Why is DeFI still a sandbox, and how do we integrate it into traditional finance -Anton @niarbnotna

Transcript

um how did the how did the party go yesterday everyone's yeah yeah I see I see everyone is really excited so that's why my first light is this um I know everybody's tired I know everybody had lots of different you know speeches presentations so this should be fun um not a lot of text they promised this but basically I wanted to make a bold statement saying that I think that Defy is still in sandbox and what I mean by that is that we have a lot of things to play with but then it's really hard to get in or out and yes there are ways to do it more conveniently but the first thing and I guess all of you guys will agree with this is that on and

off crypto off ramps are just nuts it's complicated it's very inefficient it's cumbersome it's tiring um well you know you get you get a lot of the troubles for that but let's take a look into why exactly I think that you know D5 is a sandbox what's a typical process so not not of you guys that get paid in Crypt already so you're in but let's let's imagine the average person so let's imagine someone who said you know heard from the friend oh hey here's this interesting cool thing let me try it out okay what do I do I have my money in my bank account you know credit debit card whatever it is so you have that what do you do next well then you need to wire your money to an exchange

how do you do that well first you have to open an account in exchange you have to you know basically validate yourself then the exchange gives you an address where you have to basically uh well uh credentials then you have to wire money to The Exchange what happens there well an exchange has a list of available tokens so you have to buy the token there what happens then well okay you wanna you wanna access D5 so you need the native guest token for that Network that you intend to use so you you have you know you can't forget about that let's say you have all of that what do you do next well then you need to have an eoa wallet and then you need to transfer the tokens that you just bought in exchange to your eoa wallet outside of it

what do you do next well then you connect your eoa wallet to adapt that you actually want to execute some sort of a transaction right what was the initial attempt there to do how do you access a D5 and then finally well the DAP bundles prepares the transaction for you and then you sign it in your wallet and voila now finally you are actually using D5 now exactly same thing but in Reverse how do you get out so let's say you've done whatever you wanted to do in your D5 now you actually have to get your money out how do you spend it um you know some somehow Merchants right in the real world do not want to accept your baby Doge or whatever you're using for some reason but um you know the point is is that it's also the

cumbersome way out now there are many ways to cut it but let's look into a potential way how do we cut this everything in the middle how do we cut it to the point where it is just your eoa wallet that is your gateway to the actual put it this way traditional or existing or or you know basically um old Finance is it even possible to do that and what my point of the today's conversation it is possible and what I believe is that this approach will actually change the way that we interact with D5 and will change the fact that D5 is still largely in a sandbox and then just going back to the first

slide I said like why sandbox like why do I keep saying this well because again you can benefit from D5 we have a lot of Primitives over the past three years the community has basically replicated all existing Financial Primitives that exist currently in the world we've started going Way Beyond we started creating new Financial Primitives but again you can only benefit them in this very very small amount of use cases now this approach that can change it and that's basically how you can actually go outside and spend your money in a more efficient way than you currently Bank allows you to do that and I think that's what the file was intended to do so if we just go forward and we say oh I'm going backwards that's good okay what can what could we do if there was a

way to connect your AOA wallet straight to your debit card like directly no custody wallets no basically centralized exchange services in the back end but essentially it is your air wallet that executes the transaction and you have money available in your wallet well um everybody knows all Comics or most of you guys do what you could do is well you could have a self-repaid loan and essentially pay for I don't know what car lease that you have you have some assets you put in an Organics the loan repays itself you have the debt you can spend you spend the debt and you pay off your car lease what you could do is you could do action a real D5 savings and what it means is that you can deposit into your involved you can earn yield but you can spend the yield only not the

principal again to buy whatever your Netflix subscription you could have a you know a that was uh somebody somebody showed me this like Halal thing from liquidy yesterday um here but basically you know you can have your zero interest loans to pay for your rent you have some eth well you can basically men tell USD with your eth without you know with basically zero percent and essentially pay for your rent uh while eth appreciates or depreciates it's up to you um you could have a very interesting um I would say like traditional mechanics right so there was a it's a very popular thing especially in the retail which is buy now pay later well you could um you know buy light by now pay later on the card but essentially just borrowing um you know through

