DAPPCON 2024: Bringing DeFi to the Real World - Lucas Vogelsang

Transcript

yeah thank you all for joining uh today we'll discuss real world assets uh for us for noses that's actually a very important part we see a lot of growth potential and with me today as kolina already announced is Lucas fugang um I would say an OG in the field of real world assets uh I think cuge started 2017 yeah 2017 so I think there are very few companies that actually lasted in crypto that long and I think that allows you to also have a different perspective I think on real world assets and how the landscape has evolved um I think if we exclude let's say the the core stable coins like UCC and UC from

Real World assets then I think if you just look at the market cap of real is still fairly small compared to the overall Market c yeah it's about it depends on how strictly you define real assets but it's about a billion uh today so in short it's basically nothing nothing in the traditional markets uh asset Market sizes are measured in the trillions so yes it's uh we're three orders of magnitude lower still than that yeah so there's a lot of growth potential um I wonder like how do you see like how has this topic evolved over the time uh as you have been starting like almost a decade ago and what has changed and

why do you think right now we are at a point where yeah we can trigger actually this this growth phase I mean I I think and and and I think we really should have a conversation because um I mean of projects that have been around in this industry for so long I I would can't also NOS this as one of the few that is surviving and thriving um and and I think we actually have probably very different Journeys um but are working towards uh towards ultimately what I think is is a very similar or shared Vision um our so so like we maybe in like I think very typical of like 2017 crypto Founders was like you come into

the space with a bunch of naivity and a bunch of kind of Big Dreams and then you uh spend a couple of years realizing you need to build a lot of the fundamental infrastructure that's that's missing right I mean nois at the time was trying to build a prediction market and they ended up building a a wallet a multi-i a chain uh a bridging and like a credit card debit card um so right so I think similar for centrifuge we had this like big Vision I I I I kind of knew about Bitcoin for a long time before I really believed that Bitcoin could go anywhere my always my challenge with Bitcoin was like well like it's too exotic for a real user to kind of start buying their daily

groceries in it or for like a person in finance to actually use it I love the censorship resistance like the for me personally motivation was always the the story of WikiLeaks getting deplatformed visa and MasterCard just turning off any sponsorship of or or people's uh donating to WikiLeaks right and so that was like like the idea that you could use Bitcoin for something that is great um but like from there to like what is actually a a product that like everyone in this world will want to use and can use I think is quite far so we we so with like programmable money which was one of the core ideas of ethereum I would say and to date still the most popular use case of of uh programable

blockchains um that was when we said oh this is actually what we can use to allow businesses Banks like financial institutions borrowers lenders right from around the world world to come and actually like do these transactions without as many intermediaries as as as was necessary in the past doing it in a much more open way kind of building this financial system uh from scratch um like what we at the time we didn't have stable coins we didn't have um any significant like kind onchain liquidity uh most people that were using defi didn't really have a an understanding of how these Financial products worked and so it was that that was kind of the long journey we took to today um and I think you can kind of look at what were some of the

big stepping stones and or kind of kind of like achievements we've had I think I do think um the the pro proliferation of stable coins as like a stable Med medium and store value is very important uh Fiat on off-ramps becoming a lot better I think we're not there yet on regulation completely but but I think there's a a much better understanding and and I think for some in some way also um like fast forward to today I think people like now in 2017 I thought yeah like we just need to build some smart contracts and that's like that's what's going to replace a financial system I think what what I learned or like what we as an industry learned like there's a lot of stuff in finance that

we have to like actually bring in like knowledge people Etc and I think the the people part is a really important one because we did see I think about 3 years ago the average person that came from a finance background and was interested in crypto was interested because Bitcoin is crazy volatile because it's digital gold it's an asset class that they can invest in uh today the um the the person that has a finance background like whether that's working at a bank and in Credit in lending in equities really anything right they are starting to understand actually it's not an asset class it's a technology that I can use to do my work in a better way in a more efficient way and I think that is like maybe the

reason why um we saw even like the largest banks right the largest financial institutions go from having a very almost no view on crypto or very limited view on crypto to like Black Rock launching uh a tokenized fund uh to like everyone starting to buy these products in ETFs and so I think that is like a that was like what what gave this a lot of boost and this is we we're just seeing the beginning right I think over the next um Years you'll you will see like a massive inflow of like new assets and ultimately like new buyers of these assets that will be comfortable actually using this technology because they see this is worthwhile to make the

