Synthetix CEO: “DAOs will drive a wedge between nation-states and corporations” | Kain Warwick

And so regulation being a good thing.

For Defi, I think regulatory clarity is a good thing. Right. Like DEFI and regulations are kind of parallel approaches to the same problem. Right. Of like transparency and fair and open markets.

We have Kane Warrick here, founder of Synthetics. How are you today, sir?

Yeah, not too bad, not too bad. Good deal getting into it.

Yeah, we're going to get into some DEFI stuff today, learn what Synthetix is up to. So the first question I have for you, what are some of the biggest trends that you're seeing in Defi currently?

I think at the moment there's a lot of governance experimentation going on. So we saw in the early days this idea of token voting was pretty much the main mechanism that people were using to allow communities to govern protocols. And it's pretty inefficient. A lot of people have had a lot of bad things to say about it, including Vitalik. And so I think that what we're doing at Synthetix and Yearn and some of the other protocols out there is quite interesting in trying to avoid this direct token voting through some kind of delegation or delegated democracy, et cetera. So I think that the idea of governance is going to be a big trend over the next year or so.

So how do you optimize and make that more efficient?

It's hard, right? I think it is kind of idiosyncratic to communities. So some communities are huge, some communities are really small and, you know, so you have to have the ability to kind of iterate and test different things for different communities. But I do think we're kind of missing the tools at the moment. Right. So people are building stuff and some of the things that I'm really excited about are some of the governance tools that are coming out. So we saw earlier in the year Snapshot and Safe Snap and some other things. But I think we're going to see even more stuff. One of the things that I was most excited about in the early space was Aragon and unfortunately it didn't really come to fruition. But I think we will see a spiritual successor to Aragon next year at some point.

Now, what is Synthetix doing to make Defi more accessible to the masses?

I think the main thing that we've been doing is working closely with the Optimism team. Obviously scaling is a big deal. If you're paying hundreds of dollars per transaction, that thing's not accessible. Right. It's only going to be accessible to whales. And so the transition to optimistic roll ups has been something we've Been working on for a long time, longer than we might like, I guess, but I think we're pretty close to there. So optimism still has some work to do. Arbitrum still working on some things, but by the time we get to the end of the year, I think at the start of next year will have a pretty good range of choices for different projects to choose from that will keep transaction fees low and keep things as successful as possible.

Now, in regards to daos, I know we were talking governance, how important are daos specifically in the DeFi ecosystem, and what's a possible evolution for daos that you're gonna see moving forward?

So I think in the early days there was this idea of you set up a foundation or you set up engineering labs kind of entity that might be like a centralized entity domiciled somewhere and then you have the software which is pushed out. What I think Synthetix and a lot of other projects have done is kind of combine this idea. So remove this idea of like some centralized entity and actually put all of the governance infrastructure into the DAO itself. And that means that communities have direct access. And so, you know, for me, this transition to a kind of DAO first model where you launch with community control from day zero basically is a huge trend. And I think we're seeing more and more projects test that out and be very successful with it.

Does that allow communities and projects to remain nimble enough though, to rely on the community to govern what they're doing?

Obviously there's trade offs, right? There's always trade offs. I think what we've seen with YEARN is probably one of the best examples of trying to thread that needle. They've managed to keep a lot of community involvement because of the way the token was launched, whilst also continuing to iterate. And back in the day there was this view that like, well, you need a centralized, you know, command and control infrastructure to do that stuff. And I think we're finding that's just not the case. You actually can do it. And yes, of course, it might be slower or things might take longer than you might want, but those trade offs are very, very worth it once you, once you have them in place.

Now, are daos specifically talked about enough, in your opinion, in the space? Does it need to be more light shed on that?

I think within DeFi they are in the broader space, probably not. I think that the, you know, we're seeing daos pop up that are dealing with like NFTs and, you know, curating and purchasing and, you know, I think for me, the majority of people that come into the space over the next two to three years are going to be coming in for non defi reasons. Right. I pretty strongly believe that whether it's gaming or art or music or whatever. And as we see these daos that are kind of catering towards these other use cases we're seeing start to kind of emerge and really prove themselves, people are going to realize this is a really good way of coordinating behavior online and within the metaverse and within the cryptocurrency space. So I think it's pretty exciting.

Now, are daos going to be ruling the world one day outside of the crypto ecosystem?

Look, my view is that daos are not going to replace traditional corporate governance. Right. I think that of ship a sail a long time ago. But what may happen is things within society that were traditionally controlled by corporate governance or dictated by corporate governance are going to be challenged by daos. The daos will kind of have this ascendancy where you will transition from a world where there's basically nation states and then these multinational corporations and daos will kind of emerge and push into the middle of that, drive a wedge there.

