From Scarcity to Abundance: Financing the Multi-Trillion Dollar Infrastructure of the Future

Transcript

Hello everyone. >> [applause] >> How's it going? Um Yeah, ECC is a really special um special event for me personally because I remember in it was 2020 and uh we built and and launched the first version of of the Ave protocol in January and then later in March in Paris ECC was our first big event. Um and at that time um after quickly after ECC uh COVID happened um and I know I remember the excitement of

what we launched back in um 2020 with Ave and and how big moment it was for our team and the whole DeFi space. Um and when obviously when COVID happened um we were in a very interesting environment where um you know, there's interest rates were down at at a zero lot of people were spending time in in their homes because you couldn't get anywhere else. And um people were concerned about their financial future. And and and that point one very big movement happened and that was the the DeFi summer. So for some DeFi DeFi summer was about uh

the amazing innovation that we were building on Ethereum uh next generation of financial infrastructure. Uh for some it was basically about farming uh different kinds of food coins if anyone remembers. Uh but for me personally it was about seeing a new community uh being born and that was the DeFi community. Um and now we're almost a uh uh decade or like a little over half a decade on on building DeFi and it's incredible to see how much the space has grown uh since since then and over the years and how many builders there are here. And I can bet that building DeFi

today is uh it's it's it's a little more much more easier with all the tooling and all the uh knowledge we have today um but also the opportunities that we can we can build. And some can argue that DeFi has a lot of primitives and a lot of infrastructure that is already built and exist and that is a good thing because it also shows a baseline liquidity and resiliency that that comes from from DeFi. But a lot of the space is still in a very early stages. Um DeFi has shown its resiliency but we're still very early on what could actually the the what what the future

could actually hold. And I want to chat about assets today and a direction that DeFi can take over time and how we can scale DeFi uh beyond the existing uh use cases and and actually use DeFi to solve some of the real world problems and create a better cost structure than what we have in in traditional finance and and close some of the funding gaps that exist today. I personally think that existing native assets will grow significantly and that will be a a very core of of decent just finance but in the

uh moment where RWAs are increasingly coming on chain and liquidity is forming in in in DeFi there's new opportunities actually to to reuse this this liquidity uh and and find a lot of interesting use cases. Um Yeah, I want to first talk about assets in general when you look at um uh the um existing ways of how uh finance uh happens or financial assets are created uh there's a lot of assets that are based on some sort of a limitation and that limitation creates a

scarcity. So real estate is a great example of scarcity asset. So um there's an asset or demand to live in a certain area because of jobs and environments schooling and and so forth. And this creates uh demand and and this creates an and an asset that I uh like to call a scarcity asset. Uh there's other examples where uh you have assets that there's limit uh limitation on the on the supply.

And I think the traditional finance uh is sort of backing the scarcity economy and and what it means is that uh if you look at the the banks of today the investment banks or high street uh Wells Fargo's um uh the bigger banks and JPMs a lot of their business is based on lending against real estate mortgages commercial loans funding companies that produce scarcity assets such as fossil fuels oil and gas in general. Um and that creates a a sort of asset class that uh is one way or another backing the existing

financial traditional financial ecosystem. Um and why I think that uh now this this topic is important is is because capital allocation has always been a big part of technology and building societies in in general. Um capital allocation really dictates what gets built and and what doesn't get built. We know about capital allocation in in DeFi and in our space in general um because we build technology and technology has a cost towards it. It has a capex that needs to

be funded and the outcome then results whether that was a good technology or or a viable technology. Um So if you look at uh just back in history I didn't come here to give a history election lecture but I do think there's really interesting observations from the past. So if we look for example that how our agriculture was funded in the uh in the first place uh there was credit involved. If if we look at how the transformation of of societies uh for example by building railroads happened. So we had a a really

significant agriculture um society that also generated wealth. Wealth wasn't that important at that time but significant amount of wealth um and when actually industrialization happened railways needed to be built factories needed to build and industrialization was one of the big transformations of of our civilization. And there was a big capital allocation from agriculture um uh side from the owners to fund these railways and and fund industrialization both in in in the UK and and and the US later globally.

Um you have some other interesting examples for example how technology has been always played a role here of this transformation. So electrification uh is another one. JPM basically funded both railways consolidated a railway companies um consolidated companies what became later General Electric and also funded Edison and and even Tesla. So finance has been always part of um uh funding technology uh that then also is is part of transforming our civilization.

