DeFi’s Institutional Breakthrough

Transcript

Well, cool. First off, thank you everyone for being here. Um I'm Robbie, uh one of the investment partners at A16Z. I help lead a lot of our DeFi efforts. Um I'm joined by an incredible uh group of panelists here. Um I don't think any of them need an introduction, but maybe we can quickly go down the line and and do some introductions. And then you guys can each explain what you're working on respectively. And Stani, maybe we start with you. >> Stani Kulechov, the founder and CEO of Aave. Aave is a lending protocol uh where you can put stablecoins into the protocol, earn interest, and stablecoins can be borrowed against a collateral. That can be a crypto collateral or tokenized assets. Uh last

year we peaked on uh 76 billion net deposits, and available in multiple networks. And also we're building uh the Aave app, which is distributing the yield uh to consumers. >> Hey everyone. I'm Guy Young, uh founder and CEO of uh Athena Labs. We uh started the business around 3 years ago now, and uh the core initial product was a dollar savings asset that anyone in the world could um access with just an internet connection. Uh came out with the product around 2 years ago now, and scaled from zero to a peak of around 15 bill uh last year. That was the fastest growing dollar asset to ever breach 10 billion dollars in supply, and the only one that has done that in the last uh 7 years.

And since then I've built out different pieces of the business. So we have a white label stablecoin infrastructure uh piece of the platform now, where other applications, chains, wallets, businesses can launch their own stablecoins on our stack. And then uh announced uh Athena Pay nearbank around a month ago, which is really our attempt at sort of taking our core savings product to an audience that exists outside of the crypto native user base in a mobile experience that they're used to. So, uh excited to be here. Thanks for having me. >> Uh Kain Warwick, um I'm also a stablecoin founder, not as uh effectively as this guy, but um I started Synthetix in uh 2017. Um originally it was called Havven. It was

a dollar-denominated stablecoin. Um we eventually pivoted into synthetic assets. So, um we were one of the first to have synthetic equities, um tokenized equities on chain, but we were a little too scared, and so we uh pulled the pin on it um after about a year. Uh and about 3 years ago I launched um uh Infinix, which is uh um crypto app, um super wallet, uh everything everything app um that allows you to trade perps and spot and um custody. It has uh um a bunch of different features to to kind of be everything that you need um for your crypto life.

>> Awesome. So, the title of this panel is DeFi's institutional breakthrough, and I think what's kind of interesting, and we were chatting about this in the room before this, um is we're actually seeing a lot of, you know, more traditional assets finding their way on chain, right? So, if you look at a lot of the growth for crypto over the past 6 to 12 months, um you know, Hyperliquid's a great microcosm for this, where at one point half their entire trading book was RWAs that, you know, RWA perps that people want to trade. Stani, with you guys on Aave, increasingly you're seeing a lot of tokenized stocks uh you know, finding product market fit. Guy, with respect to Athena, you now have a lot of the collateral backing is shifted towards more traditional assets. And Kain, you guys have been supporting a lot of RWAs

from sort of day one here. I'm curious, why now? In other words, what has sort of been the catalyst that you think um has driven a lot of this growth and maybe Stani we can start with you. >> Yeah, I think it's a really interesting um chapter in uh DeFi and all on-chain finance. I I think you know, we're all seeing that that the history. So, we started with um native crypto assets like Bitcoin, Ethereum and that was really key to establish um what Aave, for example, does is interest rate interest rate markets on uh on chain by using crypto collateral, Bitcoin, Ethereum and being able to borrow stable coins against uh those assets.

