SotN 7/6 - Compound & the DeFi Mullet | Robert Leshner

Transcript

hey guys welcome to another bankless episode this is state of the nation uh it's myself ryan sean adams also have david hoffman here i think david is dealing with some things today david uh how are you doing today you okay we got some some uh funny little issues going around in the djing side of this show so you hear the fire alarm in the background as well as some camera issues so ryan is going to be the the face of the show today so deeply deep apologies about that ryan take it away yeah all right i am the face of the show uh david will have to fill you in on everything that's going on his life at another date uh but we're super excited about our guest today we've got robert leschner here from compound

and we're talking about compound treasury and this is really exciting because compound has just released certain institutional product and so this has been a kind of a theme i think we've seen in d5 which is the institutionalization of d5 are the institutions coming yes and maybe they're coming to d5 this time so really excited to dig into that conversation as far as announcements go have some really cool stuff going on the bankless nation our mimetics podcast came out on monday mimetic desire that is and this is kind of a hidden force behind almost everything that we see in crypto so that is super exciting make sure you catch that just came out yesterday we are also

talking a lot about kyber um kyber has just released their dynamic automated market maker which is super cool in and of itself but they also have a liquidity mining program going on called rainmaker they're giving away 25 million in rewards so it's 25 million over the next three months what's cool is that's happening both on the ethereum net it's also happening in the polygon network so you've got some layer one mining and some layer two mining going on so you can earn knc you can also earn matic for awards check that out there is a link in the show notes i'm gonna see if david's alarm is off if he's able to tell us what is the state of the nation today sir the state

of the nation today is growing the mullet the d5 mullet is a a bankless favorite for metaphors as far as metaphors go and we have some pretty astounding announcements i would say out of uh the the defy ecosystem in the last week one of which we are talking to robert leschner today uh which is the compound treasury and the compound treasury to me feels like the growing of the d5 mullet uh it is where we can have fintech or c5 in the front but d5 in the back the way that d5 has been meant to be used this entire time so today ryan the state of the nation is growing the mullet we're growing them all you know during covert i actually wanted to grow out a mullet but then i realized it was actually going to be uh much longer of

an endeavor that and then i originally anticipated so i decided to not do that hey there's still time and you don't have to not do that david just because kovid's over i mean you could grow that mullet it's it's uh d5 mullet season so maybe you should um you know what's cool is hester purse actually mentioned the d5 mullet when we had her on the podcast like she had listened to uh bankless and had adopted this term into one of her speeches so it is saturating and i think is is finally starting to come to fruition we're going to talk all about that with robert but before we introduce robert and bring him on and get into the discussion we want to thank the sponsors that made this episode possible balancer is defy's most powerful automated market maker typical amms just

have two tokens inside of one liquidity pool which can lead to fractured liquidity across the many pairs in devi with balancer you can access the full power of multiple tokens inside of one single amm which unlocks an entirely new playing field of possibility this makes balancer an awesome building block for so many different use cases balancer pools can make asset indexes but instead of paying fees to portfolio managers balancer lets you collect fees from traders who use your portfolio for liquidity additionally bouncer smart pools could be programmed to have properties that change according to predetermined rules such as changing the swap fee based on market conditions or even liquidity bootstrapping pools which can help you launch and distribute your token with day one liquidity at bank list we used a liquidity bootstrapping pool to sell our bap t-shirts to much

success balancer v2 brings powerful new features that makes your money work even harder for you in v2 idle tokens are capable of generating yield and defy without sacrificing liquidity in the pool to top things off balancer is reimbursing gas costs with bowel rewards meaning that your gas feeds are reimbursed up to the cost of the transaction with the balancer governance token balancer's mission is to become the primary source of liquidity in d5 by providing the most flexible and powerful platform for asset management and decentralized exchange dive into the balancer pools at pools.balancer.exchangetoday ave is a borrowing and lending protocol on ethereum and just recently released ave version 2 which has a ton of cool new features that makes using ave even

more powerful with ave you can leverage the full power of d5 money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan against my portfolio of a number of different defy tokens and eth i'll choose a variable interest rate because it's a lower rate than the stable interest rate option but i could choose the stable interest rate option if i wanted to lock that interest rate in permanently one of ave's v2 features is the ability to swap collateral without having to withdraw your assets trade them on unit swap and

