Serum advisor reveals key to DeFi institutional adoption | Interview

Hi everyone, it's Giovanni from Breakpoint in Lisbon. I have the pleasure to be joined by Eduard Zuo, senior advisor at Serum. How are you doing, Eduard?

I'm doing great. How are you?

Great. Are you enjoying the conference so far?

Yeah, so it's great. I think everyone's enjoying themselves. It's the first time a lot of these people are meeting each other for the first time despite working together for maybe up to a year or more. Just know each other by their username. So it's surreal, but it's great.

Yeah. So let's talk a little bit about Serum. So Serum is a decentralized exchange built on top of Solana. Can I ask you, what is the advantage of building something like that on the top of Solana instead of building it on top of Ethereum, for example?

So there's a couple things happening here when we talk about Serum. We say Serum is a decentralized. Well, it provides the underlying liquidity infrastructure for decentralized applications building on Solana. And the cool thing is it's not just, you know, you trade in one place on Serum. You can have multiple different applications, different dapps sort of composing with Serum order book markets and in doing so they pull all their capital in one place. They could trade and match orders against each other. And all of this is made possible due to Serum's open source resources. And this leads to incredible synergies, the huge scaling up of Defi. And we're excited to continue growing the Solana and Defi ecosystems through Serum.

And so what is the advantage of building on the top of Solana? Why did you decide to build on top of Solana instead of building that infrastructure on Ethereum, for example? What are the competitive advantages?

So what makes Serum unique is that at the end of the day it's sort of this fully on chain central limit order book, you know, first of its kind, very unique arrangement. And this is something that people have always wanted to build way back in the Ethereum days, but they couldn't due to the scalability issues and throughput issues that weren't resolved at the time. But when Solana came around, the creators of Serum realized, yeah, we now have the technology capable of bringing what all traders see as the holy grail of Defi. And that's a fully on chain order book and matching engine. And the benefits of that are enormous because the order book is just the optimal trade execution model that you want, especially for large orders. You don't have these issues of capital inefficiency or, or slippage that you might see in the traditional automated market maker mechanism. Not that there's anything wrong with AMMs, but if you want, for example, institutional adoption of DeFi, you need the capital, efficiency and liquidity and the familiarity of an interface that the rest of the world uses when interacting with the global financial system. And that's what Serum brings. And that's how Serum brings about the a fully functional, centralized exchange experience to DeFi.

Yeah, that's interesting what you said about institutional adoption. So I was talking yesterday with a representative of Galaxy Digital who was telling me that his clients institutions are very interested in getting into DeFi, but for regulatory constraints they cannot do it because so far there are no AML and KYC procedures in place that would allow them to get into DeFi. So what are your thoughts on that? You said that institutions need the technology that would enable them to get into DeFi, but it feels that it's not just about technology, it's also about regulation. So how do we bring these institutions into DeFi?

You're absolutely right. Finding the appropriate way to interface with these regulatory and compliance needs is critical for institutional adoption. And you're right, it goes beyond technology. But one advantage that Serum has, and this is a recent feature built on serum too, is what's called permission markets. So certain custom listed markets on the CIRM order book you can actually identify and assign an authority who decides who ultimately can and cannot trade on that order book market. And this is great because once you can control who can trade on there, then if you integrate, let's say a KYC provider or the appropriate compliance solutions on top, you can actually create an environment, an entire new Dex environment that's permissioned. Everyone coming on board is KYC'd, has gone through KYC process before they can trade on there. This is something that an ecosystem participant solarized finance has done with civic technologies. And you know, it's the first permission decks on Solana and this is just the beginning. There's going to be more and more solutions that aim for similar results and that is just, you know, allowing for these institutions to trade safely to follow these KYC procedures and you know, to make sure that institutional adoption is safe and smooth.

One last thought about this competition that is going on between Solana and Ethereum. So people define Solana as the Ethereum killer. What do you think? Is it really the Ethereum killer? Will Ethereum eventually kind of become obsolete because of Solana or there is enough space for both to coexist in the future.

So kind of like, as someone like Anatoly has put it in the past, I'm not a fan of the name Ethereum killer either. I look forward to a multi chain world because I think different chains, different solutions for different niches and different audiences. Right. There are definite benefits to Ethereum, including just the sheer size of its market and the amount of development and maturity of thought that comes from the Ethereum realm. But I think there's a time and place for Solana based solutions too. And I think being able to even look, being able to find synergies or ways to work together, cross chain bridging is a big thing. And the next thing being built, especially within Solana, that's something to look forward to. And I think the appropriate attitude is one of working together as opposed to treating it as complete competition or hostility.

Okay, one last question actually regarding the security aspect. So 2021 was a great year for Defi because we saw massive growth in the space. But we still have a lot of problems regarding security of the funds. So we have hacks that have been increasing, we have been seeing rug pulls also kind of widespread in the space. So this is, I think, scaring off a lot of investors that want to get into the space. So how do we deal with these security issues in Defi since we cannot really impose a centralized regulatory authority on Defi, because that would kind of make the whole purpose of Defi kind of pointless, we still need to find a way to make it safe as a space. How can we do it?

I think there's a few answers here. One of them is, well, I think part of it is understanding the context, understanding that with new technologies like, let's say, the Internet, of course people will try in the beginning when it's sort of like the Wild west environment, people will try and, you know, use it for nefarious purposes or nefarious gains. And there's going to be a lot of growing pains. We have to be vigilant. We have to continue educating new users and even current users. And I'm personally a proponent of open source and moving Solana towards open source as one of those critical values to uphold. It allows for the verifiability of what people are building, allows for people to better understand each other's code and to work together and to work against things like these security issues that, you're right, are absolutely critical to resolve. I think as more and more talent and as more and more talent enter the scene and as certain, let's call them processes become more mature, like the auditing processes, and more as more auditors enter the space. For example, as Solana grows, I think we can look forward to a more mature and more safe and reliable and usable defi experience on Solana.