And that market has been growing uh significantly uh over the past years and then obviously we had uh yield-bearing uh stable coins like ETH 9 and uh accelerating the the the the the growth of uh on-chain finance. And I think that's that sort of uh chapter had to happen because a lot of these uh protocols that are built um to these native crypto assets has been battle-tested. So, now what's exciting is that we're taking the technology that we applied to native crypto assets like the Aave protocol and applying that to uh RWAs and and all the assets that are coming on chain and uh it's really exciting because I believe that the uh actual market of

uh Bitcoin, Ethereum and and and native crypto assets will keep growing and there's going to be more adoption especially as more and more financial institutions are entering into custody, they're entering into trading and then fast follow obviously is lending and borrowing against these assets. But what's uh very exciting to me now is actually use DeFi as an infrastructure um for tokenized assets. And few weeks ago we launched um on on base uh being able to borrow against tokenized stocks with Coinbase uh tokenized stocks. You can borrow USDC. And why this is really fascinating in where effectively under the hood using and getting exposure to traditional

assets and providing a really productive way to use these assets on chain. And what I believe that DeFi over the long term is is doing for financial infrastructure is providing better cost structure. This means that we're able to do lending as a business at a at a better cost basis. So, if you think about it Aave uh over the past years we've uh been able to facilitate over 4 trillion in net deposits, uh 1 billion in uh lending volume uh borrowing volume without huge back office, settlement teams, um you know, credit teams. And that's with few hundreds lines of code. So, what it

really proves is that you can do on chain uh financial activity at at a better cost structure. And a good proof of that is that you can borrow from Aave at a 5%, which is cheaper than doing for example OTC lending against Bitcoin and Ethereum and so forth. So, I think that cost structure will then over time enter into these uh traditional assets uh being able to borrow against tokenized stocks and being able to do that more efficiently because that's where DeFi is very good at. Because of the fact that we're using smart contracts and these protocols, but also because we're building in a open and permissionless ecosystem where liquidity moves really quickly. So, that is why I'm really bullish for stock back loans and that has been growing on Aave.

And also beyond that, Aave Horizon, which is our RWA market where you can use RWAs as a collateral uh from cryptocurrency funds, but also uh from tokenized funds, tokenized assets, and borrow stable coins. So, I think that this category will at some point next year uh outgrow the the the category of uh crypto lending. >> It's well said. Guy, maybe similar question for you. What do you think has catalyzed this growth? >> Yeah, I think it's uh a acceptance from institutional capital outside of the space that this is legitimate technology that's actually doing something to improve either the cost structure or distribution of their own products and businesses. So, if we look back even uh 3 years ago in the last sort of bear

cycle in 2022 and 23, one interesting data point was actually total stablecoin supply I think came down around 40%. And if you remember back then, uh you had interest rates within crypto kind of collapsed close to zero, but risk-free rates were paying 5% in the real world. And it was pretty insane that you couldn't actually just pick up a dollar that was sitting within crypto and just access the risk-free rate in TradFi. And so, you had this enormous like capital exodus from the system to just go and chase risk-free rates uh that sat sat outside of it. The interesting data point to me was um this last bear cycle, I think total stablecoin supply was only down around 3-ish percent from the peak, uh which is pretty incredible for like a year-long bear market where a lot of things have been kind of shaken to the core. You've

actually seen that capital came into the system and stayed there for the very first time in the last 10 years. And to me, that's a demonstration that we've actually done a pretty good job versus where we were 3 years ago in giving people a proper diverse set of other things they can be doing doing with their money other than being long Bitcoin basically when prices are going down. And so, I think we've seen you know, the evolution of some of the tokenized equities that um that Stani was mentioning, but then also like the fixed income universe has expanded much beyond just tokenized T-bills, which is kind of where it started uh 2 years ago. And I think that that's the area where there's still a lot more to sort of come on chain where um it feels quite underdeveloped versus the opportunity size that sits outside

of it. I think the the other piece is also just uh the nature and approach of founders and businesses in the space now acknowledging the fact that your business cannot just be levered to the crypto cycle to create like a durable business through time. And so, you know, the first applications in DeFi, the first iterations of those businesses or even centralized exchanges, really like the the profile of the earnings of those businesses was just some derivative of what's happening to the price of Bitcoin or altcoins in the market. And I think the very best businesses now in crypto have found a way to untether themselves from just the cyclicality of crypto and tap into TradFi using technology within crypto that makes their business better.