then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the power of ave at ave dot com that's aave.com all right guys we are back with robert leschner our guest he is a self-described d5 maximalist he's the founder of the compound protocol maybe the founder of modern farming modern agriculture in d5 possibly he's been a previous podcast guest but it's been a long time way back got to go way back like a year and a half episode 11 to catch that robert it is great to have you on bank list again how are you doing

sir i'm doing great ryan david thanks for having me man it's been a long time and you guys have been busy busy busy busy and we want to talk about compound treasury first i'm going to read out the announcement tweet or one of the announcement tweets um about this new product this is a product from the compound protocol treasury accounts convert your us dollars to usdc we know usdc a digital dollar stablecoin and supplies them to the compound pro protocol to generate secure high-yield interest what does this do it enables institutions to access crypto interest rates while abstracting away operational complexities including cyber security compliance private key management fiat to crypto conversion and interest rate volatility sounds like you guys are

trying to abstract all of that hard ux d5 stuff and bring this to the market so robert i'm curious let's start here could you tell us in your own words what is this new compound treasury offering and uh what does it bring to d5 yeah absolutely so compound treasury is a new business created by compound labs um to serve institutional customers and provide an incredibly simple service which is the interest rates from the compound protocol and d5 without any of the complexity and i think it's one example of what's going to be a trend of hundreds of new businesses being formed to

[Music] serve as bridges between institutional customers and d5 protocols and so compound treasury is a new standalone business and what it does is it abstracts all of the risk and complexity away from a protocol and replaces it with a simple process that institutions already understand which is dollars in dollars out without having to touch crypto hold crypto interact to smart contracts understand smart contracts or you know interact with the existing um interface protocol it's a very simple dollar and dollar product now the really interesting things about this are that you know one is um the product actually

standardizes the interest rates of the protocol so there's a fixed interest rate as opposed to the you know block by block um floating interest rate of the compound protocol instead there's a fixed interest rate which is offered to customers and um there's instead of having instant liquidity which is something that you have when you interact with the compound protocol directly there's daily liquidity so there's this ability to um process um transactions within a traditional banking uh life cycle which is daily settlement and so it's kind of cool like you guys are like smoothing out some of the rough edges of d5 for institutions it feels like so instead of a variable block by block rate we have kind of a daily rate you know doing some of that work

exactly it's trying to put things in the terms and sure that institutions already know and understand so they are used to dollars they're used to daily settlement um they actually don't expect you know a block by block settlement um and so you know we think it's a great product that you know gives institutions what they want robert there are a ton of moving parts that it takes to make the compound treasury and i want to go through all of them but but first i'm really curious as to the relationship between the compound treasury and the compound protocol it what's what's the overlap there are these two completely separate entities or are there overlapping employees overlapping legal structures tell us that story

yeah that's a great question so the compound protocol is a decentralized protocol that's governed by the community of token holders um it was originally built by compound labs and that's the company that i work for and at this point collabs is just one of many organizations that are developing for the protocol on top of the protocol adjacent to it you know you know um we're basically a non-privileged member of the community at this point so anybody out there could build a product like compound treasury we're not special in any way for doing this we just happen to understand that there's a great opportunity to help bring a defy application to a much larger audience um and so you know at compound labs we

don't you know manage the protocol anymore it's really autonomous and resilient and self-sustaining what we're doing now is looking to build new tools for the compound ecosystem so there's two tools that we're focused on one is called gateway and it's a cross-chain bridge to bring more assets from outside ethereum into the protocol and the second is treasury which is facilitating institutions to be able to access the protocol more easily in the case of treasury this is actually going to be something that drives revenue for compound labs and creates you know a long-term sustainability for the company that originally built compound because we actually don't derive any revenue or profit from the protocol whatsoever um you know we're

basically building a for-profit product on top of an open source free you know protocol underneath so i know this the subject of today's conversation is all about compound treasury but i'm curious robert about a compound gateway is that the same thing as as kind of the compound chain that we've heard a lot about yeah absolutely so the original um white paper for this idea was referred to as a compound chain um when we started building the product you know we decided to name it gateway because we actually saw it as sort of like this gateway for assets to move between ethereum and not ethereum and the compound protocol and assets from other blockchains and so yes it refers to what was originally the compound chain white paper robert you talked about how compound