efficient you know pools for example like Morpho what I mean is these are just like some of the use cases but essentially it could be literally anything so whatever the logic that is there on chain there is a way to connect it directly and well that's essentially what I'm talking about is that we need to make sure that we can expand D5 use cases and make sure that people not just you know a few um a few of us the djns that no one understand how to get efficiently in and out but can do that and can easily use the tools that they are used to in the traditional life now here in the Mina region or Europe or the US the most popular Last Mile usage of your finances not the bank account

like people have bank accounts but how do you actually spend the money what are the latest cards now that's not the same for Asia that's not the same for the African region but it is for uh called it the Western world and what it means is that I believe the efficient approaches is not to try to rebuild whatever the Visa Mastercard have already done they're actually very open to crypto unlike you know whatever the the media right or is trying to picture that but what I'm saying is that if we don't need to replicate all the infrastructure that already built they've connected Millions tens of millions of merchants already globally worldwide that actually gives you this immediate access to spendings of things where you want it's really hard and I think that that's very obvious that we

as an industry we failed to convert majority of the merchants into accepting the tokens natively it's only a few minority that do accept crypto natively and even if they do they only accept the major ones you know BTC eth whatever usdt but you can never force them to accept your own token whatever you just issued right so we have to find the ways to connect the native D5 rails with the existing existing Finance rails you asked me well how does that work right so good talks like how how do you actually do that um well in in short we proposed a very interesting or simple structure where you can connect

different networks um essentially via two parts so why are the depth that basically serves your end consumer but at the same point it's it's basically an app that connects to the traditional and existing infrastructure now we're not going to go into the details of you know all of this and at this point I could have said you know all right that's your answer That's all folks right but um you know let's let's dive deeper into where it's actually really interesting it's on the on-chain part on the on-chain part now the way you can connect the existing infrastructure the existing Finance which consists of like this whole different things about you know the Merchant Bank The Inquirer Bank the

issuer bank you know the Visa Network the MasterCard Network how does that all works how does the validation Works etc etc uh we drill down on the on-chain part now um if you guys you know I actually wanted to ask you a question how many of you guys have um like one or maybe two or maybe more crypto debit cards like do you use that or you basically using exchanges okay I would assume um mostly probably most likely it's going to be binance card or maybe even coinbase card but basically one of the what's so called like centralized Services out there what it means is the way it works is very simple you open an account with them they give you a custody wallet so basically it means that in order to access your crypto you

actually need to essentially give a custody of your crypto to those guys now we're not arguing whether that's good or bad that's basically up to the user to decide but it gives two options one is it gives you an opportunity to spend what's all called just in time what it means is that you can essentially well wire your crypto to the service provider and then you don't need to settle it every time you can just basically tap your card and then all of a sudden then your eth is spent now how does it work and why is it possible so when you tap your card you know Visa Mastercard doesn't matter they're all pretty much the same they require they require that the finality of the transaction so the communication between the Esure Bank the

acquirer bank and basically you know in between Visa Mastercard is no more than eight seconds now eight seconds is less than ethereum block what it means is that for any decentralized service provider that would be impossible to validate like the block just literally I mean you can be lucky right but you cannot guarantee that at least one block is already produced so you can have enough confirmations that yes the transaction actually did happen that yes the money was actually transferred so on the good end this is what decentralized service providers that's the utility that's that's the features that can provide you on the downside for example there's now more and more popping up of um non-custodial crypto debit cards now

those are also very different and could be very different but typically the way it works is this it's a fork of a metamask wallet it's an app you basically create a smart you know like you create a wallet with this provider you know they generate the you know the seed phrase you keep the seed phrase It's non-custodial and then what happens is that you actually still have to somehow give the money or give the crypto to the service provider so they can settle it now that model is called pre-funding basically what it means is that you give a chunk of your crypto the one that you say you want to sell to the provider they settle it they fund your card account with Fiat and then you go off and you spend it now in that case you're not bound by this Eight Second finality rule by Visa

