DAPPCON 2019: How Staking-as-a-service Bridges DeFi for Mainstream - Stani Kulechov (Aave)

Transcript

yeah so I tried to be very like kind of like precise and brief I know there's like happy hour waiting for us actually there's two happy hours there is the official one and then there's the the one what we're drawing with maker happy hour later today and yeah I think it's a good nice time to switch the topic a bit I mean we had like one and one and a half hours about privacy so I think now everyone basically more or less knows how to hide their coins so we can basically talk about something related to defy so the topic basically is house taking as a service breaches defy for

mainstream so we kind of like what we're trying to basically look today a bit of like define general what it is and kind of try to see like what kind of facts aspects relates to the fight what is staking as a service and and basically what what it has to do with define in general and and kind of like think about like could this mechanism that and all these ingredients and pieces that we have here could this actually get more people mainstream people into the decentralized finance products from centralized finance products like bank deposits and and and so forth so a couple of words about me so I was basically I'm from Finland originally I

did some coding when I was in my teenagers but basically eventually ended up going for law school and I was always kind of interesting different kinds of rules and and and I was in the event called sloshed in in Helsinki where I'm based originally based from and basically there I saw like first kind of like presentations and and developers building things on on aetherium and this was back in 2015 so I got really excited about smart contracts and I kind of like try to apply those into like legal legal applications but found it out that there's even more interesting stuff

going on in financial kind of services and that kind of like was a situation where I started to build D Phi projects and then basically I went to ready it on Facebook and when ready that was pretty active back in the days and in the Tyrian community and asked people that have this great idea basically it's kind of like Tripta back loans you place a collateral and then you borrow other asset and and and who wants to join well it was a good idea kind of like some people joined into the project and eventually some people were asking me well why didn't what do you need - why would you basically stake your funds and borrow when you can sell so the kind

of like financial part was very difficult to grasp back in the day but today everyone understands why would you deposit funds to compound or some other protocol or why would you borrow against and basically the startup that we created was named eat land so it was first landing protocol in theorem and it was very interesting project basically we're still active we have basically two million worth of funds in deposit and basically it's a peer-to-peer order matching kind of like smart contract marketplace for crypto bank loans and now we are known as Alvin so basically we did a bit of rebranding and are creating basically pooled ways

of basically well concentrating the liquidity into pools and and and kind of like offer for the borrower fixed kind of swaps from fixed and variable rates and back and forth per block so it's in kind of like lending product which we build on top of basically interest rate swaps so that's like that's the kind of like bread and butter that we are doing now but more about defy so there's few things that we need to always like recognize so what defi does is gives you equal access to finance so it should be open less it should be censorship resistant and basically why I'm using the word should is because it's the kind of like

the status go now so you can use pound you can use it Elaine you can use basically dy/dx and all these learning protocols or you news valve without giving much data so there's not much restrictions but I'm not sure how long it will be like this I'm pretty sure that's some part like they're kind of there's this regulation I would say kind of like consensus that you maybe you have to do you kyc but now we kind of argue in defy today we're so decentralized so we kind of we don't control anything but it's very very arguable and it's difficult to say especially when we talk like stable coins CDP's and the whole deep wide space so it's it's interesting to see

like how this will evolve and of course oh let me just oh you go see all my secrets now so yeah so control of your own funds that's that's one very important thing so you're interacting with the for you basic control your fonts you're not giving away you kind of understand like what will happen in a way that you're using noncustodial services you know that the smart contract or smart contracts are pre-programmed so basically you you you know what kind of functions there are there should not be surprises but if I quickly ask like how many of you guys know how to read smart contracts like in

general that's pretty cool that's pretty cool and rest of the guys like me and rest of you like we probably don't know that much so that's the thing like it's not kind of like Democratic because it's code and then you have people who don't understand code so it's still a bit of issue but another thing is control of your personal data so if you think about it if you are making a over collateralized loan which is one of the main use cases defy or you want to trade one token to another token why would you need to submit personal data like your passport or your your utility bill you of course you need to do that for