Um I think now we have a a new transformation happening as we speak um and I think we're moving towards abundance. Now to understand a bit what abundance means we we have to sort of define it. So um and it's something that you know, a lot of people talk about um and I think abundance is about opportunity and distributing the opportunity equally. Right? So um something that is abundant today wasn't maybe decades ago or centuries ago.

A very great great recent example is uh uh uh internet connection. So when I grew up I remember the times when the internet connection was so slow that it took maybe few minutes to load a one single web page. Um and you can imagine how uh you know, how how long it took to actually get a get a internet speed to play some sort of a video game online like Counter-Strike and and so forth. So uh what what is interesting is that when internet came it created this abundance of information. So you didn't have to go to uh you know, you didn't learn from your purely from your peers and parents and and you didn't have to go to a

library to learn about something on on books you could access information globally um and water is the same so water is another great example so we feel that water we have abundance of water in in the western world although there is some actually pressures on the water system but you have a sort of abundance in the western world but if you go to another part of the world you don't have the same equal access to to water so abundance is also something that is not equally distributed yet and I think that as time passes certain things become

more abundant and for this transformation that we have now for the next 50 years or so the most important um infrastructure and the most important resources are going towards abundance so today we're witnessing abundance of intelligence so with AI anyone has at their hands enormous amount of intelligence you don't anymore have to be uh software engineer to to develop and being able to develop software and similar examples on on anything we do actually

in the digital world so we are already experiencing the abundance of intelligence we're also going to experience abundance of labor as well with robotics so at some point we have enough labor that um we don't have to work ourselves in in the society we are experiencing also abundance of of computation with which is part of uh empowering AI but abundance of energy and this is really interesting because energy is powering the whole infrastructure of um uh seeing more um

more actually utilization whether it's AI GPUs or any sort of industrials and in certain places in the world already solar power is cheaper the cheapest energy so that can be California in Texas and different parts of Europe during the day daytime and obviously the the next part of of energy is also batteries being able to harvest cheap energy during the day and release that during the night and having very low cost of energy when you have very low cost of energy that means you have cheaper production and also you have cheaper cost of

manufacturing as well and what it means for for example food and water production is that you can have uh year round access to to clean water with desalination and solar you can also create a completely new types of food industries as well so it's a really exciting next decades that we are going towards and I think that these different categories of um abundance technologies create abundance assets and so abundance assets they sort of follow the the the typical economics of scale cost curve so something happens uh

on a on a very high technological risk and over time as the production increases competition increases the the cost of production drops significantly down and solar PVs is a really good example of of these cost curves it was very expensive to to have solar panels the cost tens of thousands of of of dollars few decades ago and now fraction of a fraction of of that price it's incredible cheap at the moment computation is a great example of that as well sequencing DNA which costs hundreds of millions and and costs thousands today and actually

hundreds and going to cost even more less in the future so production increases the cost collapses and that increases the the accessibility and that is the the whole recipe of of these abundance assets but this applies to any production when it starts to scale and when you compare to the scarcity assets one really interesting part about abundance assets is that they do have a really high um capex meaning that it requires a significant investment to build some of this infrastructure but once that infrastructure is built

the operation costs are significantly low and as time passes the cost curves are going to decrease so it's a very different type of an asset class that we've sort of backed our existing financial uh traditional financial infrastructure compared to mortgages commercial property and and and so forth and I think when you look at DeFi today DeFi has solved a really important problem maybe even the most important problem to solve to date and that is the capital allocation so

in DeFi any sort of any part of capital moves to a financial opportunity a risk adjusted financial opportunity if that is available and even more so programmatically and this is really important piece because it means that we we have a liquidity layer that is transparent auditable programmable living on chain that could be actually directed to any opportunity so whenever there is uh new innovation on the borrow side new collateralization that liquidity can actually be channeled towards that direction

and I think that the sort of the next uh next part is actually to try to figure out now that we have this efficient capital allocation layer which is DeFi um we sort of reach an equilibrium where we have a surplus of capital that means that we've been able to attract a lot of liquidity into DeFi for various reasons because of the financial opportunities DeFi in in in general has been seen as more safer more mature there's more opportunities more access points more integrations you can access Aave

