The Future of DeFi Part 1 | Unitize Day 4
James Wall from ETC Labs reviews DeFi's current state: lending, DEX, derivatives, and the dominance of Tether in stablecoins. Qi Zhou from Clockchain warns about security risks as total value locked grows rapidly, citing recent hacks.
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From just under $500 million to about $1.64 billion (≈2.5–3× increase).
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Hello everybody, this is James Wall, the founder of ETC Labs. Today I'm going to, you know, give a speech about Defi and next generation of money. You know, we are going to discuss a little bit about the benefit of Defi, the effect of the stable coins in finance and more things. Just give a quick background for myself. I'm the CEO and founder of Digital Finance Group. I have been an investor in the crypto industry for the past five years. We started trading bitcoin stuff around five years ago and buy different kind of mainstream crypto assets on a second market. We also run venture capital funds, invest heavily into their different kind of startups in the Valley and also in other countries including Brave LedgerX, Circle Repeals, Bezos and others. Overall we generate pretty good returns on top of the fund. Beside that, we think operation is also very important. We start operating the ETC Lab and etc core in 2018. It's etc lab is an incubator which support and invest into applications built on top of the ETC network. ETC Core is the only core dev team managing the ETC protocol and make sure the infrastructure and the protocol of ETC is very strong. So overall it's kind of like a mini version of SM foundation plus consensus but only into Ethereum Classic. Another interesting project we are working on right now is called Matrix Exchange. Spot Cryptocurrency Exchange being regulated by Abu Dhabi government is in adgm. We just got a second official license from the government this April. So overall we are being both investors and kind of entrepreneurs for their startups in a crypto industry for the past five years. We're fully committed and try to contribute more things to this industry. Today I'm going to share a little bit about my understanding about Defi and what is happening in the industry right now. And as you know the Defi is pretty discussed heated in the past year, especially recently we can see both the number of the token lock on the Ethereum network and also the total cap valuation of the Defi tokens goes up a lot. So I think this is really a topic that was discussed in the crypto industry. So I will split this into three different categories. The first is the current status of the Defi project, especially within different industries like Dapps Lendings, Derivatives and others. The second I want to discuss a little bit in more details about stablecoins and for this sector and this is very important in the Defi area as well. The third I want to talk a little bit about when we're looking forward, what is Ethero inside it, what we can do to help make sure that defi ecosystem become better. Yeah, what is. You know the first question will be very straightforward. What is DeFi? It's like you know enable kind of like decentralizations for like a peer to peer payment system to automated launch to the USD package, stable coins and others. So it's kind of like to easily understand this. It's kind of like you know you put a financial service in a decentralized way, right. Compared to you know, let's say compared to centralized finance service. What is the benefit? So I conclude three point for this there. The first is there you know, you know you can basically it's you know executed by the smart contract. You don't need a centralized service to execute their, you know, the deals for you. So it's kind of like a easy and you know it's easy and a good causes like a program mobility is important here. The second I would say immutability. You know, because basically if you a centralized service you can always basically change the data, right? If you use a fully decentralized protocols then you know immutability is very important to make sure that all the transaction won't be 1B just go back and other transactions there. So that's important really a thing of any good thing for defi. The second I would say interoperability. You can probably see very little cooperation between different centralized financial services. They all compete with each other. However, on defi side you can see a lot of players work together to build things and that is also benefit ecosystem eventually will benefit users as well. What is the use cases for defi? I concluded like a probably I concluded stock project here like makerdaos for dice for Swede Coin and make it out for lending. We have addx cables for dax. We have others for born lending like Compound dydx. Overall the financial service you see in your day like a bank like exchange, whatever. If it makes sense you can put it into a decentralized way. I think that's a great defi use cases. But when we take a look at this picture what is the defi value right now you can see clearly the landing is dominate the market. You see two big project maker and compound. You know have like close to combined together have a billion dollar valuations. The rest is relatively small derivatives, stable coins and dex will you know, kind of like it stickers goes after that. I think one important reason for this is like you know the blockchain itself, the protocol itself is still at least right now it's not going to solve the scalability issue. At least right now it probably takes like two, three years to do that. But at least right now it's the problem has been solved. So based on that landing activity, you really don't need a high TPS per second. You, you're okay for waiting for five minutes for get along, right? But for tradings, especially for quant trading, it is, you know, even a second is to, to. To. To too much for, for you for doing the, you know, high frequency tradings. So I guess that's the really important reasons based on their, you know, the blockchain and the scalability issues right now. So I think that's the reason why lending is you know, kind of like the biggest use cases right now on the, you know, blockchain network. But once we solve it, I think we will