Whether it's the hypeliquid example that you gave, you know, being able to pivot that business and benefit from the growth of of derivatives on equities. And then, or even someone like Tether, for example, who doesn't care that much around where the price of altcoins are. They're just sort of clipping T-bill interest. Uh so, I think that's just a trend you're going to continue seeing, which is crypto-native businesses taking the technology that they've applied to crypto assets and thinking about how do we make more durable businesses that aren't just reliant on the price of Bitcoin going up and down every >> 4 years. Yeah.

>> Cain, anything you would add? >> Yeah, I think the the interesting thing for me is that, you know, we started out, um especially in DeFi, right, early DeFi days, um saying we're going to build this parallel, much more efficient financial system, right? Um in order to build that, we needed capital to come in so that we could invest in it. And, you know, the the um kind of uh solution to that was launching a bunch of tokens, right? So, you know, we launched uh ETHlend, you know, the lend token before it became Aave. Um we launched uh SNX, we launched uh Maker, you know, there were there were a bunch of tokens that um were launched to fund this infrastructure buildout to build this

parallel, um much more efficient system, which we built. But, as we were doing that, the investability of these assets uh started to kind of become uh a a more questionable, especially compared to to tradfi assets, because you don't have the same uh guarantees, there's a a lot more tail risk, um it's a lot more speculative. And so, you know, we ended up building the rails for the system, um financing it with with, you know, tokens, and then the macro shift towards equities being far more investable has kind of forced us to use these rails to now facilitate equity transactions.

actions, tokenized equity transactions, which actually is is fine, like it works really well, um but it's it's kind of ended up with last cycle, there not really being an alt season, um because because altcoins were not really investable um when you compared them to their equivalent uh you know, tradfi um asset that you could invest in. Um and so, I just think there's like a little bit of irony to the fact that um we couldn't have built this parallel system without launching a bunch of tokens. Um and now having built it, we're using it to kind of make the system we're supposed to be replacing much more efficient. Um I think there is a solution to that, and I think people are working on it, you know, um Robert

Leshner, who's a a friend of uh of mine, um is trying to kind of meld tokens and equity into this like single asset um that will give tokens much more um uh kind of certainty for investors in in terms of how they'll behave and investor protections, etc. Um and I think when we land that, then we will have uh you know, a much more um kind of investable structure for tokens to to be launched and for new businesses that are going to build the next wave of infrastructure um to to, you know, run on our rails, but also be crypto native. Um so, you know, there's still work to be done there, um but I think that that's that's kind of the most exciting thing

for me is to see either existing tokens that become more equity-like and the headwinds for that unfortunately has been regulatory, right? And you know, we didn't pass some of the the laws that we're hoping to pass this year. But I think that eventually we will get sufficient regulatory clarity that we can make tokens more investable again and that will be you know, kind of the the next wave of like token adoption. >> So you all alluded to some version of sort of that there is this latent demand for tokenized RWAs on chain. I think the next logical question is how do you address that latent demand and moreover, how do you actually capture that value?

And I think an interesting through line among the three of you here is you've all increasingly tried to own the end user. Aave started as infrastructure, right? You recently launched Aave app, which is your consumer-facing app that owns the end user. Guy with Ethena, historically you were a stablecoin issuer. You recently launched Ethena Pay, right? And that's your attempt to sort of own the end user as well. Kain, you guys sort of from the start, although with it Synthetix it was more infrastructure, but InfuraDex from the start was sort of, you know, a front end that aggregates, you know, a lot of different infrastructure on the back end.

