around putting in some of these more tradike, you know, checks and balances going forward. And you know what? If it really bothers you that you can't put $50 million into uh you know a single borrowing market and you know in one single transaction then like you know what who cares? I I honestly like I I could care less.

>> Yeah. Yeah. But so there's a spectrum here, right? There's like where we are now >> on onchain defi and then there's like T plus2 settlement and like KYC and everything that comes with that. the lack of composability, the wires, the AC, the bank accounts, right? Like somewhere somewhere in the middle here is like, you know, the tempos and like the canton and like the like the corporate blockchains, if you will. And then like somewhere in here is probably where we're going to end up getting closer to for the more like open public chains.

>> Yeah. So, I mean, even traditional markets are going away from T plus2, right? And so like there's a uh I think it's very clear that you know something and we talk about this a lot in payments. So this is kind of a specific point because I think that's actually been it's been more talked about in payments recently with stable coins. >> You know atomic settlement is not something that actually that a lot of people want right and so like we talk a lot about like atomic settlement being like this like you know big unlock. Uh the reality is is like that is actually how most payments happen. And while people want faster settlement than we have right now, you atomic settlement is probably not it. Um, and so like you know what is the middle ground to your point? I think we're all still figuring

that out to be honest, right? And >> there's risk, there's like credit, there's, you know, how do you think about, you know, how much risk is too much risk? There's KYC and there's like all of these things that go into okay well you know why should we potentially throttle a transaction or have you know some sort of settlement time imper in uh baked into the transaction. I expect that these markets are going to just continue to bifrocate which is that you have the institutional markets and you know we talked about okay we're going to have siloed you know segregated you know asset management you know specific you know institutional markets

you're going to have the same thing is going to happen on the payment side where you know you're maybe atomic settlement happens in the system but you KYC at the you know at the entry points right but there's going to be these markets where you have permissionless DeFi over here and you have, you know, the smart contracts and the protocols that people can interact with and then you're going to have a lot of the institutional side of the market over here and there's going to be, you know, a lot less of that. There's going to be a lot more of that, you know, call it, you know, throttle in and that KYC.

Yeah, >> I I I expect that. So it depends a little bit on the regulatory environment where I think most of the industry is trying to get to if you think about not just what's on Twitter but like you know what's happening in DC most of the industry is trying to get to well let's you know KYC people at the end points and let's let the protocols you know do the thing that they are supposed to be doing to the best of their ability and maybe they're segregated markets so the protocol you can take full control and full use of the technology and your KYC at the end points but everything you do in these like walled gardens is able to to you know be the way that you know you would intend the software to to to be um and I

think that is probably where we are going >> but it is going to be a segregated market from everything that happens on rest ETH across you know all of the L2s >> uh and that is you know I think for a lot of people not the world that they wanted to see when they came into the space >> and I think for a lot of people it's not doesn't ideologically fit with the things that they believe and they you know still continue to believe that you know crypto is meant to be like cipher punk permissionless money and and there is a part of that market that will continue to exist. I just think if I if I look 10 years in the future and I think about like the market cap and the economic activity that's happening on chain I think the part over here the

institutional part will just dwarf everything that's over here. >> Yeah. Last thing from my side on, you know, kind of on on this point on the more kind of retail, DeFi, onchain finance that a lot of us, you know, who are listening and a lot of people have been around for a while have kind of come to grow and love. You know, there's often this inverse relationship with central bank rates to DeFi rates because borrowing activity of stable coins is very high. When interest rates in the macro are low, driving more speculative activity, you borrow you borrow a lot of stable coins, you you get long sta the rate goes up, all of a sudden DeFi is amazing because the risk-free rate is, you know, 2%, one and a half, 2.25, but

the DeFi rate is four and a half, five and five because, you know, people are willing to pay that. And then obviously what's been happening as of as of late is the opposite. It's the risk-free rate is 3.5, 3.75, the DeFi rate is 2.5. It's terrible, right? But this, you know, this too shall pass and and this will change, I think, probably quicker than people think. With that being said, what what do you see as catalysts to kind of reverse the sentiment to reverse the sentiment around the entire DeFi complex and generally the way people think about this asset class? Uh, this bare market's not been that bad from a price perspective for the majors. For the other tokens, it's been a bit rough.

It's been almost like a cold front, at least from my perspective. It hasn't gone on long enough. We'll see how long it does last, but the sentiment is really really bad and the perception I think has suffered once again, not to the same level of FTX or anything, but internally. >> What are some catalysts that are going to drive a turnaround here for the market for DeFi? Yeah, people I think this is like not super obvious if you don't if you don't think about it uh really closely, but the last maybe 15 months have been 16 months have been probably the single most value destructive months of crypto history and for retail specifically and this includes FTX, this includes Luna because

when you look at what happened, you know, you had the Trump memecoin and then you had Melania and you had everything that came after after that and all the draw downs. you had the tariff tantrum and then you had what happened on October 10th and you look at this and you just you look around to you know the retail users of DeFi and now all the hacks that we've had recently and it it's hard to see a world where probably 90% of the retail users have lost significant amount of money over the la that period of time and at a time when risk assets more broadly you know we're back at all-time highs in the equity markets right and So I I think that, you know, along with what you just said

about rates has made it really hard for people to see the riskreward of just being in DeFi and just being in crypto as worth it unless there are people who have already made their wealth on chain. And I think there's probably a lot to be said about tax situations that are going on there and you know how people are are are thinking through the you know the the future of their you know wealth. Um, and so, you know, what do you need to get those people excited about the space again? I I hate to say this like this, but you probably just need better price action, right? Because like the reality is is when people figure out that they can make money, they come back into the space. And then if we can get more

controlled price action on, you know, the way up and like less volatility, it means less institutional interest from a trader perspective, but it probably does mean more um long-term oriented retail capital can come into the space. I think there's another point that you made there, which is okay, well like the majors hasn't been that bad, but the altcoins have been. I do think we're about to see and we've been seeing a lot more dispersion and there's just a lot less correlation, right? It used to be the case where you know I'm sure you remember 21 where like you know you were you went from a major to whatever to whatever the meta was at the time and every AMM went up and then every loaning protocol went up and then every gaming protocol went up and then like you know

it didn't matter if you were in the biggest piece of that ever existed like you know it went up with these other things that that went well. Um, and uh, that's just that that era is gone, right? There there you it needs it's going to be harder to invest in this space. It's going to be harder to trade the space and you're going to have to have it's no longer going to be about finding beta, which is basically what everybody had before and it's going to more be about finding alpha in the future. >> Rob, thanks for joining, man. I appreciate you joining. Tough week for DeFi. Tough weekend. Um, but we will we will get through this as we always have.