regulation regulation and purpose but actual like what what's the concept indecent laws finance is that kind of like you should be able to control data or you should show it and somehow that that you you're compliant and and and you're the data is still encrypted and basically but like in idealistic level you should be able to control it and that's like the whole defy purpose and there's the transparency aspect so this is my favorite because like there is a bunch of different kinds of landing protocols now which are not decentralized and the thing is you don't actually know what's going on there so you you kind of don't understand like how much others are paying for interest and basically what kind of lending volumes there are so you can understand

the market a bit better get more competitive offers it kind of fights a bit back the idea of that with what we had today like the tree tell us about privacy and and basically being able to secure that but I definitely agree that privacy is very important but there's also an aspect of transparency but kind of like I would like to see like my transactions and my identity hidden but also I would like to see the market as transparent as possible I would like to see like what others are paying and if I I'm getting like the good market price and of course the counterparty risk mitigation so basically you are interacting with smart contracts since they're deployed in the public ledger basic there is a certain aspect of in

immutability and basically what this allows you to do is you don't need to trance the counterparty when you know how the code executes and of course the reduction of cost some people argue a lot that okay when you're using it for you block chain you're paying fees you're paying gas shitload of gas but to be honest like if you compare what are the costs running for example centralized financial services such as for example a bank or electronic money the cost of running electronic money operations they're much higher than we have now in the Cask costs for example on the etherium and the very very key do you guys recognize this logo hope you guys recognize it what is it what is it

open-source yeah so the whole thing of the file what is interesting part like community wise is that there is a lot of open so projects and that creates lot of good communities that's why we are here and and basically that is the thing that keeps us kind of like growing and creating new stuff and I think it's also kind of part of the deep I definitely understand that there's will be companies building products on smart contracts on video but I would always prefer something that's open source so about defy yielding so there's different kind of default projects out there there is yielding DIY projects which I call like a project that actually gives you

some sort of like interests so there's the pooled ones so obviously we know compound composite has doing pretty well they have over 100 million locked assets I think now and basically then we have we're building a overall so basically a kind of lending pool mechanisms with the interest is interest swaps we have a model that we have basically order matching based lending protocol which is Atlin and there's one other one for example Android from India and then we have marching lending protocols like the ydx fulcrum and new or lending and these are basically when you can actually borrow and trade on the same at the same time with leverage and then we have of

course like Texas and liquidity pools with some strategies you can earn their yield as well so this is kind of like the whole not the whole so if people don't get offended if there is not like all the projects it's just like few of these that I wanted to put there and and and as an example so these projects are basically providing some sort of like income for the depositor whether its lending trading and the interesting part is like from 2017 December until 2019 April the whole defy space has grown over 500% and it's it's it's a lot in like the percent growth in a way like how much how big the defy space now is

it's pretty small so I think in different calculations there might be some sort 10,000 or 20,000 defy users at the moment so it's very concentrated liquidity more of the liquidity or the locked assets or people who are borrowing or lending it's basically drawn into few bigger players but there's pretty interesting growth going on and and I think there's a lot of potential and for example in compound you have roughly 1500 different borrowers on their lender size you have five thousand lenders so I think there's a interesting growth here and currently

we have over half a billion well now it's under half a billion actually locked assets so how you measure like the defy success is the amount of lock assets so usually like what's being funny in this space is like we create our own terms and in kind of our own yardsticks so in traditional finance you usually calculate like the outstanding loan balances like that's the basically your yardstick for growth and and basically India fights it's how much assets before looking into a protocol and of course there's the traded part of the dfi and obviously people know there soon is fob ITX khyber and and and err swap and so for than zero x so that's also like part of the DIY space now why we're talking

basically about taking a service well basically taking a service is it's more or less about the fact that there's some protocols that are not proof of work that basically allow you to lock assets and get yield when you're confirming blocks right so basically you're actually staking your fonts into this protocol and the thing is like what this taking a service does it kind of like provides I mean kind of like ability to people who doesn't meet certain requirements or or doesn't want to go all the work related to staking to stake in two different protocols so basically you might have a person who just don't have the technical capabilities or understanding or enough