Um maybe this time, Guy, we can start What is the logic behind, you know, launching Ethena Pay and ultimately where do you see value accruing within the stack? >> Yeah, for sure. I think um it's really was just a sequencing pace for us as we kind of went through the journey where in the beginning I would argue that we were actually direct to consumer where we had no integrations with any exchanges, no apps and like the first two billion dollars ish that came into Ethena was actually just us going direct to consumers as we tried to scale in the beginning. And then there's a recognition that the number of users that are operating on chain and are willing to load up a MetaMask account and come and engage with a DeFi protocol is unfortunately in the thousands or hundreds of thousands, not in the tens of millions. And so I

think just taking our learning from the success that you saw with Tether and Circle, uh the history of these products is that the success of them is always intricately linked with the willingness of large exchanges to push stablecoins. So, like, uh you know, the largest kind of holder and distribution platform for Tether is still Binance in terms of balances that are sitting there. The relationship between Coinbase and Circle has obviously been an incredible accelerant for Circle's business to get to the scale that they did. Uh so, it's great if you want to get to that sort of like zero to one was you doing a direct one to 10 is trying to work with distribution platforms that they themselves own tens of millions, hundreds of millions of users on the other side. And I think Ethena did a pretty reasonable job uh in sort of 2

years in terms of getting into the important platforms that uh could move the needle down. And I think the final piece is a recognition that we don't want to be in a position in 3 to 5 years where the distribution of our products is entirely reliant on someone else's platform and business. And the reason for that is that your ability to extract margin as a business and actually price set on your end product can't always be determined by someone else basically if they own the end user on the other side. And so, we ideated on like what's the actual approach for us to try and uh make that step that gets closer to the user. And from our perspective, there were only really two options in terms of applications that could reach the scale of hundreds of millions of users that weren't sitting within crypto. It's kind of sort of a

neo-brokerage or a trading application, or it's a money application where it's about saving, spending, and sending money. And I think the second category was much more in the DNA of things that we've done well historically, and we feel much more comfortable. We have like a structural edge to go and chase down. So, yeah, I think the the core thesis for us was we want to be able to make more margin on the product. And if we can own the user within our own application on a mobile app, that was the best form factor for us to go and achieve that. And I do think broadly with uh these apps, it has become a pretty saturated space, I'd say, in the last like 2 to 3 years. Tends to happen in crypto, right? Which is you'll have someone has a good idea, and then there's kind of like a list of 100

people doing the same thing in a year. And you see the same thing with Pep Dex's, money markets, uh you know, stable coins, etc. etc. Um but I think from our perspective we try to ask the question of like what is your reason to try and win this market versus other people that are out there? And I think being able to control the dollar with the highest structural yield at scale in the space is a very powerful tool for you to be able to attract and keep users within this app because everyone else is always struggling to compete with just a number that people care about a lot, which is how much of a getting as a savings rate within this app. And so that's the angle that we're trying to lean into the most.

It's pretty nascent and new. It's only been out for like a month. I think we've only got like 3% of the users on the wait list that are actually on there. But I think just very excited about our ability to try and chase down users who aren't just within this space. And to me this feels like the app, you know, people talk about 100 million users coming in and using these things. To me if you ask me the question of what would that app actually look like, it's something like this, which is just a savings account that everyone can access on the mobile phone. Yeah. >> Keen, you kind of alluded to this sort of framework of near brokerage and and money app and those seem to be the two categories. I would probably put you guys in with the near brokerage, you know, category.

>> Yeah. >> Um maybe you can say more about why you've made this very intentional decision to not necessarily own the infrastructure itself and instead sort of become just a front end, you know, to aggregate a lot of the other existing infrastructure. >> Yeah, it's it's an interesting trade-off. Um you know, Synthetics was infrastructure and we deliberately didn't build um front ends. We we incentivized people to build front ends. At one point um I think we had five different uh interfaces that you could use. Um and the experience was not great because of that. Um I think the the uh resources spent building five different versions of like the Gmail front end would be a bit ridiculous and no one

would think that was a good idea. Um if you're going to build a product, you should build the product and vertically integrate it. We had this weird, you know, there were a lot of like vibes-based philosophical things that we did in early crypto where we were like, "Oh, no, we're going to, you know, keep separation between the infrastructure and the front end for decentralization reasons so that, you know, anyone can consume it." There there were a lot of a lot of things that I think were ideological that were not practical. And so, we saw that experience in Synthetix and we said, "With Infinex, we were going to own a vertically integrated product." The interesting thing is, to your point, we don't own the infrastructure.