labs is a non-privileged member of the compound protocol alluding to how like you are the compound labs team is just one of the many users of the compound protocol is that also true for compound treasury would you also describe compound treasury as a non-privileged user of the compound protocol it is exactly so you know compound treasury you know gets to interact with the protocol on exactly the same terms as every other user um and i think this is actually you know really important for what i see as the future of finance which is there's no special rights um for any one user you know we're we happen to be the ones building and launching compound treasury um you know anybody else could any fintech could say hey there's a big opportunity here um

and interact with the protocol in the same terms um and without any you know privilege and this is what differentiates you know what i would call mullet d5 from traditional fintech which is you know traditional fintech businesses there actually is a lot of privileged access there's a lot of you know moats that are deliberate um there's a lot of you know special relationships that's not the case with um d5 in this sense and so you know we think that that's going to lead to more innovation and better products long-term knowing that you know compound treasury gets the same rates the same parameters and the same you know access as any application that anyone on earth can build i love that open finance at its heart is a credibly neutral financial system for

the world that's super cool robert i i'm curious because people always like to bucket things right and there are these existing buckets in the financial world of fintech there's banking there's crypto and traditionally those have been sort of separate things that are on their own journey i guess maybe fintech and banking kind of have some intersection but like what sector does this belong to is it crypto is it fintech is it banking like how should we think about this yeah i mean so my vision of the sort of future of financial markets is that you're going to have d5 protocols and d5 markets that are the sort of bedrock with everything and eventually there's going to be lots of applications and products built on top of this you know in in a way i think you know the

customers of these markets are going to be other institutions whether they're crypto exchanges or crypto banks as you refer to them or custodians or even traditional banks you're going to have all of these different you know entities accessing these markets you know building the interest rates or the trading facilities into their own customer experiences but the stack is going to look like defy on the bottom and you know customer facing businesses on top and i think it's a really powerful structure because you can have markets that are global that get combined into other applications and tools and interesting ways that everything is running on chain i'm at the heart of it so all transactions are auditable um the health of these markets

can be in real time and it just builds a much better back end to financial services um than anything that can be built you know traditionally and so um you know i i think it's crypto at the heart i think it's ethereum and defy at the heart and on top of it is um what people are used to in terms of like traditional products where they interact with them using the tools they know like dollars so so robert we're going to get into more definition of compound treasury but like i'm really struck by sort of the the definition that you just gave with sort of defy at the base layer i'm wondering if you could help illustrate this with some real world examples maybe using compound treasury so one thing i noticed by the way it was the same weak compound offered to four percent yield

coinbase offered a four percent yield account now i don't know that these two things are related could have just been a good week to offer four percent yield accounts but in my mind i i could envision a crypto bank a coin based exchange tapping into compound treasury or the compound critical to offer that um you also have i i saw a tweet from current bank maybe and they say they're not a bank this is some kind of a fintech i haven't gone deep into what current is but they are tapping into the base layer d5 compound as a protocol to offer a better money market saving style account high yield interest rate to their customers directly to their customers four percent yield interest rates i'm wondering if

you could give some early examples of where you're seeing this defy mullet thesis play out yeah i think that those are great observations so i think we're very early in you know seeing how this plays out um there have been examples of like exchanges offering you know the interest rates from d5 to their users but it was more like a pass through basis they were basically saying like we're going to basically serve as a you know a tool to access these markets i know by instead this a few exchanges offered the underlying interest rates um i think you know what you're seeing with like coinbase with current these are early examples of proofs of concept um you know which markets they use how they use them you

know the long-term interactions are still being worked out but i think long-term um you're starting to see the very first example of you know customers indirectly accessing d5 um without using smart contracts themselves and without interacting with the blockchain themselves or custodying their crypto in their own personal wallet themselves and it's really exciting i mean the trend over time is going to be you know these financial markets get abstracted away to make it as simple of an experience for customers if possible and making it a simple experiment experience it seems to be kind of the compound treasury's core purpose i would say uh we all know how to use defy we're d5 natives we all have our own private keys but that is over the hump and