assets for example you need vast amount of assets to look to the basic is taking compound and you need basically also technical capabilities servers and so forth and also you need to spend time into creating this kind of like staking environment for yourself so instead of doing that you have a service provider who actually does all of this for you and you basically kind of trust them but the thing is like most of the stuff that I have seen and basically it's non-custodial staking so you don't even need to do the custody but we are looking a bit of the custodial side today I know it's kind of like custody is always controversial thing but there's always something some stuff that

can be built there as well but the thing is that what you eventually do in the when you're using stake in the service you're basically dividing the the profit with the service provider now the ecosystem there is a lot of different projects they're state state capital which is a European one stake us from us and there's a bunch of other ones and coming up all the time and one of the protocols is for example cosmos Life beer there's this loom and etherion when Infinium goes to 2.0 so basically that's interesting there as well and what we're talking is basically the defy part because that's like the interesting part because what these taking a service tries to do is to make staking easier so

they have a reach out to the larger larger audience and where they kind of like sweet spot is is is in this particular image so basically here's the US retail banking deposits and deposits growths so for the last well it's 2009 luckily the 2008 has been left away from this but it's a kind of a controversial real ear but the amount of deposit has grown all the time also because like interest is compounding all the time but what we can see from this particular image is that basically the non-interesting bearing deposits are going down and

people are basically taking more interest bearing deposits and in this current economy that you have in the traditional finance is that basically there isn't much yield that you can actually get and this is another interesting figure here if you guys see so this is from I street current accounts from UK so there's I mean you look any country in the Western world for example whatever it's us France Germany UK you will find more or less same figures or or even like lower figures so basically Lloyds Bank is offering 0.05 percent to one percent for for basically saving accounts I mean current

accounts and and pretty much what you can mostly get is under a percent or if it's like a longer deposit fixed deposit you can get a couple of percents or a bit more so if you think about like looking at the back like not not the recent years but a bit in the history like people still remember getting more yields on their deposits but because we are in kind of like interesting financial economy now it doesn't make sense to pay people normal consumers like me and you guys I mean banks don't want to pay you because they get free money from the central bank's so they can basically based on the money multiplier create the money from the

depth so they don't need our money anymore right so what we consumers are now doing we are looking into different kinds of alternative finance like peer-to-peer lending or any kind of like a new financial instrument crowdfunding for example and there is the part where defy like plays around because if you look at the deep voice base now there is some interesting figures here for example in compound you can get easily 89% dy/dx 18% this wall and and fulcrum 15% and in eat land which is the our marketplace basically 10% so on don't die so I think the key is here kind of like we're in a momentum we're basically

in traditional finance consumers are left into the corner and basically your money isn't worth anything so I will repeat your money isn't for anything in traditional finance at the moment because banks can basically create the money of your depth so everyone who has here any funds on there bank account someone is paying interest on that that money was created by some sir some specific depth and basically that depth money goes further from payments for example if you buy a house it goes further and someone is left to pay that interest now and what school in the defy space that we are getting this

kind of yields and it's just like pretty pretty cool we have actually this is from our kind of lending pools but it says 25.5 per year but that's uncommon so it's like cohen died so it's like it's not worth anything at the moment but the thing is that like when you see this kind of yields and you are like a person from like traditional words you get green like excited because even like if you look at the whole defy space now it's more or less like over collateralized loans or landing in general and like if you think about like I've never seen anything like this where people are actually super excited about landing it's kind of like it's it's not the most interesting thing but that's

like where we are now because we get like this yield so they they do you have an effect right I mean if being in basically in India for space where like very interested to see this kind of figures I think like the traditional finance consumers will be as well in the same way and the thing is like what's the process now to participate in dfi that's like the the big bottleneck that we have we are improving user experiences so it's it's way more better than it used to be a couple of years ago but currently basically what's the drill is is you need to have of course Fiats then you need to convert to theorem you need to have acknowledge like

