Why regulations are important in crypto | Interview with Ajit Tripathi

All right, we are super excited to have Ajit Tripathi here. He is the head of institutional business at aave, the world's leading defi liquidity protocol. He has a proven track record of delivering solutions for business development, partnerships and delivery outcomes for crypto and fintech firms, well known in the UK and EU Fintech ecosystem for thought leadership and advanced analytics, blockchain technology and digital assets. How are you today, Ajit? Thank you for joining us.

Hi, good afternoon. Thank you for inviting us. Yeah, it's been a very exciting conference season. You know, I was in Lisbon for the better part of the last four weeks. So Solana, they're just so much a Cosmos Ethereum. There's just so much excitement in all of the different layer one ecosystems and being a cross chain protocol. We are really excited about all of the progress that's being made across Web three.

I do want to kind of dive in today. You've been a part of this industry since no one wanted to talk about bitcoin and crypto and now everyone wants to talk about it. Like what in your opinion was the turning point from where you said, yeah.

So you know, back in 2015, I think blight Masters and a few other folks were essentially going around Wall street saying this technology will change everything. And that led to a lot of excitement among banks at the time. So, you know, ubs, Credit Suisse, Goldman, Barclays, all of the folks that I speak to now were really getting excited about, about the tech, but weren't necessarily willing to interact with the actual substance of the tech, which is the crypto, the tokens, the web3 aspect of it. So I think it was still a good opportunity to. And Even back at PwC, I think some of the partners would ask, isn't bitcoin just something that money launderers use? So you couldn't really have a sensible conversation with anyone in the financial industry about crypto. But there was a lot of interest in blockchain technology. Right. So there was just this whole enterprise blockchain. All right, let's just skip the money part of this. But you know, use the tech without any tokens and so on so forth. So there was a lot of interest and I think I was involved in a lot of different. Some of the biggest projects in the space, we trade, Comgo, nasdaq, Link, Meft, Coin. There was a lot of stuff going on in a, in a bit of a sanitized environment. So, you know, five years later, obviously the picture has completely changed and all of that has changed. You know, in A in, in the last two years, if you will, as DEFI has accelerated, you know, PayPal and Square came in and showed some revenue. So, and you know, revolut. So I think with, you know, you can talk to financial institutions all day, but once they see in a PayPal, Square and so on, actually coinbase starting to generate revenue. But it's a completely different story. Right. Then some of the conversations are no longer required and people really want to find the opportunity to create value for their shareholders. So we are in an extremely favorable environment in this industry right now. There's just every single day we get a lot of inbound queries about how DeFi works on LinkedIn, email, you know, Stani, myself, Nicolo, the rest of the team be getting inbound queries from, you name it. Right. I mean some of the biggest investment banks, mutual funds, asset managers, hedge funds, family offices, you name it. So it's, it's just an. You don't actually, actually have to go out there and talk to anyone. I mean it's just so much is unbound. The interest in Defi is incredible. The AAVE community has done an extraordinary job of, you know, I think building a secure, robust protocol. So we get a lot of queries. I mean, this is the opposite of where we were in 2015. Right. It's just an extraordinary moment for what we've been doing.

It seems like this increased attention has also kind of caught the eye of the government and stuff and we're hearing a lot more about regulations and stuff. How do you think regulations is going to affect DEFI as we move forward?

Yeah, so I mean, you can't get to 3 trillion and have no attention from policy institutions and governments. And I think some of that is required as well. You know, there are 13,000 plus coins out there and I think none of us can say that, say with a straight face that, that all of those are actually innovative or you know, genuinely provide value to consumers or otherwise. So, you know, so I think there is, there is, there is need for, you know, some, some rule making, some, some the industry needs to grow. I mean it cannot be a free for all. Right. I think it's unreasonable to expect that the industry will mature and it'll continue to scale from a small number of users to 7 billion people around the world. And there'll be no rules. Right. It's just not reasonable. So I think that the challenge is regulators are not necessarily involved in the innovation part of the ecosystem. Right. So the news they're getting is always about Shiba INU and Dogecoin and, and you know, all sorts of adverse incidents, if you will, scams and whatnot. They're not really getting the full picture of the innovation that's going on in Web three and in decentralized social media, in decentralized finance. So I think it's important that people who create rules are actually engaged and they're coming to the developer conferences, they are in the discords and they're part of the daos where all of the innovation is happening. And it's. So one of the things that we invest a lot of time and effort in is education. Right. So because someone has to tell the, you know, tell the positive stories too, right? I mean, because the traditional financial media, whether it's Financial Times or others, they love to publish negative stories. And that's what, you know, a lot of the policy folks are reading. So it's really important that the rest of the industry actually takes a very constructive approach to education. And that's kind of where, you know, we are investing an extraordinary amount of time and effort and hopefully we can work constructively through industry bodies like the Blockchain Association, Defi Education Fund and others to have a much more substantive dialogue. I mean, crypto industry historically also has had a bit of a teenage response which is there should be no rules. I mean, we cannot get to 3 trillion or 30 trillion and have no rules. Right. I think we just need rules that make sense. We cannot have rules that were created in 19, 1934 or you know, in the 1920s or 40s applied to technology. That's completely different. So I, I think it's time to sort of change the dialogue and have a grown up conversation. And we are trying to lead that along with some of the other protocols in the space Agreement.

Ajit, I'm not a DEFI expert and I assume that most of our viewers are not as well. So can you explain in some lame terms what differentiates AVI from the competition on the DEFI segment?