And I think that that was a deliberate decision and it it's questionable how viable that is as well, I think, because you end up in a situation where yes, you're neutral in the sense that you support all the chains, you support all the stablecoins, you support all the perp dexes, but it becomes very difficult to capture value when each of those is also vertically integrating. And so, there is there is a fairly harsh trade-off there, I think, but, you know, the thing that I I definitely agree with Guy on is that if we're going to build crypto-native apps that can scale to hundreds of millions of users, we need to build it. As in, like, the

people who are building the infrastructure need to build it. Those are the people that deeply understand the product. They understand how to bring it to the consumer. Um, that has meant in DeFi, like, pretty rapidly getting better at that sort of stuff. And, you know, I think Aave has spent a lot of time and resources to get better at, you know, what the consumer-facing thing looks like. We were We were historically not great at that, and and we had to upscale and and, you know, get better at it. But, no one's going to do it for us. You know, and if we truly believe that crypto infrastructure is better, then we need to build the crypto native products that can give a better consumer experience. And I think that all three of us and a bunch of other people have

come to that realization over the last few years and just said, we've got to go and do it. So, let's do it. Stani, anything you would add? >> Yeah, I think that's a the the Ave app and the the sort of consumer angle comes from more from the point that's um I think generally speaking banks have failed uh people and and savings. Um banks typically make a lot of revenue from from the people that are not getting the highest yield uh effectively. So, there is there is that point, but also I think um we're living in a world where cost of living it is increasing, you know, inflation is um uh going up everywhere.

Um you know, whether it's just basic groceries or um you know, uh energy cost and that affects any everyone's life uh across globally. And and I think that's finance is uh interestingly connected uh around the world. So, increasing oil and gas increases inflation uh globally. That increases um everything else. And I think that is a uh big problem. And I think people are really concerned about their financial future. And I think we're um sort of living in a world where everyone wants uh financial freedom. And in many cases that means that you have to really take control of your uh funds and take control of

actually uh the financial opportunities uh that are around you. And I think there is uh some really interesting offerings um in the Western world um in Europe and US when it comes to savings. Um but also there's a lot of friction there as well. And I think uh there is still lack of access on dollar base accounts and dollar savings accounts uh globally. And what we are trying to do is uh simply build a global savings app. So, it's not a neo bank, it doesn't have a card, it's very simple offering. And the the whole idea of this offering is to make users to move funds from their bank accounts into Aave.

And this is sort of like the beginning of of everything. So, if we are able to make it as easy as possible and really appealing for the users that are not in the space, that's going to open a lot of doors. And I think that's very exciting because down the line, I believe that the best financial opportunities will be in DeFi because DeFi is sort of a very exciting environment where financial algorithms are competing and trying to find opportunities, risk-adjusted opportunities. And down the line with A agenda AI, that's going to just compound. And RWAs is a way to bring value on chain, and stable coins are a

way to extract that value and bring that value back to the users. And I believe that's we started with crypto, we're entering now into tokenized assets with being able to borrow against um tokenized stocks or other RWAs, generate yield, and that yield can be passed back to these users globally on a global scale. And the sort of last piece is then, you know, we're thinking where the world is heading right. So, with AI, we're moving more and more towards abundance, right? So, abundance of we had abundance of information with the internet, everyone has access to information globally. AI creates abundance of intelligence, distributes

that globally as well. Robotics creates abundance of labor down the line and and so forth. So, I think we're going to a world where we have a lot of freedom, we might work less. At the same time, you have to somehow get to that point. And a lot of these assets that are backing the future of abundance, they have high capex and you need to finance them. And I think the future and where Aave sort of like institutional infrastructure helps is that these assets can be tokenized, whether it's like solar energy, GPUs, robotics, autonomous vehicle fleets and and so forth. Use as a collateral in Aave to

unlock liquidity. And that yield then can be distributed globally. And that's where for example, banks and traditional lenders um can see that there's a higher technological risk. Where Aave can have an opportunity and create a lot of the yield as well. So I think it's more about we live in a world where we need to fight against inflation and cost of living. And I think DeFi is going to be the solution pretty much on on everything, all things finance in the next two decades. >> Mhm.

