From Wall Street to Ethereum

Transcript

[applause] >> Hello everyone. Thanks for coming to the talk. Um, thanks for the intro and I'm going to talk to you about uh some stuff that isn't necessarily ZK, but it is I think still very interesting. In particular, I want to talk to you a little bit about how we want to bring institutional adoption uh from Wall Street onto on chain, in particular Ethereum and the ecosystem that uh we're in. So, let's go into it. I want to talk a little bit about uh the barriers that um these Wall Street institutions and users who would normally talk to uh these institutions um have when they actually want to use these services and how we can use crypto native solutions to actually overcome a lot of this and make this more

accessible for everyone. So, why do we want this? I think this is not necessarily a a particularly new uh slide or you know, piece of background information, but I think I'll say it anyway. It's just to motivate uh the specific challenges we have. Uh and that's that TradFi has a lot of pain points, right? It's good, but not necessarily great. Um there are some things that we'd all love to see for efficiency reasons like better settlement, um but there's other things where you have a lack of sort of transparency or information where if you go to a bank and you start doing something with them, you don't really know who you're talking to. Barely, you know, these days you can even talk to the same human over and over again, but when you start to actually invest or do stuff with uh the financial services

they provide, it gets even worse, right? Uh and when things go to a much larger scale, so when you're at the bank itself, the cost of actually doing this business and the difficulty of doing this is also scales, right? It's an old industry. It's one that is uh not necessarily optimized for a whole bunch of new technologies that's been invented over the last 20 or 30 years and we think on chain we can solve this. And of course, all this money is very siloed. I think one of the previous speaker uh spoke about how, you know, you'd be one type of trader, but not others, and now things are blending. And I think uh you know, this type of siloing is is an old antique notion. With on-chain finance, um we can solve basically all of these problems to some extent if we're willing and able to do that. Right, settlement

becomes very quick. Ethereum uh has a pretty good block time. It's getting better. There's roll-ups. There's things you can do. And you can be online and trading all the time, 24/7. Uh doesn't matter if your bank's open or closed. You can also have a very good uh set of transparency, which is sort of a double-edged sword. You don't necessarily have privacy by default on some of these chains, but you can track where assets are going, and you do see, you know, what's going on behind the scenes. You can see the smart contract code in a lot of cases. And if you're not necessarily dealing with just off-chain products, um that gives you the full picture, which is pretty great. You can [snorts] also program that money. Uh that means you can do things that your bank doesn't let you do. You can set up, you know, automated trading

rules. You can have it move to different places. You can loop assets. You can do a whole bunch of things that traditional um services don't yet seem to commonly provide. Now, I could be wrong. Maybe there's a lot of them out there, but I'm not aware of many. So, I think this is very novel. And what's also nice is you can start composing assets in different classes, and you get a lot of liquidity from different places, which also I will talk about as being a double-edged sword, but it's, you know, basically a direct counter to almost all of the complaints I bring up about traditional finance. So, it seems like a pretty good idea to take some of this infrastructure and some of these financial use cases and bring them on-chain.

So, the value proposition's real. It's there. We just have to figure out if um the adoption is actually matching it. I think when we started in this industry a couple years ago, you know, it was sort of this notion of banking the unbanked, and we never really got a lot of the uh common TradFi use cases fully on-chain. So, adoption is is is maybe something that's coming, but it's uh it's been a slow process. As we have evolved over the last couple of years, nearly a decade now in Ethereum, um it has changed. We are seeing adoption in specific cases very, very clearly. In particular RWAs and stablecoins have blown up, right? If you if you've been talking to people outside this room, almost all of them are talking about

stablecoins or RWAs in some manner, right? And then other traditional finance services and products like foreign exchange and you know, other services that they provide are also being piloted or you know, there's certain dapps or you know, companies that are trying to take these things and put them on chain so that they can match or take advantage of the adoption that stablecoins have enjoyed over the last couple of years. And some of that is is really cool. Some of that's you know, it's permissionless as it can be. In other cases we are seeing some matching sort of guidelines of having some permissions required to do stuff, but I think that's okay. I think as long as we grow incrementally, we're going to get to a nice place eventually and it's

going to be good. And we should keep doing this because actually we've only started to scratch the surface of this. The on-chain market for a lot of these things doesn't match the off-chain market right now. There's still a lot we can bring on and so we should start to do that. We need to start building some of the products to bring more of this capital on chain because ultimately then we can change some of the features or concerns that we still have when we we do this. I think we have to start agile and build something that works and build something better as we go on. So, why can't we do that? Well, there's a couple of barriers. The first barrier is unsurprisingly regulatory uncertainty.