Yeah, so we don't, you know, this industry so early, we don't think of competition. You know, we think of just creating technology and products that people want to use. But I mean, in terms of what, what makes AAVE what it is, I think it's the community, it's the level of decentralization. I think something I'm very proud of in, you know, of what, of what we've done over the last year or so is how decentralized we have become as a protocol. Right. And what does that mean? So that means that, you know, so last September, August, Stani and the AAVE team, you know, gave up control of any keys and we have never had, you know, sort of any control of any keys that, like admin keys or so on. Since then all the decisions in the protocol are now made by, you know, governance. The aave token holders, 200, 100 to 200,000 odd token holders around the world and you know, they are made transparently in an open environment with a lot of discussion and debate. Anyone can actually work for AAVE and all they have to do is contribute. I mean they can apply for a grant through the AAVE grantstop. All of the, any ecosystem growth development is done by the Grantstown. There is a risk style for making risk parameter related asset listing decisions. So all of the aspects of the protocol have been decentralized and I think that's something I'm truly proud of. Now the question is how do you do that while sustaining the pace of innovation? And there is place in a decentralized environment for leadership, for quality ideas, for setting the tone, for having the right values. So I think that's something Stanley and others in the ecosystem have achieved really well. But you know, we have, we have stood, we have been very aggressively decentralizing and I think that's, that's worked really well for us. Good.

And so I, I do want to take note here. So we have a community here for Markets Pro that was able to kind of chalk up some questions for us to ask you. So I want to dive into those. So if you're a member of Markets Pro you get some of these perks, you get to ask some of our guests special questions. So one of our members from Markets Pro wants to know, with more and more banks becoming interested in crypto, do you have strategies for integrating institutional liquidity and what does that look like at aave?

Yeah, so I mean one of the things we are looking there is a bigger picture out there, right. So we're looking at something much bigger than that. So we think that, you know, what we're building is Web3 Infrastructure. So if you look at FinTech, right. FinTech has built really nice front ends, they built great user experiences but Fintech hasn't done is change the Rails, right. So it's just nice mobile apps on, I mean on 20 year old technology and you know, brittle Rails, credit card Rails and so on and so forth. So what we're doing is we are as a defi community, we are starting to build the backend of Fintech and you know, the distribution of defi will still be done by you know, fintechs and to some extent banks, maybe asset managers. You know, we've got to 15 million users according to consensus and their metamask report. But now we have to, I mean that's a very small fraction of where we need to be with 7 billion people on the, on the planet. 8 billion apparently. So, you know, so that distribution needs to come from centralized entities, right? So but we're building the back end, the infrastructure and the rails for that system. Now if somebody wants to connect to AAVE directly in a permissionless environment, they can do that. But if users are not able to do that, then we're launching. So Fireblocks are currently working on the AAVE ARC proposal and that will essentially allow fintechs that need a KYC environment to connect to an AAVE pool and build their own products on top that arc market. Right. So I think that leads to, and then other protocols will come into that ecosystem, whether it's maker, potentially balancer, who knows, Uniswap, who knows, right. I mean Nexus and so on, so forth. And then what innovators in the fintech ecosystem will do is they will take all of these pieces of infrastructure and create products that then they can offer to their customers. Right. So the defi Rails will be distributed by a lot of different centralized and decentralized entities. And I think that's a really exciting year of the future.

Thanks. Could you explain a little bit about the risks involved with AAVE and how to interpret the risk rating maybe in a simple.

Yeah, so I mean it's still a very young technology, right? So if you look at all of the blockchains, I mean ethereum is barely 5 years old, Swift is what, 40 years old. So credit card Rails are at least, you know, 30, 40 years old. So we are looking at a very young tech, you know and a lot of practices and behaviors in the, in the defi community are still evolving. The tool set has matured a long way, right. I think now we have really good wallets, we have hard hat environments, we have developer apps, DAP tools like Tenderly and so on, so forth. So things have come a long way from where they were in 2015 and 16. But there is still some technology risk in defi protocols, right. So that leads to certain exploits, attacks and so on, so forth. Now with aave what we have done is we have, the community has invested quite a lot in audits. So there are five different audit, some of the leading audit smart contract auditors that are always auditing the protocol on a regular basis. Then there is formal verification in there. Gauntlet have done an extraordinary amount of stress testing. You know, so there is, it's it an AAVE exists in a very adversarial environment. So you know, if there is a weakness it will be found and you know like an incident two weeks ago. So I think we've built something that's now very secure and robust but at the same time it's still very young technology and most of some of the risks are essentially technology related and defi across the board.

Okay, we still have one question from Discord. So again I'm not an expert on defi but I'm going to read it. So what grant recipient projects you most excited about? Inavi.

Yeah, so I, I, you know we love them all so I don't want to tough to play favorites and I would, I would answer a different question that you didn't ask. Right. Which is what would I like to see and what would we like to see as a team? I think, you know, what we would like to see is that is a scenario where let's say the future iterations of the protocol are done instead of let's say 40% by the core team, by the Genesis team, 95% of the and eventually everything should be done by Community. Right. I think that's where we want to get to. So we are seeing some really interesting ideas around using NFTs in AAVE as collateral. We are seeing some gelato have done some really good work across, you know, in terms of building bots across different, different protocols to identify and exploit opportunities for preventing liquidations. I think we, so you know, people who are building Core Web 3 infrastructure, they're starting to enhance the security, the utility and the user experience of the AAVE protocol. I'm not going to name any specific projects because that sounds a little bit preferential. But what I would personally like to see is when all of the protocol, the future iterations are built by community and I think then we have really made it.

Definitely. Well, we appreciate you sharing your insights today and joining us on the show. Ajit. This is Ajit Tripathi, he is the head of institutional business at aave. This was awesome to kind of pick your brain and kind of see what's going on especially inside of the DEFI ecosystem. Thanks for joining us. We'd love to have you on again.

Thank you so much. It's been a pleasure.