there's a lot of customers out there who are not over the hump and that seems to be what compound treasure is really going after except there seems to be so many moving parts that's required to get there right because you have you have to have banking because you need to take in deposits you have to have a custody because you have to custody private keys uh there's compliance with auditing and reporting and then there's even customer management how is uh compound treasury managing all of these things like who's doing all of these things is this just a brand new startup that is kind of solving each of one of these problems individually yeah that's a great question so it's there is a brand new startup but it's not solving all of these pieces so um a core part of compound treasury is a partnership between compound labs and

fire blocks which is and fire blocks um you know does um mpc wallet um you know transmission of funds and custody and for years this has actually offered a compound integration to their customers um and we're basically think ish but they're a bit more d5 friendly and advanced possibly yeah exactly it's imagine if biko were extremely d5 friendly and almost defy native um and so you know we're basically um partnered with them very closely on this uh initiative and so they're the ones that um actually have you know um you know regulatory licensing and they're basically the ones handling the customer funds

and moving them into the protocol and we're providing you know a user experience wrapper around all of that so that to an end customer you know all they know is you know here's how it works this is how the flow of funds occurs you know they're opting into this process and the entire you know flow is actually being managed on the back end by firefox okay so let's talk about that four percent interest rate because um i just checked my wealth guy out this morning robert and uh you'll be pleased to know this is still 30x what they offer for a savings rate and i know it's not quite the same as sort of a a savings account doesn't have fdic guarantees that sort of thing but four percent yield is hard to come

by on uh usdc and dollars in stable coins so can you tell us where that yield is coming from because we kind of know the core is coming from compound money markets it's the protocol but there seems to be like this this fixed rate that's being provided that is above and beyond what compound the protocol is providing uh and it seems to be at times a higher rate than compound natively provides on usdc so where's this yield coming from yeah that's a great question so right now as a user you know if you wanted to use the usdc marketing compound right this second um the all-in you know net interest rate compounds usd coin right now you know on thursday afternoon is 4.13 and um this is a combination of the

natural usdc coin interest rate and the comp uh distribution to users this four percent number is pretty much the low end of what we've seen over the past few years um you know in general one of the things that we've seen is that the median across market cycles and across you know different interest rate you know um periods of time you know is much higher and it's actually a percent range or so and so what compound treasury is doing is it's saying okay looking at all different range of financial outcomes you know what do we expect you know on a long term time horizon the protocol to offer to its users right now it's point one three percent you know last week it might have been

three point three percent you know next week it could be seven percent um it's variable and it's floating and it changes actually every ethereum block you know very minuscule ways but every block it you know um updates in a dynamic fashion and so what compound treasury is doing is it's offering a fixed entry four percent and taking that um and so you know if long term you know the protocol is offering more than four percent the compound treasury as a standalone business is profitable and if long-term the interest rates the compound protocol less than four percent then it's subsidized by compound treasury and in this way it smooths out you know the

interest rates that are offered by a variable interest rate protocol so robert that goes over how ethereum and compound allows compound treasury to offer really high interest rates to its customers but you the on the compound treasury page it offers it it boasts two more properties that uh as its competitive advantage both on demand liquidity and transparent reporting and overall how would you say that ethereum helps compound treasury's product gain a competitive edge versus it's as more traditional advantages where does ethereum come in as as a key player in this story that's a great great question and so the things that make compound charge very extremely attractive to institutions which is having you know the ability to monitor

um the balances in real time and the ability to have pretty much constant liquidity comes from you know the benefits of ethereum and the way that compound works so this goes for pretty much any defy application this is why i think you know the foundation is going to be d5 um you know compound the protocol itself is open source it's transparent it's instant and by instant i mean 15 second ethereum blocks um it's auditable and you know it's programmatic and you know you can build applications on top or businesses on top that you know can offer that or you know slightly worse parameters but the foundation is extremely solid being

divine and so compound treasury because it's just built on you know the compound protocol gets to offer you know at a minimum you know what compound offers now when you start interacting with you know dollars in the real world things might slow down into you know daily settlement um but at the end of the day you know the starting point is going to be you know the fast transparent you know accessible d5 protocol underneath i was just uh the other day i was getting funds from a traditional investment vehicle i was a part of and i had to speak to a real world bankers like there was a whole support team of people