through an exchange like Kraken you can you can access Aave through a fintech like DeFi sort of is starting to go and become a a back end for for a lot of the fintechs and and and soon also to traditional finance so the ability to vacuum liquidity is something that is really well achieved and that also means that the capital is is is cheap in in DeFi waiting for new opportunities and when you compare to traditional finance I think um

and I wrote about this earlier is that in traditional finance underwriting credit lending in general and capital allocation is a very multi very multi verse procedural bureaucratic process where you have the paper layer obviously different kinds of contracts and whatnot and then you might have a platform and and whatnot and and you have a lot of people involved so from actually deciding on capital allocations deciding on structuring a financial opportunity if it's for example credit approvals committees and so forth and and and then finally finally the actual

financing right and this is real right because if you go today to Aave you know you can borrow in in one transaction as long as you post collateral so the comparison between traditional finance and DeFi is is really um contrast and and I think what DeFi really does for traditional finance it's going to disrupt the cost structure and and what it means is that DeFi won't win because the liquidity is cheap the liquidity is cheap or can be cheap periodically but what it really does over time is that it removes all those small all

those stages that you have and removes the manual work that is needed the paperwork the committees and and and all that manual those manual components into codified verifiable smart contracts and that setup is the one that actually then reduces the the cost to operate the cost to lend the cost to send payments and and so forth so um I think that's the on chain finance really just does things better and the really proof for for this is actually lending now against

crypto native collateral. So Bitcoin, Ethereum and which is the basis of of of most of the yield in in DeFi. So how it works is that you know, if you go to like why in the first place uh lending protocols are born because you couldn't go to a bank and give them Ethereum or Bitcoin and and and basically ask for a loan, right? So crypto audiences were unbankable. So you had basically DeFi that was that was emerging. You had also centralized versions with more of like less transparency and and that sort of like uh that it wasn't the prevailing option.

The prevailing option was actually a transparent system like DeFi. And this happens in real time and this can be also applied to all the credits in the world. And if you think about the particular focus point of today which is the abundance assets, this is a huge huge opportunity. So I'm a big believer on DeFi native assets growing and I I think that's is going to be always the bread and butter of of of for example Ave. But I also believe in RWAs.

And RWAs I kind of have a love and hate relationship because I think that a lot of the RWAs that are created today are typically very liquid assets. They're traded in a venue that is highly liquid. And and and maybe maybe those assets um don't get that big of a value proposition when we bring them on chain necessarily unless we're looking for uh new audiences to to to buy traditional financial products. But where I see the most exciting path for for RWAs is to focus and put attention in this this this big transformation that is

happening now with abundance and and focusing on abundance assets. So AI and compute itself is a 10 trillion opportunity. Um infrastructure in general is is 15 trillion. Solar and storage is 15 to 30 trillion. And solar is specifically is interesting because there's a lot of solar that is bankable. So you can go to your bank and actually get a loan against a solar farm in in most cases. But batteries for example are too high on the technology curve that it's not bankable and the cash flow flows are more volatile. And we're going to have similar assets for autonomous vehicles,

uh you know, solar powered desalination plants even space space infrastructure and that's it's own sort of a scale and and category. So this is a huge huge opportunity and I think that the financial infrastructure that is able to support this these assets is going to make a big difference. The same way how JP Morgan um backed railways in the early days, backed Edison and backed Tesla and backed electrification and and and this whole transformation and industry industrial um revolution and and the same is happening

with with abundance. And I think this is DeFi's real moment to to shine actually. And I I think that's here where DeFi from like economical perspective fits really well because we have this surplus of capital and now we have an opportunity to actually try to um find these new use cases where DeFi can make a lot of sense where assets that have high enough technology risk that might not be ready for banking and getting there early and also these assets has to be assets that are infrastructure and and backing the future that we

we want to live in. Um um And it's actually quite interesting because if if you think about the infrastructure in in general it creates a strong strong sense of um like a hard assets. I I I think that commodities in general is going to be a big part of everything that we're doing because those are the ingredients to to build a lot of the infrastructure. But I think that a future a financial future or financial security better established when we have assets that are based on infrastructure that rely on day to day. But also

infrastructure that sets the humanity free. And I think why I did the comparison between the scarcity assets and the abundance assets in the in the first place was because the the abundance assets are sort of changing the way we think about scarcity in the future. So if we have enormous amount of intelligence we have very low cost of energy. We we can go from A to B points at a very low cost.