Mastercard what it means is that well you don't really care about crypto anymore because you technically sold it now that also creates the limitations let me give you an example how many of you guys have actually tried to buy something from like from a store online with crypto like you probably saw it many times but you did how does that work right very simple you choose an asset that you want to buy like an item I don't know new sneakers new shoes like t-shirt and then you say I want to pay in Bitcoin right and eat what happens they give you the settlement address they give you a QR code so it's basically very dumb like that's why on and off friends are just dumb it's it's basically just simple transfers in and out so they give you the QR code you have to send your money there and then

it's you who has to make sure that it's the correct Network it's the correct amount you know is the correct address because you know if if something is not there then they uh that the acquirer would just say no you know the condition's not met you didn't buy your shirt whatever you know bye-bye uh and what happens is that well again you're bound to limitations what tokens they can settle your bound to limitations okay what networks they support and then what's the saddest part is that you're bound to well it's still not nothing to do with defy like literally that that's just the same I would say like user conditions so user base as I want to buy some Bitcoins you know the price goes up I sell it I'm good that's it now that's not really D5 so the question is this

how do we transform from those like simple transfers and QR codes to a more complex structure but it gives you an in it allows you to expand infinitely into this like on-chain logic and entering use cases so what purpose this we we propose the structure that basically separates and different kinds of the logic now I'll start with something that already talked about which is the dumbest part which is the settlement contract now the settlement in a sense is just a simple confirmation that you've accepted correct amount of money from the correct person and then you agree that the money has been received so basically you can settle it with a merchant because there's always counterparties right whether you're trying to cash out crypto whether you're

buying your T-shirt whatever it is now that's the simplest part but what you can do is because we live in D5 because we have hundreds thousands of forks of uniswap we have now aggregators of hundreds of thousands of you know unit swaps and we now have the meta aggregator so the aggregators of the aggregators what happens is that you can almost you can settle or you can swap almost anything that's liquid on chain so what it means is that if the community comes up with the token they have their own liquidity it becomes liquid and what it means is that that token can then be used to well to buy to buy something what's interesting part about that is that you create an

abstraction for the merchant because the merchant doesn't have to accept I use this example of baby Doge let's use something else let's use I don't know Sheba the the merchant may not want to have the basically exposure to this token the merchant may not want to have an exposure to any token so this is the part where you can create again the first level of abstraction and swap the Chiba to something that can be settled something that any settler would accept use the C if do you want you don't want to have this price fluctuation of exposure well just keep it in Stables usdt or whatever the second part is something that I would call The Trusted registry now what it is essentially and what it

stands for the name is that for to create this logic where you can interact with different smart contracts and you can allow for specific logic to happen and I'll explain just in a second what kind of logic it is you can create the trusted registry on chain of what kind of smart contracts do you think that are good so good actors and what kind of actors are not so good and you can expand from there what do I mean let's say let's take a more complicated case let's say you don't want to just cash out your you know baby Doge let's say you want to cash out your robbed staked eth or you know what let's take it more complicated you know it's a Rob stacked eth that's actually robbed by you know some other platform I don't know Pyrex or whatever

um how do you settle that that's basically just like two levels of unwrapping that you need to perform in order for the token the underlying asset to be accessible I use the example of your involts now when you deposit into the yarn Vault let's say use the C right so it's a liquid asset you can settle it when you deposit in yarn you're given what you're given out the volt token so essentially that's just the token that is not liquid by itself but it can be unwrapped because it represents the share of the underlying asset so what it means is that you can create a registry of the contracts that you can build or someone else can build a logic but you can interact so you are allowing your contract to execute basically

third-party contracts actions and again this simple or or complicated concept of all well that's a Rob token or that's a stake token or that's the derivative of something if there is a logic and there's an Unchained path to liquidity so you can unwrap or you can swap it and in the end it's settleable that gives you this opportunity so what happens there is essentially you can have something you could call like a cash out proxy contract and that's basically just your main logic and management of how do you actually cash out it so how do you connect the buyer the seller how do you connect the merchants how do you you know how do you create this simple like cash out use case let me let's use the simple example here and the simplest example is this let's imagine the

provider of your crypto debit card that would allow you to connect your metamask trust fed wallet whatever it is right so you connect your wallet where you custody your crypto the first question that you may ask is okay well if I want to cash out let's we're using again I hope it's clear at this point we're only using pre-funding model because there's no way that this um form or this logic could be used in just-in-time funding because you actually have to settle crypto before you can tap your card otherwise it's just impossible it's either the service provider is taking the risk well Will Anton pay me at the end of the block or or maybe not how do I know if Anton already has some transactions out of this wallet so I'll