who were doing something as simple as giving me like some funds that i was owed and i went through like multiple levels of support and it just struck me how um wow banks are like filled with people office like buildings and offices full of people and um i you know i love kind of the difference between uh the unit the coinbase to the um to the wells fargo example where you've got coinbase where you got unit swap has got 15 employees it takes coinbase you know 1500 2 000 to do essentially some of the same things that uniswap does and then it takes wells fargo another order of magnitude like 50 000 100 000 employees to do all of that um

is that what the play is here is is defy all about a banking efficiency play are we essentially like automating is this is this software eating the world is this the story here once again and now it's coming to institutions yeah it's all of those things right um you know at the heart of it you know the human processes that you described are liabilities to the bank and to you right there's so much room for human error there's so much room for fraud there's so much room for mistakes to occur when there's that many people and steps along the way and the advantage of a financial market being built using smart contracts instead of all of the processes that

exist at wells fargo means that you know it's autonomous and it's operating 24 7 and if it's built correctly it can run forever without flaw and this is like the superpower of smart contracts in general when it gets applied to finance you know you start to say like wow okay yeah like you know a protocol like compound you know it can scale to 100 times the assets without anything changing right it can process a hundred times as much you know assets without anything changing a single more single additional person is needed in fact no people are needed right at all for the daily the operation of it and that's really

magical because it means that you know you're able to you know over time you know have complete confidence in a blockchain based financial system to not mess it up if it works today on tuesday you know you can be sure that's gonna be working on wednesday if nothing has changed and you know it puts more of the burden of getting things um correct upfront when you're developing these systems you have to develop them so that they can run forever but once they're built and once they're operating successfully you know they can always operate without flaw and without error and you can trust that to a bank you know that has thousands of employees and thousands of employees or thousands of opportunities to get things wrong

and you can see why defy is going to completely eat you know all of traditional finance i'm reminded of a quote that we read from vitalik on the bankless weekly rollup last friday where he talked about how ethereum is actually destined to uh remove a lot of just the middle management and ceos or just you know bureaucracy out of organizations and and make organizations more lean with people more on the periphery than rather at the center where there's supposed to be code in the center so i just want to hammer on this point just a little bit more before we move on robert do you have any like napkin math about like how much does it cost to operate compound treasury or how many more times more efficient does compound treasury can achieve the same goals versus legacy

counterparts is there any sort of napkin math that you could share with us there yeah okay i mean if you want to use napkin math you know you can start by looking at the compound protocol you know today there's you know approximately 11 and a half billion dollars of assets inside the protocol earning interest this would make it in like the top 100 u.s banks right the napkin method is you know on a daily basis you know there's zero people or you know corner brick and mortar locations necessary to operate compound um if it were you know part of the existing financial system would probably have you know hundreds of thousands of employees um and it wouldn't operate 24 7 it would operate you know during daylight hours

when those you know human employees can make it work um and if i have to estimate the increase in efficiency i would say it's you know three orders of magnitude more efficient um than traditional financial entities this is incredible already assets under management at closing in on the top 100 banks zero people required to operate this thing and it and it operates forever continuously as long as ethereum uh is live and and stays live let's talk about this um because we're really excited about new markets opening up and new users coming to d5 a new capital flowing into d phi what type of customer does compound treasury and maybe even more broadly this thing we're calling institutional

defy where we have you know fintech in the front defined in the back what kind of new market does this open up does this finally open up to some of the fintechs like you know that's the squares and the paypals of the world does it open us up to banks does it open us up to institutions what do we mean when we stay in institutions talk about that for us yeah it's a great question so you know when i think really long term you know like 10 20 years into the future you know d5 is going to be at the heart of all of the market it's in all of the customers and it's going to look almost you know um you know retrospectively guaranteed that of course you know like you know it's obvious that you know every bank

you know and every you know institution in the world will eventually be interacting with you know decentralized financial markets when today it looks very early but in 20 years you know i think every single institution is going to access these markets because voluntarily not accessing these markets means that you're you know willfully cutting off access um of your own to you know important tools and i think eventually you're going to have the largest slowest institutions you know accessing these markets but it starts with the smaller the more nimble um the more forward-thinking institutions and the ones that don't suffer from these like unbelievably long road maps where it