definitely see more use cases for the total user. There are over like 600 of 600,000 of users for the device. Dai Makerdot project have around like 400,000 users, like a 2/3 of the overall users which make a lot of sense because once you see other industry the number one player will dominate probably 50 to 70% of the market share which make a lot of sense. And you know, it's interesting to see compound recently really grow up so quickly. So there will be more like competitions in the defi industry as well. The next topic I want to discuss is what is the major difference we can, you know, if we Compare DeFi to CEFI. What is the major difference? I mean from my understanding the biggest is like what are you backed by, you know, for the defi? Basically your platform, your service backed by technology. For cefi it's backed by a large institutional or large enterprise. So that's the difference. It's actually very hard for you to say which one's good, which one's bad, right? But you know, I think different users maybe have different appetite, have different ideas about it. To conclude the good things for defi is like it's trustless, permissionless transparency. It's, you know, it's put on a blockchain that's their public blockchain. That's the benefit of it. But to be honest, once you face the reality, there are a lot of downside right now at least the liquidity is not big enough. And so far it's very hard for the smart contract to execute very complicated logic. So right now still we have to improve that. But for the cefi, you know, it's actually the opposite. You have to figure out conversions, cross chain exchange and easy to use and get enough Liquidity. However, the downside of cefi, you know, once you have, you may have to, you know, centralizations that create a problem for you not only about the security but also, you know, maybe for the small rich customers, they will not provide good enough service to you. The one important thing I want to emphasize is for the centralized service they, you know, not every customer treated equally. But however on a defi this is a very important feature that every customer is basically being treated equally. So yeah, that's you know, the upside and downside for DEFI and defi. So I think for probably retail customers, once you have full knowledge to use the defi service, it's probably the best way to use it for cefi. If you like an institutional customer, I think go to CEFI is probably a good option for you. Comparison about the Dex and centralized exchange As I mentioned before, because of the scalability issue and because of the centralized exchanges being so big and doing so well, there's a clear huge gap between two. You can see that the DAX volume for 2020 for the first half of the year is going up 50% from the finalized year in total. Which means that this year you can basically do 3x but still the half year volume is close to a daily volume of one single exchange finance. So still overall I think there are a lot of the huge gap between defi, Dex and decentralized exchange is that huge. And you can see that that's the caver that probably one of the best top decentralized exchange they are trading volume is probably 0.15% of the volume of finance. So I guess once we solve the liquidity issue in all different kind of by whatever solutions this will change. I mean decentralized exchange at least partially off the market share of centralized exchange will be taken over by decentralized exchange in the future. But it may take probably three to five years. It's not a easy and quick thing we will see recently. Another interesting thing I want to discuss a little bit is about compound MakerDAO the two biggest DeFi project in the industry right now. Interesting. You can see the market cap and log volumes are all close to like a $500 million. It's probably in a compound region. It grows so big. I mean market cap and log volume per vehicles about like a billion dollars. But I see interestingly one thing is that in a traditional way that's a centralized, you know, lending platform. Usually you don't give us such a high market cap for the locked volume. It's usually like one third of it or 1/4 of it. But what you can see here for the decentralized lending platform it's almost like a one to one right. So which means the investor and the capital is really taking is see the future of defi for the future of the decentralized lending platform seeing this as a great kind of potential to grow in the future. So I think that's approved from a capital perspective. A little bit of comparison between compound and Makerdao. Makerdao generated DAI by leveraging tokens as credible and earned interest on dai Compound a little bit different earn interest on the tokens and borrow tokens to invest US and short sale for supported tokens. I think compound is like adding more tokens to make it up. However make it out as far as I know is still in the process of doing that. One thing to emphasize is you know compound is distributed native governance token compound to token borrowers and suppliers which is a you know, unique function make it all don't have second enough about the lending index. I want to talk about or dig into a little bit about a stablecoin and you know what will be the future of it? Stablecoin why we need stablecoin what is the benefit? Right. The first I would say there are three points to. The first I would say that security, you know you are built on top of the you know, blockchain network. So it's like. It's like a secure basically if you hold fiat for the from the large country that's probably fine but you if you hold some fiat from small country it usually goes to you know, a lot of problem. It's like an unstable policy or whatever. So security is really a point here. The second I would say to you know, instant processing you can easily transfer the stablecoins to other people which is a very, very important feature of the stablecoins. You know if you use US dollar as US country that should be fine. But if you are doing cross border remittance you transfer money from the one country to other countries you go to the whole swift system it probably take like a three to five days spend a crazy high fees on top of that. It doesn't make any sense for you. By the way the remittance market over a year so close