Developing world to bring 100M users to DeFi in three years? | Interview with Charles Hoskinson

Who's actually going to do peer to peer loans? Who's actually going to do peer to peer insurance? Who's actually going to do peer to peer payments? Look, I got news for you. It's not a guy living in New York. In the Western world, defi makes no sense to me because it's going to be regulated out of existence.

Charles Hoskinson is the founder of Cardano, a blockchain protocol that aims to challenge Ethereum's dominance in the defi space. According to Cardano's vision, Africa and the developing world are the most fertile ground for the growth of decentralized finance.

It's the people who live in Ghana, it's the people who live in Ethiopia, it's the people who live in Uganda. They're looking actively for new currencies and new financial systems.

But is the developing world ready to embrace decentralized finance? And how is Cardano planning to lead the defi revolution? To find out, join our latest interview with Charles Hoskinson and cointelegraph tech editor Andrey Shevchenko.

Actually, the reason why I'm taking this interview is just because. Because we've been hearing about Cardano, Defi and smart contracts coming up soon. So I was actually really curious. So what is happening right now and what are kind of the progresses you guys made?

This has definitely been the busiest year of my life. You know, we spent five years in deep R and D and development and we kept building and building and building and building and everybody ignored us and they're like, oh, you're just a wallet, you know, you're, you know, whatever. And this is the year we launched staking and we actually fully decentralized the entire system and we now have 1200 stake pool operators, hundreds of thousands of wallets around there, and we have all this amazing infrastructure we built from this new accounting system called extended UTXO to a completely different way of doing networking, to a completely different way of doing smart contracts. And so now that we're kind of clearing Shelley and mission accomplished there and we have the best in class staking mechanism and we're fully running on proof of stake and we'll be fully decentralized by March. We're about 68% decentralized. Every March few days it goes down a little bit.

Sorry, what does that mean exactly? At 68% decentralized, we're running a hybrid system.

So currently at the moment, 32% of the blocks are made by a federation of actors, similar to how Ripple manages its consensus. And those are controlled by merko IHKNCF and 68% of blocks are made by the actual stake pools through Workhorse Prowse or our consensus algorithm. And that was originally zero. And 100% of the blocks were made in July. And so every five days, every epoch it decays a little bit. And so more blocks get made by the community and we make less blocks. So it's kind of like training wheels because we had to figure out how do you transition from a static and federated system to a dynamic and decentralized system and how do you guarantee quality of service and actually that the network is stable and so forth. Because you can't just switch from one to the other and hope that the network will be where it needs to be. You need some evidence of that. And so at the rate of decay of decentralization, we should actually have the system, 100% of the blocks made by the community by March, which is exactly what we intended. So it's been actually one of the smoothest ways of transitioning from a static and federated system to dynamic system. And it'd be almost like Ripple did this or Ethereum is trying to do this with F2. It is not easy in practice to change the wheels of a car while it's driving. But what's nice is we actually have a measure. You just look at the total amount of blocks per epoch and and you see how many are made by the community and how many are made by the BFT nodes. And now it's 6832. The big milestone was last month when we broke 5050. So the majority of the blocks are now made by the community. And that's just such an exciting thing.

We've actually covered a couple of articles of projects that are Defi going to Cardano or pledging to go to Cardano at least. And I'm curious, of course, like, what do you think of this sector is kind of came a little bit out of nowhere in 2020 and it was obviously building on top of a lot of work from previous years. But do you think that Cardano should attract Defi?