not be able to take it out so it always works only on the pre-funding model but let's take this case so let's assume that okay well I want to cash out the first question as a D5 user and again it's a sad week right I guess all of you heard about Euler it's a it was um it's sad and I think a lot of the protocols are affected some of the protocols I mentioned are affected but the first thing that they teach you is okay well what about security how can I get wrecked if I use this kind of the service provider how can I get wrecked yes I can study my own crypto that's good all right so check number one but now I try to interact with this contract how how does it work the first thing that you would ask is well what about

the allowance so let's say I give you know I give infinite allowance I don't care to uniswap because you know it's a trusted contract millions of people used it so maybe I'm gonna be safe too you know maybe until one day you don't know so the first thing that you would do is okay well what about not you know the specific allowance that you set for the tokens let's say I want to settle my baby Dodge so I have to give the specific allowance for that specific token for that specific transaction to make sure that my contract exposure is always zero so at the end of the day I can use my card but if I don't use it I know that my wallet is safe so unless I leave my seed phrase somewhere else or you know maybe you're a booc owner but you know then it remains sort of safe

this is exactly the structure that allows you to set the allowance protection so you can set the rules that the well essentially you can create the logic that well any transaction will revert if the allowance amount and you know and the amount of the transaction do not match the exceed below or you know they they basically they differ a lot the transaction can revert so you can force your users to always keep this allowance to zero you basically preset it for them so that's step number two okay so that's good so now I know that I custody my crypto I know that right is safe I know that the contract if it gets rugged if it gets hacked and we're not yet to the point where where exactly my money goes to but I

know that my money is safe so in a sense I cannot get wrecked for now we're going to the third part okay so the contract now it has my money now it has my precious baby Doge that I wanted to settle what happens there so how does binance or how does any crypto debit card or how does any you know crypto bank or not the bank whatever actually settle my crypto like what's that glorious magic thing about settling your crypto what does it mean well essentially settling a crypto it actually means just basically finding the counterparty to a trade now I have some baby Doge so basically what I need is I need to find the baby Doge buyer so somebody who wants to buy the same amount so just man you know that that's basically why it was a native move for

binance or coinbase to create this kind of like Financial extensions because it's just you know an extension to their main product but now we have this decentralized or non-custodial service providers so how does it actually work well essentially they will not be able to find the baby Doge seller right or buyer so that's why you go to the pools all right so we get rid of the baby Doge now you have let's say use the C what happens there is that you still need a corner party to settle use the C to get your Fiat out because you need to fund the card right so somebody still has to be there and that's the that's the funniest part about well who is that seller provider well there's only a few options one is the market makers two is the exchanges and three is OTC so in either case OTC well depends on

the amount ODC desk will not deal with your fifty dollars of you know usdc whatever you just you know swap from from the baby Dodge so that's not really a good option two is the exchange well then you're bound to whatever the exchange wants to accept so that's already the settlement token is limited two is the rates three is the latency so we're bound to just one part the market makers why would the market makers want to participate in something of this well easy because you can provide a constant flow of crypto or the Fiat because on and off ramp right it's just basically the reversal process so one is you have lots of Fiat you need some crypto on the other side you have some crypto you need some free adult so

now we solve this what happens there is now what you need to do is you need to reconcile with the market maker and that's where the bridge contract is now imagine this let's say you had your again like baby dojo and whatever chain let's create the the chain where it doesn't exist let's say like Avalanche I don't know or gnosis um how many of you guys have ever used gnosis Network to do something I see the developers yes okay there's no users probably anyways what I mean is when you settle the token on that Network the market maker may not want to accept it on that Network and you know that's just a fairer Square reason right so not everyone wants to settle their tokens from eth if I want to top up my card for ten dollars I

don't want to pay twenty dollars of you know commission and then another ten dollars to pay for the network fees right so what happens is that you go for what l2s if you're going for the l2s most of the big market makers are there but then what if your specific counterparty is not so you have to have a specific way and a trustless way to bridge the transactions and what it means yes there's a lot of bridges there's a lot of bridge aggregators there's a lot of easy way to do that but the question is then how do you how do you initiate that call initially trustlessly how do you initiate that call from your cash flow proxy to the bridge contract to the bridge contract and the receiver proxy on the another Network now this is basically where the