Now, Synthetix brings derivatives trading to a broad array of DEFI tokens. How is this affecting the DEFI ecosystem as a whole right now?

I think what we're seeing, especially as we transition to L2, is that liquidity is quite challenging. Right. We suspected this, but we kind of are seeing in practice, even with our own stablecoin, that it's hard to move liquidity from L1 to L2, even with incentives, even with all of the things, it takes people time to get comfortable transitioning. And so I have a pretty strong suspicion that, you know, a lot of the ERC20 tokens that live on L1 right now are going to very slowly transition to L2. Right. And so getting liquidity over there is going to be hard. And so having synthetic versions of Those tokens on L2 as a kind of bridging mechanism is going to be quite powerful, particularly as you have like Uniswap V3 on optimism, for example. So it's going to take time. And in that transition, slow synthetic versions are maybe going to be a pretty powerful way of kind of bridging that gap, I guess.

Yeah. Back in 2017, we saw the introduction of derivatives products to Bitcoin and subsequently starting there was some price crashes that was fed by leveraged liquidations. Does this give big money another route for influencing token prices?

Potentially, but I think we've Seen that happen already. Right. So there's centralized derivatives platforms out there. There's a ton of them now. You know, whether it's futures or other things like options like there a bit. There's a much, much wider range of ways that you can speculate on tokens today than there was back in 2017. I think that the transition from those centralized custodial solutions to decentralized solutions has taken a lot longer for derivatives than it did for spot. You know, Uniswap is dominant when it comes to, you know, trading volume and activity on a lot of the long tail of toke. But derivatives are much harder. And so centralized solutions right now have a huge advantage, but that advantage is being eroded. We're seeing DYDX with starkware starting to chip away. We're launching our futures platform in the next couple of months. I think next year we will see the dominance of those centralized futures platforms be kind of challenged by decentralized solutions.

Now, what are some things happening in DEFI space right now that most people may not be aware of or that you're most interested in?

I think we're seeing institutional style products like structured products emerge. And when you think about DeFi, when you think about what it is, it's really kind of for finance nerds, right? There's the speculative aspect, which keeps people interested who might not be super interested in finance itself, but they're interested in speculation. There is a huge infrastructure in TradFi for building products for specific use cases, structured products, risk products, all that sort of stuff that just doesn't exist in DeFi. Like, we built the kind of base layer solutions of like, you know, trading and liquidity sort of things. But we're seeing things like Barnbridge emerge and a number of other products that will be much more kind of comprehensible to an institutional trader or, you know, a buyer who's used to, like turning up to a bank and saying, like, give me this structured product. I wanted to do, you know, X, Y and Z. That will be possible in DeFi, I think, over the next, like six to 12 months. It's not on the radar of like, normal people because they don't care about structured products. But it will allow for liquidity from large institutions to kind of come in and start playing in DeFi, I think.

And so that evolution of getting tradfi involved with DeFi, what does that meshing look like and what do you think needs to happen in order for something, you know, for tradfi to get involved?

I think some regulatory clarity would Be good, right? Clearly, I think a lot of people are talking about that at the moment. If you're a regulated financial institution, it's very difficult for you to Access all of DeFi. There's some DeFi things that I think TRADFI companies feel more or less comfortable accessing. And we're seeing things like AAVE working on these wrapper solutions where they wrap like a centralized solution which has kyc, aml, makes it accessible, sort of cdfi, that CDFI meme. But I do think regulatory clarity for these institutions, which as DEFI gets bigger and bigger, that's where the pressure is going to come from, right? They're going to want to play in this space and they're going to say, we need to know what we can and can't do. Regulators are going to need to step up and say, or, you know, some people will start being first movers and just doing things and taking a little bit of risk. But I do think that there will be a lot of pressure next year to kind of get some clarity around what products within DEFI are acceptable for TRADFI to use and what are not, and what is the difference between those two things and how do we make this, you know, category much larger than this other category.

So regulation being a good thing for DeFi.

I think regulatory clarity is a good thing, right? Like DEFI and regulations are kind of parallel approaches to the same problem, right? Of like transparency and fair and open markets. In TradFi, because you have counterparties everywhere, you need a lot of regulatory scrutiny and oversight to be able to make sure those counterparties don't, you know, like do something that kind of harms the larger market, right? In DeFi, the fact that you have transparency all through the stack, you don't need that same level of scrutiny, but you do need it on the kind of the on ramps and off ramps, right? And so I think that there will be a requirement to just get that clarity on the on ramps and off ramps. Once you have that, then people coming into DEFI will be able to decide what products they want to use, etc.

Cane work here, founder of Synthetics thank you for joining us today and answering. Providing some excellent insights.

Appreciate it. Amazing. Thanks so much. Appreciate it.

No, thanks a lot. Yeah, appreciate it. Nice meeting you, man.