to a trillion dollars. So it's already a big market that stablecoin could target to solve the problem. The third I would say compared to not fiat but compared to Bitcoin other cryptocurrencies. If you don't want any risk about taking the volatility risk Then you can have stablecoins. You don't need to. It will prevent you from taking risk about holding bitcoins before bitcoin price goes down. It's actually a good way for you to do remittance. Maybe you certainly just believe in the value of the fiat but you don't want us cryptocurrency. That's actually a good thing for you to do. There are three kind of stable coins. The first is as we know fiat and commodity craterized. Usually we can see it's basically all US dollar craterized but I feel like a new project is doing backed by gold and others. The second one is crypto collateralized usually being like a decentralized platform like Megadao. They use dive and and backed by all different kind of cryptocurrency or basket of different cryptocurrency. The third is non collateralized. Usually you use algorithm to make sure the price of the coins is stable and you will try to increase or decrease the supplies of the tokens on the basis. It's pretty popular back to 2017 but I think there are very few project being successful. But recently it's actually I think the craterized stablecoin become to dominate the market. But there are still a few non collateralized. But you know, since it's not that popular I think the market share goes down a little bit. Top 20 stablecoins clearly tether is still dominating 80% of market share. Pretty crazy. And still dominate the whole silver coin market. A little bit of compare about tethers and USDC in the packs. Number one. Number two, number three, tether is 10 times larger than the second one, 30 times larger than the third one. Still crazy, you know, dominance for the stablecoin market. You can see that clearly from the liquidity issues. You know tether is much better than others and that is probably the most important feature why tether has been so successful for the rest for the license and regulated stablecoin you can see it's all have all the benefit about, you know, the functionality about public audit, trust, transparency, purchase, redemption process and others. So these are all based because you are being regulated and you are being licensed. That's the, you know, high requirement for you. So I mean my prediction is that you know, since basically right now the market of crypto is still a retail market. So I think Tata will still dominate market. But if the mainstream capital move into the cryptocurrency market then they definitely have no choice but to choose licensed stablecoin. If that happens. I mean the market Share of USDC packs and others will probably go up and try to at least gamma market share part of the market share of TEDx. It actually depends what is the structure of the investor Whether it's a retail dominance or it's an institutional dominance market. Great. So enough discussion about the defi, the lendings earned DAX and stablecoins. Let's see how we can contribute how the defi industry will look like in the future. I got like a full prediction here. That's my personal opinion. The first is like DeFi development will redefine the finance industry. It sounds like obvious, right? It's like you know why I think defi One important fact is compared to all industry in the traditional world finance industry is probably the single largest industry. So you have like gold has a value of $8 trillion stock like 10 times larger than that, derivatives 100 times larger than that. So the finance industry overall it's really a huge industry that in the traditional world. So when you put it on the decentralized ways to do that if it becomes successful it will kind of like being such a big thing that nobody can ignore. So that's why I'm being so excited about defi and because the market you can reach out to it's so big. The second is I will have probably two predictions about the stable coins. I would say non credible stable coins could make an important comeback. I think back 2017 there are a few great projects came out but really hard to to continue and being successful. But I do think there's a value for the non collateralized wave coins and it's actually you know backed by technology not by cut off still by other fiat. It's actually a very good solution but it's really hard to design you know the air and design the mechanism. But if someone is successful doing that it will be a big project in the future. So it do have values. Another thing I want to mention is regulator stablecoins should begin to dominate the market. That's because my analyzed before as well. I think in the next three to five years the mainstream capitals institutional clients start to move into the crypto industry and that will help the license stablecoins become bigger and start to dominate the market. The last thing I want to say about defi is not about application level but about infrastructure level. Solving the scalability issue is the crucial and the single biggest problem for the blockchain industry. And if that is being, you know you have a lot of solution right now for layer two bitcoins. You have a lightning network for Experience Right now you are doing sharing for etc. We are kind of do some research on roll up. You have all different kind of solutions either on layer one or layer two. But we are already doing this for years. If we can solve the scalability issues in the future, probably not in a year, I mean three years, four years. If we solve that then we definitely will see more use cases being deployed on top of the blockchain network. Especially in the finance industry. Like I just mentioned before, DAX can work. NSS can work as well. We will definitely see more application use cases. So as a protocol, ETCS protocol is fully committed to solving the scalability issues with all the other mainstream protocols as well. What we do and how can we what kind of things we do, what kind of benefit for etc? How can we support a DEFI ecosystem? You know a great achievement by us. As a first hacker we do three hard forks and upgrades like Atlantis half fork finished, half for this room and also the other project like evm, AR evm. These are all, you know create a solid