We have ability to work from anywhere. We have unlimited labor. We don't need to anymore to live in crowded cities. People will sort of start to actually work from work and live from anywhere at that point. So it it sort of breaks the the the idea of scarcity assets such such as real estate or commercial real estate and what existing financial world is is backing but also it's questions even the way we lend to governments today and how they think about it because if you can live anywhere, you know, maybe the governments need to start actually competing for for

citizens in the future. And I think um as a collateral perspective it's it's really interesting and the opportunities I want to sort of show you um uh an interesting uh piece here is that when you think about infrastructure like Ave, we've we've always focused on this idea of like everything we build has to be verifiable on chain end to end. Um So you can lend against ERC-20 tokens, maybe ERC-721s um assets and and that can be like loan obligations and whatnot. But we probably

will go to a world world where DeFi is in some ways a capital aggregation layer and then allocating to different credit opportunities. And the way we designed the Ave V4 which is our latest iteration that is going to be live soon, very very soon is that we believe that DeFi should be used as a backbone to actually finance a lot of these opportunities and in some of these opportunities maybe tokenization is not even a big part of part of it.

And this allows actually to manage finance not only at a lower cost basis but also at at a greater transparency. And the biggest risk we've always seen with with RWAs is that a lot of the the actual transparency is is moving out of on chain and and going into into RWAs and it's harder to actually assess them. So there is a lot of tooling that needs to be built. There's there's a lot of services and and and a lot of infrastructure that we need to build to make RWAs viable for for on chain collateralization. Um

And that is why I think uh now is is quite an excellent time to being participating and building DeFi and events like ECC is is very valuable for actually creating ideas and and and brainstorming and meeting people um because we we reach in DeFi to a place where we have a capital aggregation layer. So we have solved the supply side problem and the next problem that we need to solve is that how we then allocate the capital. It might be abundance assets over long long term. I I truly believe that is a category that is very underbanked. But there is also

other examples as well. Which can be for example consumer credit, business credit around the world and other opportunities. The key is to have tooling and infrastructure around that really makes this model viable and also ensures that the risk is managed accordingly and mitigated. And that is sort of like the key for the next evolution of DeFi. Um And what sort of uh we think is is going to be interesting with these abundance assets is that it creates financial opportunity and and yield that that is backed by things that

we rely on every day because we have to like we have to use energy, we have to use water We we we basically have to use computation transport and we have to rely also on space eventually and this is a perfect collateral for for D5 and a perfect funding opportunity as long as it's done in a very transparent way and and risk is handled accordingly.

And uh why this is important topic is that D5 has to have a meaning eventually and and the meaning is that if this transformation to abundance economy will take anything between 50 to 75 years with D5 we will be able to accelerate that by anything between 10 to 15 years and bringing that to much closer for us. And that creates a lot of value and a lot of yield that can then be distributed as a financial opportunity across the world to every single person in a borderless transparent way that D5 is known for.

So um how I think about the actual market structure here. So I think one of the important thing is to keep a shared liquidity model which is what the Aave V4 is is built for. So Aave V4 hasn't been built only to focus on existing D5 opportunities and and strategies it's built to really back the whole financial credit space. And risk can be segregated while access to capital can be concentrated. And I could imagine that um

in Aave V4 there could be a sort of like a green hub where you have collaterals from let's say anything from solar batteries desalination infrastructure and that green yield can be distributed globally to to to users to access a better financial opportunity that is backed by abundance instead of scarcity. Yeah, I think it's a big opportunity and obviously this is something that we're really interesting to tackle and we already see that there's a lot

of excitement around funding infrastructure it's a big opportunity. And that creates a really new way for D5 and I think that this mindset requires also to think broader than as of today. How do we access these opportunities? How do we underwrite in the right way? How do we partner with traditional finance or traditional lenders traditional markets and and actually make this viable and and and safe and and secure?

That's I think yeah. Want to see my last slide. Yes, you see my last slide. Um but yeah, that's my talk today. So what I wanted to do in overall is to inspire you all to to build something new in D5 and I think we have the infrastructure now we have a incredible opportunity to actually bring the future that creates more and more opportunities for everyone more abundance more freedom more intelligence and and create a really interesting world over the next decades and and use D5 to accelerate that and hopefully you find this uh productive and and helpful

and and my last thing I want to say is that D5 will win. Thank you. Well, well well.