I'm not a lawyer so I don't know too much about the specifics of some of these, but undoubtedly when you talk to people about bringing you know, banks and financial services on chain, they start asking questions like well, what's it going to be what's it going to mean for for my company's legal, you know, problems or for my taxes or any of these things, right? In some cases assets don't even have clear classifications. How you hold things, where you hold things are very different if you're operating in one country and then you're putting funds in and a fund in a different country, what does that mean? And then there's a whole new class of legal issues that come up due to the technical implementations of some of these things.

Right, in particular, smart contracts unfortunately suffer exploits repeatedly. It's getting better I think as an industry despite a particularly bad first quarter to this year. There's, you know, this barrier that you can't just go fix code. It's not a centralized server, so you have to overcome for some of these things or price it into your solutions. And if something does go wrong on even on on the technical side, you know, who's responsible and how do you react to that? I think that's something that's still not talked about a whole lot even though we have a lot of examples of technical risk. So, they don't necessarily like institutions and users don't necessarily avoid this because they don't understand it, but because their lawyers won't sign off on it. Right, there's this problem that they want to see this as financial rail, it looks efficient, it looks cheap,

looks easy to adopt, but someone comes up to the board meeting and says, "Wait a minute, what about all these concerns?" So, we got to figure out how to overcome some of that and I think that's one big barrier that we're going to see slowly being broken down over the next, you know, couple of months or year, especially as stablecoins continue to grow in adoption. If the lawyers do okay it, there are other things you still need to worry about. Infrastructure is pretty good. I mean, Ethereum has definitely evolved into a very, you know, well operating system for the [snorts] last several years but in doing this it it took some design decisions or there were projects on it that really moved some assets to different places. Chain fragmentation is real, right? As of October of last year,

there was something like 131 rollups. That's that's a lot of chains. Some of them had a lot of liquidity, some of them didn't have a lot of liquidity. It was just a lot going on and if you're starting to deploy a project or use funds, on which chain do you choose? This is a really big issue. Other similar issues like standards and in particular operating standards. So, like do we really want composable DeFi as the gold standard or are we okay with some time delays? Maybe we need to do that. And, you know, very fundamental service providers, right? If you're using an Oracle, which Oracle? Does it matter? If you're using a bridge, which bridge?

Does it matter? Do they have standards? Are their standards compatible with what you want on a technical level? Are they compatible with what you want on a legal level? There's a whole bunch of, you know, things that need to come along with the the infrastructure that you adopt. And so, as we got a little bit fragmented, we have to figure out what does this mean and how to overcome some of this. Because uh essentially, you know, seven, five years ago, it was pretty straightforward to do a lot of these tasks. There were sort of a a nice cookie-cutter pattern for a lot of lot of dApps. And now it's not the case, right? Now, we need new dApp designs that are robust, that are secure despite all this complexity, but also, you know, adopt for modern things. It's not okay

to build dApps to only target one chain. Or at least, it might not be from a user growth point of view, right? It might be simpler, but you might be missing out a lot of capital, especially if there's money in other chains. This increases things like the surface area for for technical risks. And it also means you're probably going to have to build in redundancy for other things, right? If you're using an Oracle, maybe you want more than one Oracle now because there are multiple options and some of them have different trade-offs. And you have to figure this out. But in short, the dApps that we saw, you know, in 2022 are probably not going to be the ones that we're going to be repeatedly seeing in the future.