takes you know a decade to you know make a small change in the way the organization works and so eventually everyone's going to be accessing d5 you know today we're starting with you know we started with two years ago individuals and even amongst the individuals using t5 i mean it was a very small crowd of people that was even comfortable using smart contracts and that's grown rapidly now there's a huge audience of people that understand and are comfortable using smart contracts and we're at this sort of stage right now where you have smaller more nimble more you know professional organizations and institutions accessing default you have hedge funds you have trading firms you have

you know firms that you know don't have a lot of customers of their own so they can make decisions very rapidly accessing defy and now we're starting to see in the era of like all the exchanges and custodians you know accessing to e5 um and you know these are starting to be larger organizations but like crypto native you know larger players are becoming you know um hooked on d5 right and so i think it's gonna be a while be you know everybody accessing these markets i think compound treasury the goal is to really work with firms that don't yet want to become a crypto native um they want the economics of d5 they don't want private key custody and security they

don't want you know smart contracts complexity they just want the economics and so i think this is going to open it up to a large amount of smaller you know institutions but i think the ball is going to you know tumble down the hill pretty quickly and once large organizations see small organizations you know um accessing better financial returns and building really nice products on top of it i think you're gonna start to see you know a little bit of envy from larger organizations over time and eventually you know wells fargo is going to be using d5 guys hey look look this is uh you're definitely speaking our language robert as we say all the time everything is going to be defy in the future and when

you hear what robert just said you've realized just how early we still are how much opportunity there still is to onboard the world into d5 robert we are going to come back we're going to talk a little bit more about the institutions we're going to talk about compound chain and finish with some of your thoughts on d5 in 2021 but before we do we want to thank the sponsors that made this episode possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans unit swap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized

intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the unit swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and they are in need of labor if you think that you have something to contribute to the uni-swapped out apply for a grant to uni-swap just look at the size of the uniswap treasury it's almost 3 billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dow no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer uniswap in

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gemini.com go bankless hey guys we are back with robert luscher we are talking all about compound treasury this thing we are calling the d5 mullet let's let's start there uh robert compound as david said is famous for kicking off d5 summer you guys started the whole uh thing with the compound governance token with con liquidity mining um now you are at the forefront of launching one of the first institutionally ready d5 applications but i have i have a feeling that this is uh the sign of a of a bigger trend you want to reflect on that do you think many d5 protocols all

d5 protocols are going to follow compound into the institutional space and what does that even look like it's a great question i i think first we have to appreciate that defy as an idea and as a phrase this is only three years old um you know version one of compounds launched at the end of 2018 you know psy from maker dow you know launched that year i mean defy itself is like incredibly early and i think there's still a lot of experimentation that's occurring and needs to be encouraged with how these markets and products get built and how they get accessed and what gets built on top of them so is this going to be a trend yes and no so i think what's going to be a trend is you're going to have

protocols that wind up getting you know institutional products built on top of that i think that trend only goes in one direction it's going to be more and more and more i think in a lot of cases it won't be you know um because these are open systems it might not be like a team building both a d5 protocol and an institutional product on top in a lot of ways you know i think the long-term trend is going to be you know people building an open protocol and other people coming in to build on-ramps on top they just have to see how it's done the first time and in a lot of ways what i hope for people to do is launch a product the first time to serve as a playbook and a template for you know everybody else in the space to

follow um and so i think there might be this breaking of like a one-to-one relationship between you know building a protocol and an application on top of it um i think it might look like you know people building just a protocol or just a business on top but i think there's going to be more of these types of products um that emerge where at the bottom you know or in the back it's d5 and up front it's a very simple experience robert you know the money legos meme it's something that we use frequently on the bankless world and all of d5 about how these applications really just allow themselves to build on top of each other my my mental model for what's going on with compound treasury and the overall institutionalization of defy is is there

are some centralized teams building out centralized products using d5 in the back end and they're exposing that money lego to the legacy world right to the legacy financial world and allowing the legacy financial world to build on top of the same money lego that we find in defy but now what's going on in the old world does that metaphor or does that mental model resonate with you it does um you know we might have to add a new term to the next of you know the lego to make you know the other legos more accessible but that's exactly what's happening so there's always been this meme about the institutions are coming the institutions are coming uh i always get this metaphor of paul revere like riding on his horse going the institutions are