Well, Defi is a product without a customer at the moment, and so you have to create a customer base for it. And we're actually, I think, the only mainstream project in the top 10 that has a real strategy for how to get real customers for Defi. And that's a unique advantage we have. When people have Defi and they want to deploy or use us, they say, well, who's actually going to do peer to peer loans, who's actually going to do peer to peer insurance, who's actually going to do peer to peer payments or you know, use a stable coin or you know, a dex or these things. Look, I got news for you. It's not a guy living in New York. You know, they already have systems. Those systems are highly regulated, they're quite efficient, they have low transaction fees. So it's the people who live in Ghana, it's the people who live in Ethiopia, it's people live in Uganda. 70% of these populations are at or under the age of 30. They're Internet enabled, they're digitized, they're westernized. They understand how the world works. They just have broken systems, capital controls and markets that are junk. So they're just not going to accept it and say, oh well, we'll just be poor. No, people don't do that. Necessity is the mother of invention. So they're looking actively for new currencies and new financial systems and new lending systems and to be their own bank and to be in control of their own money. So the defi revolution, where it's going to get its customer base from is Africa and Eastern Europe and Southeast Asia and these other places. We're one of the best positioned projects in the world for that. We spent three years in Ethiopia, we have tremendous momentum there. We're just about to do an Africa special episode here in a bit where we actually talk about our 2021 Africa strategy and we talk about some of the deals we're imminently closing which are quite large. And they portend a rapid growth and adoption of Cardano as a platform and bring millions, if not tens of billions of customers into Cardano. So then when you go and have the defi conversation, you say, guys, this is your customer base, these are the people that matter. And let's think about the numbers. So I'll just give you a great example. So the Agricultural Transformation Agency in Ethiopia, they deal with smallholder farmers. Now there's about 15 million of them in Ethiopia. So every year they have programs like fertilizer vouchers where farmers will get vouchers to buy fertilizer. They have to repay them. Now if they don't repay them, usually there's a sovereign guarantee. So if they default someone else will cover it. But the repayment rate's over 90% and the interest rate can be 10 to 15% on that. So you have a sovereign backed debt instrument for millions of people with a 15% return and a 90% repayment rate that does not exist in the western world. So the problem is they're small, they're only a few hundred dollars of value each. But what if you could tokenize them and aggregate them and turn them into multi million or billion dollar investment pools and securitize that and sell it as security tokens in the western market. So this is an example of where DEFI enables liquidity for the western world with new financial products and innovation. And you can build incredible products that no one's ever seen before that have much better returns. And they're also a great social benefit to the existence of these products. They create liquidity for the poorest people in the world and allow them to build wealth and protect the wealth that they've acquired. The point that we've been trying to convey is look, we know how to do business here. It takes three to seven years to close deals and get momentum and there's an enormous amount of upfront effort. But, but we built Cardano for this purpose. So the next 10 years or 20 years, I'd like to get a billion users in Cardano and I'd like those billion users to be mostly in the developing world. So they have no standards right now. There's no JP Morgan Chase, there's no big massive legacy financial system that dominates and controls in the western world. Defi makes no sense to me because it's going to be regulated out of existence. A great example would be Libra. Facebook does this. They put a coalition together. They think they're clever. They not only did they get bitch slapped down, now 48 states are suing them for antitrust, you know, and they're probably going to get broken up. So it's a vicious, brutal reminder of don't rock the boat. So that's why Amazon's not going to get in and Microsoft's not going to get in, Google's not going to get in. Had they been able to get in, they could have released financial products with billions of customers because of their network effects, with a much better user experience and more decentralization than anything that Chase has or any of these other guys have. But by punishing Facebook, it's a message, don't do that, don't get involved. So these markets protect themselves and they're anti competitive and it's very nepotistic and incestual and corrupt. Whereas you look to Africa, these places the regulator is aligned with you. They actually want to make the regulations work. They want to create jobs, they want to grow the nation up and they work very hard to attract People and to make the deals work. So it's just a completely different way of doing business. And this is the point of cryptocurrencies to create one global market that everybody can use that's fair for everybody. Regardless if they're Bill Gates or they're some guy in Senegal, they have access to the same system.

Absolutely. There is a few very interesting points actually. I guess the first follow up question I would have is so you mentioned about the nepotism and so on. So adifi fan on a gym or something like that will tell you, okay, we need to bring down the system, we need to kill it, we need to kill the snaptism and so on. Do you think they have a chance perhaps?

No, not in the Western world. Because it's the wrong approach. You don't go and say, hey, we'll bring the system down by getting a bunch of cypherpunks together and somehow this group of people with no say or political power will change the world. No, what you do is you get a billion people into a system and you make them wealthier than the legacy system. When you talk about changing the world financial system, what you do is you create a market that is 100 times more efficient and 100 times better in many dimensions and has much more velocity of money, much more liquidity, much more innovation of financial product development, much more attractive investments, these types of things. And you make that system have principles at the core. Power is pushed to the edges. There's no centralized control. You have privacy built in. You own your own identity, you own your own data and these types of things. And that's a feature that can't be changed. So then when that system gets too big, the problem the Western world will have is to be interoperable with it. They then actually have to adopt the same principles. That's how you change America. In Europe, you make it less profitable to be American and Europe and you make it more profitable to be Africa. And you get people who are actually willing to jump on board and leapfrog and so forth. Globalization is forcing change. When Starbucks says, hey, we're only going to buy fair trade coffee or sustainably produced coffee, that is a nice thing in the Western world, that's existential in Ethiopia. If they can't prove those things, they lose market access to Colombia and Indonesia and people starve to death. So it's not like we'll change the system next year. It's like we have to change the system yesterday. Okay, and that's your invitation to put a blockchain system in and then once you've done that, you have a property system, an identity system, a payment system, and then you grow with the economy. That's the way to do it.