Permissionlessness is also a real barrier. A lot of the legal concerns that we have in in the industry um are stemming from the fact that there's, you know, this really good property of censorship resistance and total transparency. But this is a double-edged sword. And really what it is is a trade-off, right? What you want is to choose which versions of permissionlessness matter to you, right? If you actually like the transparency, you build for that. Uh, Uh if you need the censorship resistance, that's great. But you have to maybe be willing to take some some decisions, difficult decisions about do you want everyone to actually be able to use your product, or do you want um to bring some money on board and have some white listing, or do something that is maybe not so idealistically I optimal, but

will get the ecosystem to grow. So, it's a genuine trade-off. Uh unfortunately, that's just the way it is. Thankfully, we have a bunch of emerging solutions to do that. Permissioned DeFi is something I already mentioned, where you can whitelist people, you can KYC, you can do all of this. Um you can also define better standards to come up with a lot of the uh infrastructure fragmentation and risks. So, ERCs like uh 3643 and 1400, which I don't think are talked about very often, are standards for like RWA tokens, which is a specific asset class that's pretty important. You can also bring some really cool tech into it, right? We have ZK-based uh KYC, so you can scan a passport and just give them the valid information that you need without really showing the passport to anyone. Um that's really nice. We need to see more of this.

Uh and you can use some of the infrastructure fragmentation to your advantage, right? If you look at a chain and it doesn't have the features you want, it's not private or, you know, it's not owned by someone you you like or something like this, you can build your own. L2s in particular um have this power to be very customizable. So, if you are building a solution, you could build your own L2 to build that if you wanted to do that. And finally, things like bridges have come a long way. They've been, you know, particularly problematic in some cases for um from for exploits point of view, but they've come a long way and now we have various crypto token standards for them, whether that's uh OFTs or CCIP or others. Uh and there are solutions to overcome all of these things that often um are

built with those legal or other barriers in mind. So, you have tokens that support whitelisting or pausing because they know most of their users will want this. Now, you have to do your due diligence to, you know, make sure that's what you want as well, but it does exist. These solutions are being built for um some clients that include Wall Street, you know, institutions and people who would normally go talk to Wall Street, which is great. For builders, what this means, as I said, all DApp designs are not going to be uh particularly, you know, adaptable these days. You'll have to design for modularity. You'll have to understand your trust uh model explicitly, and you'll probably have to talk to regulators as early as possible.

You got to build all of this in mind. But more importantly, what does this mean for users? Well, it means that actually this gets very complicated. You might have a lot of decisions you need to make. If you're just an average user, back in the day if there's only one DeFi swap protocol that you use, you would just go for it. Now, there are probably hundreds if not thousands, and you got to figure out which one's right for you. And you got to do all of your due diligence to understand the technical implementations, which have only gotten more complex, thanks to the barriers I mentioned earlier. And you might be offered something with really unpredictable yield. May be good, may be bad, depends on how much your risk tolerance is.

Uh and then you may also have to consider uh regulatory uncertainty. But it's my point of view that uncertainty is risk. I don't think that's a hot take. I think it's something a lot of people would agree with. So, what I like, I like predictable DeFi. I don't want solutions that are overly complex for the sake of being overly complex. I want ones that actually have made some of these design decisions to facilitate um the onboarding of institutional capital. And for us, uh what that meant is building our product to do that. So, actually at Zerion, which I'm going to share you in the next slide, is to build out a product that has really nice um compatibility with Wall Street and also safe predictable yield. So, I think that will overcome a lot of the challenges um by design, right? We've built it in such

a way, and I think others will be building similar applications in such a way as well. Um we're probably not going to be the only single solution. We're going to be one of the best, we hope. Uh but, you know, what we have built is Zerion and we're targeting an 8 to 11% return for if deposits in USDC and USDT, which is great. No management fee and no minimums, and it's built to work with Wall Street and institutional partners like some of these. So, that gives us nice transparent, predictable yield in such a way that you can get it without having to do too much due diligence because the the app is actually pretty straightforward, and the funds are all well defined. And I think you should check it out. That's my whole talk. So, check it out, and if you have any other concerns about barriers to institutional

adoption, please find me at the booth outside, and I'd love to hear your take on it. Thank you. >> [applause]