I think part of the read through on this entire panel is sort of crypto crossing the chasm into traditional finance. That can mean two things. One, that means and I think this is a positive thing, which is increasingly we're onboarding more non-crypto native users into crypto. Simultaneously, I think what that also means is you guys are probably increasingly competing with incumbents. So Stani, maybe for Aave, that means you know, you launch Aave app, now you're competing directly or indirectly with banks as well as you know, neo banks. Guy, with the Athena Pay, I would say that is directly competitive with a lot of incumbent neo banks. How would both of you articulate the structural advantage that your app has over traditional incumbents? And moreover,

what is blockchain's uniquely enabling that again, you could not do off-chain? And maybe Guy, this time we'll start >> Yeah, for sure. I think as part of why I thought these neo banking products were actually so interesting is that there was a very clear answer to that question, which is not always the case with apps in in crypto. Uh so yeah, we try to approach these kind of questions I think from two different angles, which is uh if you're going to try rebuild the product experience for user on you know, blockchain or stablecoin rails, are you creating a 10x better user experience in doing that? And then the secondary question that falls out of that is saying, if you manage to capture users with a 10x better product, have you created a 10x better business in the

process of doing that? And so just to walk through each of those in sequence, I think it's a pretty simple explanation for all the things that are amazing and great about stablecoins and for why they've you know, managed to sort of escaped the uh sort of speculative use cases within crypto to be I think really the true one product that's found global peer math at like hundreds of millions of users and in scale. And that's like instant borderless permissionless uh settlement of sending money basically anywhere in the world. So I think the simple comp there is just looking at remittance, you know, fees that sort of exist and the friction that exists there. Being able to just instantly send a dollar anywhere that settles within a few seconds almost for free is a huge unlock just for the movement of money.

I think the secondary piece is um just thinking about kind of the profit pool in banking around inertia that sits within savings accounts and deposit accounts, which is the business models of a lot of these banks is just we're going to pay you close to zero for the convenience and then do lending and and sort of create a net interest spread that sits in the other side. So even some of the new and neo banks that came out to market to try and disrupt that model with existing banks could never find a cost structure which would allow them to truly like share more of that net with users on the other side. And I think the beauty of the way that these apps are designed now is that if you're plugging into the financial primitives that exist within DeFi, you're quite literally creating a 10x better rate

than what you're getting sitting in a Revolut account or something similar. So, I think it's these small pieces that you know, it may just saying you can get 5% in an app versus 50 basis points maybe doesn't sound that meaningful to people, but when you're dealing with money on a global scale, if you can do things even just 100 basis points better than someone efficiently at scale, it's a very meaningful difference because you know, the time is like every dollar in the world that could be benefiting from that. So, that's how we sort of think about the product experience which is you know, the yield the the freedom for you to you know, move and settle with stablecoins. I think just creates a better product experience and I think the very interesting thing in terms of the design of these apps as well is just thinking about the cost

structure of running these businesses. I think Stani alluded to this earlier where he's describing you know, the trillion dollars of I've got the number wrong I think, but trillionaires dollars of originations that have come through are they with a few hundred lines of code. You know, the biggest cost center for these neo banks that have been built out in the last few years is compliance and regulatory for opening up in every single jurisdiction that you open up into. It's an 18-month process to get fiat banking rails, regulatory licenses, etc. etc. These are like the first true global by default fintech apps because when you can launch on an open permissions blockchain with self-custodial stablecoin wallets, you don't need a regulatory license for people to hold stablecoins in every country in the world and that allows you to just go from zero to global the