investment into start using which maybe I mean to to turn it around to nosis um as I mentioned you started with with the wallet one question do you think then uh the adoption will come mostly from institutional side or retail side I think this is where I I mentioned we have maybe a bit of a different um different path towards it we focused very much on the institutional side because I do think like crypto is very hard to use as an individual um es in kind of creating tokenized products whether that's treasury bills or credit um like then going and selling those to retail users is very hard so actually

what we said is well instead of trying to go and try to get uh the average person to invest in a real world asset uh it's much better if we go to Dows because they like a stable coin it should be a stable coin collateral right the first thing we did was we made we worked with maker to onboard uh these assets to to Mint die with it um why because like I think those are kind of the financial institutions of the future that can can do the work that is required to uh underwrite and evaluate what kind of real world assets they want to buy kind of go through this work and then make this decision and so for us like it was this almost like B2B Toc kind of distribution strategy where like

I don't think cuge today is at a point where I would expect hundreds of thousands of users to own these Assets in directly the same way that I personally don't try to pick stocks I I bought Apple stock because I thought that's probably a good idea 10 years ago and it was a good idea but like I don't do this on a regular basis there's some people that do and like Robin Hood for example is a good example of of where people do it but but I think we've started with the institutional users I think then you'll see things like ETFs and like broad funds kind of high yield savings accounts like those products that still need to be built that then I think are are more retail friendly but you did take kind of a different route right right yeah so for nosis uh of

course we we are operating a network nois chain you're also operating actually a Network Center fug actually is also its own blockchain um but for us uh our vision is to actually bring crypto to a lot more users and uh make crypto more accessible um the core of the strategy is a wallet that we're implementing called metry uh for those of you who have not tried it uh you can onboard to metri to buy ice cream it's very delicious and uh down there ground yeah if you haven't done it yet and uh this is a wallet that is really optimized for great user experience it us uses new technology like pass keys that can be Ena through safe modules to allow like really uh straightforward key

management and um with this wallet we really triy to uh yeah address the humor Simpsons of this world uh to really make crypto so accessible that anyone can actually start using it and for this we are building different Bridges to Real World Finance so nosis pay is core of the strategy where we integrate with visa and allow people to offboard easily we also have other Integrations with monium to the sepa network so we're basically trying to build an experience that for the end user should be indistinguishable from a Neo Bank like experience and um yeah we we really see that in order to uh like offer more services real world assets will be very

core important part that uh our user group potentially would like to have exposure to and um yeah I this is right now not possible I think if today let's say there would be liquid assets for uh all kind of different uh stocks and ETFs on chain people would start using it uh just to diversify for example um but right now the problem is it's kind of a chicken ACT problem as you said the total market cap of all real world assets combined it's just a billion dollars um and then for every specific product it's so small that uh as a user you see a risk that you are kind of you you have risk in holding this token simply because there's very few

intermediaries that control this they have not been around necessarily for a long time um and there's generally vry I mean I personally try to convince parties that are very close to me uh to diversify into uh real world assets WEA different protocols and there was always the argument um yeah it is something that is very new we don't know how long it will be around uh and how trustworthy is it even if there's a close relationship there's still hesitation and uh yeah in that sense it's kind of a chicken ACT problem where First Trust has to grow in order to issue more assets and then it is uh yeah then it also becomes attractive for others to join of course I mean it it this was one of the hardest

thing for us was to kind of bootstrap and and like in 2020 when we well we did the first pilots in 2019 but in 2020 when we first had the first kind of broader like bigger pools go live and and bigger at the time and for us like more than a million uh dollars so um like like it it was um extremely hard and The Challenge on the flip side is what you mentioned chicken and egg you you're kind of um today still operating at a stage with relatively immature technology at a scale that is still a bit too small to really make this work so you kind of have you struggle in well you don't want to underperform trafi assets because then you might as well just go offchain

and and do it a traditional way um but to really outperform it you you do need the demand and so like okay how where do you get this demand from um I think we're we've gone from I mean at the time I think in 21 we we we had eight so we went from like 10 million tvl in 2020 to 80 million in 21 uh then like of course FTX and Luna like wiped out a lot of TLS and we we actually stayed kind of constant now we're at around 270 million um the the single uh like the the single deals they started growing and so we're we're like again I mentioned like can in try those

deals are like no one really does anything under $100 million um so very few people do so so right like this is still extremely small but we're getting to a point where now you do have uh like the the number of stable coin holders go up and now there's a number of those people are realizing okay maybe I I do want to start earning some yield the interest rate environment in the offchain world changed as well which means actually I mean this was another challenge for the longest time like you you you could you almost never beat uh defi yields like whether that's like supplying into a or anything else if you just bought treasury bills because those rates were zero and then defi was always a bit higher now it's it's a bit more