separation of the call this is where Again The Trusted register we talked about but this is the case that allows you to for the user to initiate the transaction on one network and basically Bridge it on and receive it on another Network um as to what kind of bridges you use that's basically up to you guys the question is well we got safe up to this point but then what about Bridges bridges are well nuts right so you know okay what what are the risks so let's say now I'm using this thing um and I wanted you know my precious baby Doge and I wanted my money on the card in basically like 30 seconds or something right I don't want 15 minutes for the bridge confirmations like how many how many blocks do you need to confirm to go let's say like from

arbitrim to optim like mainnet 64 right um do I want to wait 15 or 20 minutes for my money to settle you don't because that's not a good user experience so how do you go around it okay what if we actually don't move the money what if we just basically move the data so now we get to well now we get to this Omni chain or or cross-chain messaging services because essentially what your liquidity your own noses and your clearly on mainnet well it's still money but it's just money on different chains and all you need to do is to have the trustless confirmation that my money is in another chain it's under you know basically um you know custody of specific contract it is there but I don't have it on this

network but I can reconcile with you because you know that I can guarantee that my money is there so then you can create any uh off or near time logic that you know what you actually don't need to move money every single time that your user wants to cash out ten dollars now you say that you know what I can keep my ten dollars on nozzes I can keep my ten dollars an hour lunch I know that I have my twenty dollars in those two chains so now I can reconcile on eth with my market maker now that is the unique way that creates again this well essentially creates your velocity of how you can expedite this cash out process you don't need the confirmations you don't need this tons of basically blocks to be produced on each Network to

confirm that something indeed happened so when your transaction is approved on one Network you can guarantee that the money sits there so you don't need to have this risk of moving money every single time you decrease your transaction time you decrease your well basically finality time with Market maker now we get to Define you know finally the hardest part um let's say you've settled your crypto how does binance actually fund your card right or any crypto debit card so let's say you have a debit card with them where's the money coming from like what how does it all work right well the funniest part there is because essentially what happens is there's three Corner parties in this process one there's Visa Mastercard

which is the network that basically issues your card there's union pay there's the Russian mirror there's multiple ones but these are the two major ones that we talk about Amex if you're using Amex I know where you'll live anyways that's basically not many people that use anyhow what happens is there's a network there's a there's an issuer Bank the issue bank has the relationship with visa and says that you know what for our customers we want you to issue this card so they go ahead and issue it and then there's something like your crypto debit card provider or binance it doesn't matter it's basically all of them the same they have the relationship with the bank they tell them you know what guys we're going to bring you many customers so if you sponsor your BIN number and issue the cards for our clients and

customers you know you're going to make a lot of money so then what happens is every time you come to the binance and say can I get my card can I get my money funded what happens is this like three lateral con you'll basically cooperation you binance the Azure bank and then the Visa Mastercard and then it always goes this way so whenever you are topping up your card or using your card through the crypto debit card provider what happens is it's the binance that confirms that yes indeed you actually gave them the money and you can spend it and they talk to the acquirer bank where on The Ledger of the acquire bank they literally just move money in between the binance account and your account so it's the binance that gives you the money and

then they reconcile somewhere else so basically move money it doesn't matter and then when you spend your money from your card it's also just the acquirer bank and the Visa and the Merchant Bank that cooperate in this transaction so there's no crypto related in that thing whatsoever even when you do this just in time funding so my point here is today is I believe that there's an easy way that you can do um you can you can help defy to get out of the sandbox there's a way that you can use all of this amazing and cool Financial Primitives and there's a way oh too boring I guess anyways so there's a way for you to access all these amazing features and get more for your money and

that's the whole goal of the defy to make sure that you can do more with your money so that's an approximate approach we have excuses I keep going this you go under this link and the code is open source so there's a GitHub thing we have the apps open source you can check basically how and what's built this approach and this thing is live on five different networks so mainnet arbitrary optimism gnosis and polygon and it works and what's important is that we've tried it and tested over the past year and we believe that this is the model that will allow for any defy protocol Builder to

focus on building your logic on innovating there and actually have a native access for your users or other users to use or benefit that in the real world to have that access of their money and the benefit that the protocol provides but you know use it actually really just somewhere there so thank you very much and yeah if you have any boring questions about Finance I'm happy to answer them but thank you for listening [Applause]