second that you launch the app in the same way that a DeFi application would. And so, if you're able to rip out the cost structure of 3,000 compliance people sitting within your business that are just focused on you know, doing regulatory work and and opening up bank accounts and that kind of stuff, the opex for these businesses is just like minus 95% versus the equivalent fintech that existed and so I think this is really the true instantiation of what fintech wanted to be in the beginning when it sort of came out which was really fintech in the last like 10 to 15 years has just been a slightly different kind of lipstick on the same back end that was sitting in the background and this is the first time that you're really like ripping up the back end, replacing it entirely and that's actually when you change the sort of

like shape of the P&L of these businesses in a meaningful way. So, that's how we sort of thought about those two questions that I mentioned in the beginning. >> Well said. Stani, anything you would add? >> No, I that's absolutely I think the same way and and I I think that's we're not we're not here to compete with with banks. We're you know, we're trying to make them work more harder for you. And and that means that you know, if you have better offerings, end of the day that the customers will move and if if DeFi will have the best financial opportunities and and it has the ability to access financial freedom faster, that is where users will move as long as it's it's easy, convenient, safe, trusted. Um and I think that's the

that's the future there and I think what a lot of folks get wrong about these protocols, if you think about like Aave as a protocol, it's essentially a credit network and networks do have um network effects. It means that um whenever a new node joins the network and in Aave's Aave's case, it's liquidity, that means that it creates more liquidity across the whole network um meaning that the cost of capital decreases and it becomes more attractive for borrowers to borrow. So, the new entrants in the network are benefiting from the previous liquidity network effects and then they're also compounding the existing liquidity network effects and I think that is the

whole difference between what is a bank and what is a network, a credit network and being able to do this at a scale, you can really squeeze a lot of the cost out of the system and you know, probably for these uh and and banks, the way to actually enhance their cost structure is going on chain and using AI. So, um this part is so exciting because now, you know, we had that past with crypto assets and now we are um expanding to tokenized assets and eventually all finance will will be on chain. And I think that's uh it's what Guy said is replacing the the the backends of the existing financial institutions and the

infrastructure with something that is not just more resilience, um but also more interconnected and programmable. And that is why, for example, what we've seen recently, which has been really exciting, is that when we launched the Coinbase uh tokenized stocks on on Ave on base, we started to see actually um different teams building new financial primitives where you get yield on your stock. You know, so you can actually create really interesting products on a fully transparent ledger. And I think that is a incredible value proposition for consumers because they're the ones who will benefit the most of it.

>> We probably have time for about one more question here. You all benefit to some degree or offer some yield within your platform. And I think Guy and Stani, for you both specifically, historically, the business model has been a net interest margin. There seem to be sort of two things happening. One is increasingly more yield is going to end users, right? Circle's maybe a great example. You're also seeing this with OUSD, which is offering 100% of the yield, you know, back to the applications, which ultimately will probably find its way back to the end user. The second piece, which is a narrative that sort of made made the rounds on Twitter, which is that when AI agents are very, very good and in a world which they're managing our personal lives, they will ultimately optimize that yield. So, it'll be very hard to find sort of idle dollars

sitting earning nothing. At least that is the narrative that's being put forward. Again, both of those imply that net interest margin as a business model could be challenged going forward. I'm curious how each of you think about sort of that business model evolving and then moreover, if that interest margin is a race to the bottom, then how do you think about ultimately monetizing? Again, maybe this time we could we could actually start with you. >> Sure. Um I think what you know, when it comes to agents, the the idea of uh optimizing all of the things that humans are bad at optimizing for um feels pretty inevitable. Um so, the idea that you would have, you know, uh demand deposits earning 0% interest just sitting there for some reason um you know, because the bank has some

franchise in a small town or whatever uh feels like a a business model that is not long for this world. Um what the implications of that are though, I think are less clear because okay, that money has to go somewhere. Um you know, maybe it all just flows into treasuries and we end up with a world of narrow banking. I think that looks very good for both of these guys. Um I think, you know, maybe those agents go further um out on the risk curve because, you know, to Stani's point, you know, people are trying to earn 10, 15, 20% cuz they're trying to outpace inflation. Um at that point then you go, okay, well, what's the risk-adjusted return that you're getting here on on this capital?