foundation for the ETC protocol and make sure we are more comparable with the Ethereum protocol that will benefit all the use cases a lot. You know once you have much more solid infrastructure that's a solid foundation for you to build different kind of user case on top of it. And as I mentioned we are doing research on robots try to solve the scalability issues. We will definitely get more update once we have more progress on that part. The second I would say we have been partnered with a lot of companies and tools. Let's say the Block Cloud offer the ETC service and Chainlink integrate with Asian Classic this February and we cooperate with Y Block Angular with all the different kind of important tools. This is the unique ways for you to link the application and infrastructure. So once we have more bigger ecosystem it will definitely help and make sure people, the other developers and also the users are much easier to use. Use the service on top of the network. Also we do a bunch of other partnerships I want to mention. For example Open GSN is a project we work together try to reduce the transaction fee on the ETC network which is an important thing right now. A lot of transaction fees like say Bitcoin is too much but ETC is still very cheap for you to make a transaction on top of the the network and OpenGSN also help us to reduce it a little bit more. Gitcoins an important platform for us to build a much strong and solid developers community. We give a lot of bounties on gitcoins to have all the developers to work on the ETC protocol also important to our ecosystem as well. Meanwhile, we also try to promote an environment to create end users applications. We are in the discussion with a lot of top tier stablecoin and lending project in the DEFI industry right now. See whether we can cooperate with each other. We will give more announcement in the Q3DS view and at that time I think older ETC users will have more application to use. I can see a lot of. Let's say what. I can see a lot of demand from the miner side. They don't want to sell etc but they want their fiat to pay the electricity fees. They can always use probably the lending platform in the ETC network to do that in the future. So that's actually we definitely want a better and bigger ecosystem for ETC in the future. Yeah, that's basically what we do for some classic infrastructure tools and applications. We have other progress but we are continuing fully committed to the protocols and we are fully committed to building a strong DEFI ecosystem on top of it. And let's see what we can do for the second half of the year. I want to say thank you for listening my speech. You can always try to connect me on Twitter or LinkedIn. I'm Dears, if you have any question, if you have any interesting discussion you want to have with me, please ping me on Twitter or LinkedIn. I'm happy to answer all the questions, I'm happy to discuss all the partnership or any question about it. Thank you, I appreciate that. That's all from my speech and thank you very much.
Hi everyone, this is Qi Zhou. I'm the founder of Clockchain. Today I will give a talk about building next generation Defi platform. First of all I would like to thank you. Cisco Blockchain week team organized this unitized event. So here is the outline of today's presentation. First I will give a short motivation why we want to build better defi platform. And then I will summarize some challenges we have observed these days for all kinds of DEFI platforms. Then I will explore the the potential opportunities in developing a better platform and how we are able to contribute towards this better platform. And lastly I will give a conclusion of today's talk. So everybody knows that right now Defi is really fast growing market. So about three months ago the market total locked value in the DEFI contracts is just less than 500 million. Right now this value is now more than 1.64 billion. That is about almost three times average 2.5 times than three months ago. And so with a lot. A lot of people that are developing defi application and more people are putting their valuable assets in the defi at the same time we see the couple of. I would say issues that is happening at the same time. So I think the most concerning I would say challenges in defi platform is the security. Because imagine there are billions of dollars that is putting in those smart contracts. And suppose one of these contract is being hacked. Then it may will lose considerable amount of these assets of the users. So actually those events are happening or happen these days. For example, banker recently released their smart contract and they found severe issues in the contract. So in order to prevent the high techs to steal all those assets, they have to perform a white hat attack. Basically attack the contract themselves. And then stole those assets to their accounts and redistribute back return to the users. And another famous event that is Landf Me which they use compound coal but they use co non standard assets which create further attack vector and was utilized by the hacker and stole 25 million US dollars. Luckily the hacker is identified and the hacker returned all the assets back. But it still describes a lot of concern in the market that why there are so many security issues happening. And actually these days. Just a few days ago, Balancer, another famous project is also being hacked. And more than half million of the assets because it just started. So the number of assets still relatively small, but still more than 5 million assets that was that was attacked and stole. And imagine suppose like for example Kampong, which is the largest defi project nowadays. Which has locked roughly 1 billion assets and it was hacked. How would the market be? That is a disaster. And remember those projects, they are actually well known. And their coal actually is seriously audited by several famous auditors. For example, Balancer is audited by actually here is title here it's a trial of bits and for example the length of FME using compound code which actually is also audited by trial of bits and also open sampling. And they're still being attacked. Which implies that a lot of other projects with less resources, with less test, with less audit may even higher highly likely to be.