balanced it's still um like in in the bull market defi yields go go up like crazy and the bare Market they go down so that depending on where you are I think that that is like actually changing and that is creating a bit more a lot more organic demand actually and I think that so we are getting to a point where um now we can start onboarding bigger users but like it the these users right those like asset managers the like they would create any they would launch an ETF like product on chain now they um so now it's now it's you can start talking to them they'll probably take a year to um to make that decision to vet everything to go live right um but that

is eventually going to happen so for us it really has been like to kind of go from one kind of equilibrium of of like supply and demand which was like 10 million in 2020 to like scaling to 100 to like now like like trying to see okay how how far can we scale this next um and so yeah I think this is this kind of Supply demand is is still quite challenging and and crypto as a whole is still very isolated so so like the the nosis pay and the more I think is extremely exciting because it the more people that go on in and out of crypto all the time and the less it becomes this isolated crazy speculative volatile asset asset class ecosystem that is like defi utility tokens governance tokens

maybe Stak eth um meme coins nfts right and being completely in a separate world and uh like your real estate portfolio your the account you pay your daily your monthly rent out of and and everything else right the the the we need to make the Bridge those worlds together both in the on the individual user but also on on the on the B2B side because that's like when we'll start to actually make those markets be uh more efficient and like and like test a lot of those like kind of overlapping area that that ultimate for us as real assets yeah I I can totally see that especially kind of what you mentioned is is kind of in some

sense funny that in order for real world assets to become more attractive uh our Market has to go more into probably like a more stable or almost bare market like environment where there's a higher incentive to diversify and uh also yeah like uh potentially invest into bonds I know there was very high demand to uh to get like US Treasury Builds on chain uh for some time and then of course as soon as the yields went up in defi again then it's uh of course it's it's much more attractive to just get explored to those I mean the the interesting thing is like and and not to nerd out in finance too much but um like the risk what is

considered like Risk free I don't know like the die savings rate or the or like ethena um the ethena sde yield isn't completely risk-free but like you can say it's hedged against the market you take some risk against some of these exchanges but like that like ethena product exists in the traire world as well it's I mean it it would be just called a basis trade hedge fund that is a few basis points above treasury bill rate in trafi whereas in crypto um it's 20 30 40 whatever percent right the reason for that is there's there's I mean ultimately just one primary reason because when you do this basis trade

against corn futures or oil Commodities or whatever right um there's hundreds of financial institutions that will very happily lend almost unlimited amount of money to it and make this extra 10 basis points because the risk is well understood there's good regulation around it um and so it's pretty easy whereas in in defi um all of these derivative exchanges almost all don't actually accept uh us counterparties so all of the all of Wall Street is already like kind of shut out Wall Street would never do it anyway because like as long as you have FTX and mount GA happening on a regular basis meaning like more than every like 50 years which is maybe the last larger Financial PRI or or

maybe 20 years right then like like that risk is way too high for like actual traditional financial institutions to come in which does lead to yeah like today those those two markets are very uh very disconnected and so like which is why ultimately like defi yields go go like crazy when there's like positive Market sentiment and like all like kind of trafi isn't able to or does want to tap into it yeah kind of ending the time but uh what what kind of real world SS do you think will like what is the asset that people would be most excited about like if centrifuge could I would have to double down on on one thing what do you think would be the

re asset that would have the most demand I would give two answers um I think the maybe the people in this room the the people that are in crypto today they probably want relatively liquid still slightly higher than treasury bills uh yielding assets that are relatively simple so like it's really maybe like an in a place where you park money for a couple of months I think like there's there's kind of that can be in in in very high quality investing in very high quality loans like a distributed portfolio I think that's that's kind of the need of this like onchain high yield savings account the replacement for s or putting money into like an a market for example now if you talk to someone in

trafi they want something they can't get uh today um and so there actually the my answer would be uh you have projects one example I always use is like you have projects tokenizing music royalties uh what if you actually then could take those music royalties and lend against them and earn interest um now that is a market that is extremely uh extremely like fragmented in the tradition world like very liquid very intransparent so like most investors can't really easily invest in that at scale so if you go to a traditional investor like you'll have to sell them on something like yeah like you can invest in in uh in these assets uh through crypto because they're

actually crypto they have some like some easy way to get um get into into these assets that they don't have in the traditional world so and I think we're trying to kind of do both in Center fuge cool very cool um with this I would like to open it up to to uh the audience in case anyone has questions thank you so much both uh amazing conversation here and yeah we have time for a few questions so please whoever wants to make any questions microphone oh thank you that's nice lookas you mentioned uh risk is a

major obstacle for for trfy invest investors to get in to which extent do you think regulation and infrastructure is also an obstacle at this point is it less so than before I mean I think for me like regulatory risk and Technical risk are a huge part of the risk that I'm talking about so no I I think that is part of it right like as a as a large Bank um what happens if you uh hold usdc and there's suddenly like a a bank run and like your stock your shareholders freak out right like that is very hard as opposed to like having a well regulated uh stable coin that like you you're you know you can treat as cash and like you're you're on the safe side