basically how the whole box chain system works to kind of somewhere secure secure yourself and to use you need to even know how to send a transaction right they need to convert those aetherium in dye and you need to leave a bit of it period to send that time right so you need to be like kind of like that careful you need to have a made a mask or somewhere some some way to connect to the web 3 you need to remember your seats and back them up and so forth like you need to self custody yourself then you can enter basic defy space and then you can actually deposit so we have all these kind of steps here in between so that the traditional person can move his funds from his

basically saving accounts to the defy to get to this high-yield interest and what the staking a service will basically do if they kind of like take the custodial part where they actually have a kind of like a person that is is used to the traditional banks traditional yields haven't got any experience on on blockchain but once to get access to those yields so he has the funds he gives those funds to a service provider and that service provider gives interest in that particular currency and all the dfi stuff for example the conversion to two etherium and then to die and eventually

staking to the dfi works kind of like in behind right so like this this way a traditional person from the traditional finance can actually have an easy access to those the files without like going all those loops of going yourself like installing a wallet and and everything kind of days because like I'm pretty sure like many people will quit in the middle of the process even though like we definitely know that the model you should participate in the fight is they like the non-custodial that goes without saying but this is just a way to basic get more people into the defy yields so eventually like what I wanted to give

away from this talk is that it's taking as a service or any kind of like this kind of like a application where you're trying to interact with traditional finance and take the Fiat and convert it in between and deposit that can kind of like indirectly impact the defy usage on the deposit sites and that's interesting because I if you look at the market size of how much there is the or holding funds in in basically in traditional finance in the deposits and look at looking at the current basically amount of funds are locked in D Phi which is basically roughly half a billion that could go like substantially

and basically because interaction with the Phi becomes way easier it takes less time and those yields are attractive so it's a it's it's kind of like a win-win situation but of course other things to consider is that it's we're not sure how long the rates will hold up like I mean if if we get like another half a billion into the dfi the rates will go help from that so basically I would even say that maybe now it's a moment to actually try to get more people and try to build this kind of like gateways to deify and let people to operate and and get more like mainstream and yeah and the custody of

course is the issue in in in my view I definitely think like if you're like the idea of the voice that you can interact basically without giving your funds to custody but I definitely understand there's people who are taking the risk of the custody and trusting service provider and I know like I'm very myself like into non custodial services and sometimes when I say this I get a lot of like that now like you can only have like that's not that's you're giving a custody and that's perfectly fine because I want to give custody at some to certain extent to certain services and have the trust because like like nineteen point nine percent of everything is based on trust and that's perfectly fine and in some places I want

the trust and kind of like I could like say it's kind of like the Bitcoin maximalist thing you know like you you don't need to be maximalist in the whole like non Kasturi custody thing because like you can choose where you want to be non custodian and where you want to have custody and that's like the the key thing but uh of course more non custodial services is better than so yeah yeah so we're we had this talk is basically more to kind of like see how you can connect to different things and also because we do a lot defi we have been building for a long time now

and I think the space is growing pretty well and and basically yeah and when we are keeping the defy kind of like pure open source we have a good community there is a nice static around group d underscore fi so basically if you want to learn more about defy or just your you have enough time or you're boring that you want to discuss with other people who are like defy that's a pretty nice place and we have a telegram community as well which is of a summer like awesome with with the double a and B so basically if you want to ask questions about us about eat land or basically or lending pools so we're

there and now I think it's pretty much the time for the happy hour and if you guys are still on your feet we have at 8:00 with McDowell basically that'd be our so basically there's QR codes there if you scan the QR codes you will basically claim to die and if you take those two die into a beer pool you will get one beer as an interest so that's the kind of proof of concept of our interest poles actually now that I'm thinking what we have what we should have done is that you could swap the interest from beer to like a drink or cider or something you know because not

everyone drinks beer that's something that we could do for the next event but thanks guys thank you