That's actually a very interesting point. I used to work at a company like an ICO that did also focus in Africa. I always used to think about it like as you with your example with China, right. Like they started a bit later so they were able to leapfrog their payments from, you know, cash, whatever. They leapfrog the credit cards entirely. Now they have. And you know, in China it's actually easier to pay with digital cash than here. Like I can't, like for example in restaurants put bill. Yeah, so I was always thinking Africa would be similar, but of course crypto. And at the same time I worked at that company and you know, the results weren't so good. I mean there were obviously a lot of reasons, but I also felt that the people weren't quite ready for it. So.

Well, you have to do public private partnerships and you also have to have realistic time horizons and you also have to understand that Africa is a very relationship based type of business culture. You don't quite have everything there, but if you're the first mover and you really get that infrastructure there, as they start connecting those dots and those pieces, you rise rapidly with them and then you grow up and you wake up, you have half a billion customers or 700 million customers and you're the dominant force in this gargantuan economic power. And then all these Western companies will come in and no one will buy from them. They'll be like, sorry guys, you had your chance, you ignored us. We're just either going to do it with locally built companies, the Microsoft of Africa, or vendors who were there all along and built those relationships.

So long. You guys are kind of long on Africa in a sense.

You know, I talk a lot about Africa because I, that's what gets me up in the morning. I say why do we do what we do? And I say if I could retire and say I directly contributed to a billion people getting economic identity and getting wealth and their standard of living massively improved, that would be like a dream, an accomplishment of a lifetime.

I guess I have this more of a technical question because I am actually also very interested in finally having DeFi that is not just like cryptocurrency trading, but a little bit different, right? That's ultimately what it is so far. And in many ways the issue is technical. So it's difficult to kind of Port it over to the real world. So what do you think about this? How soon can we actually see defi? That's, you know, it's really decentralized finance and not just trading.

I think the next three years we'll see broad scale adoption and we'll have 100 million users in the next three years across the entire Africa sector. All blockchains, all defi, all things. Hard to say what Cardano will take there, but I think we'll get the lion's share of it. But I feel very comfortable with about 100 million just because Kenya, Nigeria and Ethiopia are well suited for this. In those three countries alone, 400 million people, 70% of them are under the age of 30, with strong preferences towards cryptocurrencies. Nigeria is actually one of the fastest growing ICT hubs with a huge open source development community and a lot of outsourced programmers. They're like Poland of the 1990s and so they're doing quite well. And that gives them the people, the need and the competency required to be major players there. The big thing is, will these be ventures by Africans or ventures by Western companies that came in to sell to Africans? My hope is that it's by Africans and actually they create their own and then they globalize these things and you'll see significantly better adoption in that sense. And it's still great investment because at the end of the day I'm a capitalist and so it doesn't matter if Bob or Kwame creates the token, it doesn't matter to me. What matters is it exists, it has utility and it's valuable. So we're certainly diversifying our bets there and we have great partners to help incubate that. For example, one of our strongest partners in Africa is an entity called ICE Addis and they're an accelerator in more than 25 countries in Africa. And so I status basically brings in entrepreneurs at the very low end, like $5,000 funding, $10,000, which goes a very long way in most African countries. And they get them really started and incubated and they're following like 500 startups, Techstars type of a model, just obviously localized to the needs of Africa. So the fact that we can cooperate with them and incubate hundreds of ventures at a very low, very competitive cost, like you could do 10 or 20 for the cost of one in Silicon Valley. So you can do many, many, many, many more bets. And so it's just a game of numbers and a game of need and innovation and the human capital is definitely there. The biggest issue 10 years ago was that there wasn't enough human capital to be able to service these competitive business models. But now, because everybody's digitized and they're on Coursera and Udemy and Udacity and edX and they can read free content and watch YouTube lectures, you they've bridged the human capital gap very quickly, and they can piece together the skills that they need to build things very quickly. And the delta in education is mostly closed. So you have very young, very passionate people where you can do 10 to 20 bets for every one bet you can do in the Western world. And they have the ability to actually solve significant problems. And blockchain is certainly a part of that cointelegraph like subscribe and Hodl.

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