coming um but this really seems to be that defy is actually making the move here like these institutions are actually staying where they always have been but it's defy that's taking the step towards institutions again does that metaphor reflect with you as well it does i mean you're in like this is a product that's trying to meet them on their own terms in the ways that they're already comfortable so you know uh fixed interest rates daily liquidity you know facing you know a simple counterparty um you know not having to learn new skills um at all um but i i agree with you it's d5 moving outwards as opposed to waiting for

institutions to you know figure it out and look you know it seems like it's going to draw them in as the yield i mean four percent yield on stable coins that's irresistible and free markets the liquidity is always going to track to the highest yield low risk opportunities well it's funny because we've been hearing for about 18 months or so from you know all types of potential users that they want to earn the interest rates from compound and they don't want to or don't know how or don't have the processes to actually use the protocol itself right like three years years now um the only reason why we created treasury is because you know this has been like this constant like you know drum beat that we've heard of like we really want the economics but we don't want

to touch like the smart contracts directly um just because if you're a hundred person or a thousand person or ten thousand person organization like just setting up you know key management you know is oftentimes incredibly complex and the custodians are just starting to figure out how to offer defy experiences and so you know having to launch a product for them was a way to you know reduce the amount of time before they became used our friend jim bianco robert you know tells us that he gets taxed all the time from p from people saying i'm in coinbase but where's the d5 button i don't know i don't know what to do next right and that's exactly what you're talking about um one last question on the institutions and then we'll get your thoughts on d5 we'll close it out but so institutions first let's talk about

regulators does this start to get regulators a bit more comfortable with maybe what some of them are early to understand which is this kind of open finance defy movement does this help in that regard i think it does and i think that you know it is a great embodiment of what i think you know the long-term market structure of defy is where you have these open transparent autonomous composable money legos that are the foundation of everything and access you know starts to be done by you know professional grade services on top um where you know compound treasury you know yeah it's working for licensed partner and

it's for a small number of you know customers that go through kyc aml that you know are accessing this in a very traditional fashion and i think long-term point you're going to find is that you know this is a great market structure because it means that you can build the best possible financial market that's fair and open to everybody and yet you know the primary users and on-ramps to it are going to be things like exchanges right they're going to be things like coinbase they'll have the d5 button you know where you know regulators understand that you know the users that go through these easy button approaches are known and they're not you know doing bad things with it now

it's extremely hard to do bad things with d5 in the first place um like d5 is like the absolute worst possible tool for like money laundering in a lot of ways because like it's radically transparent and there's very few ways to like hide your trail um but i do think that that's gonna be the market structure because you're gonna have like organizations and exchanges like coinbase with defy easy button right um because at the end of the day you know like it's gonna follow bitcoin's market structure right people don't regulate bitcoin right but the businesses that serve as the on-ramps to it you know wind up you know being compliant and i think that's a pretty good market structure for everybody

all right robert let's let's close with this this has been super informative thanks for guiding us through this we want to hear it's been about a year we want to hear your final thoughts on defy in 2021 give us some insight what does defy need now where's the next inflection point going to come from just general thoughts on define 2021 so it's funny because i actually think in 2021 we're already far ahead of where i thought we would be for the year um you know like even crossing 50 billion dollars in d5 was like shocking to me um i think what define needs this year is you know one you know more tools for institutions to be able to access it but i actually think that like you know improvements in the underlying

blockchains themselves are going to make a big difference so you know ironically i think gas costs are some of the most important um you know leading indicators for the usability of d5 and i actually think that you know if you know we're successful with you know one five five nine and if you know the gas market on ethereum improves i actually think if d5 is cheaper to interact with and more accessible to all i actually think that that's what's sort of needed for the next major reflection point that can occur through l2 so they can occur through side chains it can occur through you know all of these different approaches but you know making the cost of d5 interactions going as low as possible i think it's the next major 252 point

awesome robert it has been abs thanks for joining us on bankless thanks for having me guys there we are robert lesner uh we are on the precipice of defy summer v2 maybe that's layer two summer maybe that's the summer of 59 that is eip 59 we will see lots of bullish news ahead guys members as always ethan's risky defy is risky all of crypto is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but thanks for joining us on the bankless journey hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from

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