I think another one for sure is um like wallet infrastructure like you talked about Pass Key and like just a very easy way to onboard um institutional users they they need to use the same right like the idea that you're paying uh like thousands of dollars a month um simply to hold like a a digital asset in a relatively secure custodial way um I think is is not really realistic and we need things like safe to be much more established and like I mean it's it's like I sometimes sweat when I make uh large crypto transactions and I do it often um like that is now imagine someone that hasn't been doing this for five years six years like that is um uh like that that is like obviously

very expensive right for them to kind of justify that risk yeah anyone else and I think safe is awesome in that regard like I this is where it's going to go yeah I think technology wise we are getting there yeah solving a lot too concerned about technology I think regulatory wise uh that's less under our control I can say from no down perspective for example we actually I think we're the first Dow to onboard to to centrifuge right uh or one of the first and um we also acquired like re assets from other providers um but until now we did not

really feel comfortable and we is like an larger like organization or like larger teams uh providing liquidity for those assets on decentralized exchanges um and that's of course what needs to happen eventually like give other people exposure to it and be able to distribute those those assets easily right and uh right now it's still like a very con rooted process it's really like I think I'm one of the few people world holds actually coinbase stock on chain and I'm very happy that I did it but the process is just so complicated and uh it's just nothing in any way scalable but I'm pretty sure if if if we can prove that there's enough demand and

issue enough of those assets on chain I think then there's also just the incentive so high that people will start providing liquidity and make it more accessible so I'm just talking about this chicken egg problem recently I also had a discussion with another real s team about this how could we possibly solve this and uh it would be maybe one way to kind of there was has to be like a way to gauge interest which also sort of is a pre-commitment to actually invest into those almost like a Kickstarter campaign like if you have enough people willing to buy this asset then actually it is fulfilled but yeah I think we'll see uh yeah I I think the Dow is right like like nosis Dow or like um like like having like a way for

example nosis pay users to just very simply go in and out of these assets and but then like use not asking them to like make their own investment decisions but like using a dow to kind of curate a different portfolio option so that I can at least know I pick between these five five different asset classes right as opposed to like saying okay like I like uh IBM and you like Sony and like we're going to have to all of our homework ourselves I think simplifying that process is going to be very helpful I think we have one extra question y yeah so um Piers from radx uh there seems to be a trend at the moment in defi towards yield bearing tokens where you essentially abstract away the

underlying and then you have a yield bearing token on top of it you've seen that popularized on platforms like Blast Mountain protocol Etc do you think that this is the direction of play for um uh real world assets on Ledger or do you think that that isn't the right direction um I mean the yield I mean yield bearing tokens every kind of credit product I would say will end up being some sort of yield bearing token an equity product typically maybe will have a dividend but not be bare yield right like coinbase is it's just whatever the price of coinbase is but like treasury bills like credit Etc all of these I think will ultimately be

tokens that will just expose you to yield I think the one big question that you're talking that comes up though with like mountain and some of these others is like how safe is the asset actually um like the like technically creating a yield pairing token is easy legally um you have and this is maybe also a challenge of how early you are in the industry it's very very hard um or there's maybe like a hundred different legal structures today and it's very hard to know which one is the right one and it'll still take a few years to for have like some uh legal structures crystallized right um like we know the entire reinsurance industry is in the in Bermuda like because they have a good

legal structure every company that is incorp almost every company that's Incorporated in the US actually uses the Delaware uh legal system because they're very friendly like they have a good legal system that makes sense to incorporate a company right and so I think similarly like there's in in real world assets today there's people experiment with Switzerland Luxembourg Bermuda Cayman BVI us uh right all of these things now now that I think is still like the then there's some that just say oh we don't need any of this we're just going to do it all permissionless and hope that no one will sue us so there's there's these kind of different um approaches and I think we'll like have to go through a lot of like learning and all some of these this learning will also be painful because it will be like losses and and lawsuits

that will decide some of these things but that's that's maybe like the the the key point in like where these yield bear where it actually is the the difference in these different yield bearing tokens um not sure if you want to add something Stefan or it's all good we still have one minute so maybe one more question okay then I guess that's it thank you so much again for the amazing conversation thank you