Um and we were talking about this before we came on stage. Um you know, there is a very powerful effect from Aave in that it's been around for a very long time. It's very stable. Um it is uh very safe and very secure and you know, if you're going to put your dollars um your your tokenized dollars into uh some kind of money market fund, Aave looks pretty good here, right? Um and that's like a brand franchise that, you know, you it's hard to replicate. Um it takes time to replicate. And so, you know, there's going to be some kind of uh risk-adjusted Aave brand premium that they can capture

as as a you know a lending protocol that I think will be even maybe hard for traditional finance company to just come in and easily replicate, right? Because they've been in a very different game, you know, where they're trying to pay as little interest as possible. And you know, kind of I don't want to say trick people into taking zero interest, but you know, create incentives where they pay they they keep most of the interest. And and so I I just think that that that question of like how agents are going to navigate that and where they go, where they allocate people's funds is going to be very determined by like

what agency is the risk profile of these things. And you know, things like Ave and even now Athena, you know, three years on have a lot of Lindy and a very powerful market position. Stani and Guy, and maybe in the interest of time we'll keep the answers to about 1 minute. >> Yeah, echoing a lot of what Ken said. I think if we do see this very extreme scenario of hyper optimization around yield seeking agent type behavior, I don't think we are really going to be caring within DeFi if it's like one apple or the other and there's 10 basis points different. It's going to be like tens of trillions of dollars coming out of the banking system into these kind of systems and then sort of deciding where

that's apportioned within them. So if if you do believe that, I think it's just generally extremely bullish for these type of products cuz they naturally can only be they can only be strictly more cost efficient than people running this in the real world just because you're like building on Ethereum base being you don't have a huge back office and all that different stuff that um uh Stani was mentioning. Uh I do actually disagree quite a bit with like the idea that yield becomes commoditized and it kind of circles back exactly to that conversation around what are you actually in the business of in D5 outside of trading applications? You're in the business of packaging and selling trust to people, which is, you know, D5 is a pretty scary place in the sense that you're earning single digit API and if one thing goes wrong in a smart

contract, you're zeroed out and you lose all your principal. That's a pretty scary proposition to a lot of people and really the thing that you need to be focused on 100% of your time is never losing money at any point in time over multi, you know, cycle periods. And if you can demonstrate that you can do that in a safe and secure way, the cost of capital of your business comes massively down versus people who are new and just haven't proven that they're able to do that. So, I think just the nature and shape of how profitable you can be as a business within D5 is intricately linked to how much trust people have in you as an operator. And so in that sense, I think it's not commoditized at all. People can access the same yield, but there's not the same trust in risk management of how

you achieve those yields. Stunning. >> Yeah, and I think that's the agentic world and AI can actually be a very good at actually distributing wealth more equally around the world and and really bringing a lot of opportunity for for people. And I think that's even over time over the next years, maybe most of the money in the world will be managed under AI, especially if it becomes very optimized. And D5 on chain um is the perfect substrate for agents because obviously you have the ability to, you know, to create an account way more easier than, you

know, opening a bank account for an agent. And that's just step one and then everything else that will happen there. So, D5 will become and mainly because of AI, the safest place to actually manage funds and um you know, safe as base to actually take take risk-adjusted um offerings and and in overall, I I think that's going to be the uh we're going to have a point where we're going to have more transactions with AI than humans in in in DeFi and that moment can happen actually uh sooner than than we think.

>> Yeah, maybe the the still that all down if >> [snorts] >> agents are going to optimize yield and DeFi offers the best risk-adjusted yield, seems like a lot of capital will ultimately flow on chain. So, that feels like a great place to close. Thank you again to our panelists here and thank you all for being here. Appreciate that. Thank you.