The Metamorphosis of DeFi: The Herd Is Finally Here

Transcript

here. I'm a Let's see. Once we get There we go. I am Jake Orvieto. I was head of ecosystem at BitGo for the past just about a year. Prior to that, I founded four different companies in the crypto space. My most recent company, Alto Zero, was bought by BitGo back in October of 2023, which was an asset management platform and ultimately a token management platform, but all off-chain. So, next slide please. Oh. Where's Yeah, where's the clicker? Here we are. Okay. So, I'm here I'm here to talk about the metamorphosis of DeFi.

And so, this is kind of a dual thematic presentation both covering Franz Kafka and the actual traditional metamorphosis and growth of the caterpillar into the butterfly. So, in In In Franz Kafka's novella or short story, one of the two, uh he talks about that initial period of waking up in his own bed after troubled night of sleep and recognizing that he is entirely changed into a insect. He still had human thoughts, yet he was completely encapsulated and unable to move.

And I believe that much of the crypto space is starting to approach that point where all of a sudden, Wall Street is absolutely here. So, there's been this adage in crypto for as long as I've been in it, which is 14 years, that the herd is coming. And what the herd always represented was the Wall Street TradFi institutions starting to adopt the technology and the space in which we live in. So, metamorphosis has stages. We have just like crypto has had stages. So, we have the idea, the feeding frenzy, the dark chrysalis, and then the herd and the herd arriving. So, I think we've

made some just absolutely unbelievable progress in the last 18 months or so, such that the space is just not what it was, nor do I think the builders in the space are building towards the same goal. And that duality between the Kafka novella and the true meaning of metamorphosis is absolutely true in the case of what's happening in our space right now. So, are we are we in that spot where institutional adoption is actually ruining the vision that we originally had for this space, or is it realizing the vision we originally had for this

space? And I think that is something that is discussed far too little within our industry. But, you guys all know we started out with no computability, no no real finance on chain outside of BTC being a hopeful store of value or potential currency replacement. And then with the on the rise of Ethereum, we started having that smart contract capability, started having that compute on chain, and that's what really opened up that first wave of the ability to do finance on chain.

And that was, you know, just like anything it starts out like a game, a toy. It was pretty ridiculous that 2021 summer. And actually is one of the times in which I stopped working in the crypto space for a period until I came back. I was at a uh yoga class and I showed up and my yoga instructor was shilling his bag to the entire class before the beginning of yoga and was like, this is a pretty clear sell signal. But, obviously any any new tech like that, the fact that users are even using it and engaging with it, where yes, it led to a lot of blow-ups, but that's part of the honing process for anything new.

And then with this dark chrysalis period, which has been, you know, where we've been growing, how we've been growing. This has come with a lot of regulatory uncertainty, a lot of court of public opinion problems, a lot of issues with the banking, as I'm sure everyone here is very familiar with, and I am personally intimately aware of it. Uh it just it it felt still like we were doing something that was being resisted in a way that was important because it was a necessary thing to build, and that resistance was confirmation of that.

We're now entering in this new era. Since Trump took office the second time, it's been almost frictionless and in a way that's not necessarily good for growth. And where we're seeing a lot of focus right now and where where a chain is gaining actual adoption and uh is attractive in the rest of the marketplace, is this like private chain institutional side that it's it's not it's crypto cuz there's a blockchain, but it's not actually realizing that vision of crypto, of actually an open financial solution that is something that is better than what we had before rather than just trying to meet the

demands of what we already have. And this is something I've been going back and forth with with Mike, our founder, with a lot of different other partners in the space, on chain or otherwise, trying to find the right path to to continue to push. Uh I I I waver between it's like is is crypto boring now? Like are we just now adding our extractive tendencies to the most extractive market in the world, which is traditional finance and Wall Street. Or are we just finally hitting that point where we're going to hit the adoption like we've never seen before and money's going to flow into

this like never before and that's an inflection point for us to just continue to build and set entirely new standards. So, Kafka didn't write a butterfly story. It's I don't know how much you guys know about the Franz Kafka novella Metamorphosis but it's it's a great it's a great theme to parallel to crypto right now just because of that transformation of from him into a human into a bug and eventually death due to the fact that he stopped eating, he was hated by his family, and there was just like nothing worth living for anymore.

And I worry that crypto and DeFi specifically is starting to turn into that as well. And we all know that you look at you look at DeFi vaults, you see you look at curators, you understand that curators are just asset managers, and as the space is maturing more, especially on the vault side specifically, it's it's looking more and more like what we've always seen in traditional finance just repackaged, made more efficient, and in a way that then is making these institutions that I've seen as the enemy more money, more successful, and still being able to operate with

seemingly endless protections from the government. And that that that that does not fit with what crypto and set out and intended to do. And so, yeah, I mean I think it's just there's a lot of people now that have power. I mean, the the types of people that are used to be sitting in a dark room coding in their basement are now sitting in rooms with JP Morgan executives on a daily basis. I mean, you could Zero, for example, who just launched their chain, or Layer Zero who launched their chain Zero, and they're I mean, in and out of the largest financial institutions in the world on a weekly basis building real things. So, I think we have a huge responsibility here

to think about ourselves as like do we do we want to turn into them, or do we want to ensure that we still maintain a foothold on what the benefits we bring to the world are actually materializing. That all said, like DeFi is absolutely a different thing now. So, DeFi went from that casino that it was to actually being something material and sustainable in a way that was no longer just pure risk, black box, delegation of assets into a smart contract and expecting ridiculous

yield and being able to loop that 10 times over. We are now at the point where large institutions are adopting this, are backing this, are providing fiat and or stable coins into these lending and borrowing protocols to help meet the demand for liquidity. And I do think this is like unfortunately or fortunately one of the sexiest things happen happening in crypto right now and one of the highest signal opportunities in crypto right now. And that's because we holders are here, hotlers are here, institutions are here holding these assets. Institutions are very, very greedy. The first step that happens after these guys decide that they're

going to allocate a position into digital assets is they come to us and they start asking, "Well, how do I earn yield on this? How do I hedge this? How do I How do I manage this position in a way that makes it more than just a asset on a balance sheet?" And the right way to do that is program programmable finance. And this is that this is the narrative of DeFi and vaults in general right now. And uh even vaults in general or vaults in historically have not had the best I'm not have the best uh view in the eyes of the public or even in the eyes of in of crypto including myself just

because of that black box nature that I mentioned before. But now we're getting to the point where it's actually doing what it should be doing, which is transparent finance, transparent use of collateral, and the ability to collateralize everything. And so this vaults tie into every other positive move moving narrative right now that is needed, which is uh RWAs are definitely up there. And the next would be privacy where I think we're going to have this next privacy renaissance where you can start doing everything that you would do anyways with more access, less fees, and actually have retail being able to do this. And tokenized deposits absolutely play a role into this as well

because it's the ability for any retail banking customer or institutional banking customer to keep their assets with their bank but be able to start interfacing with things on chain. Um I have my own reservations about tokenized deposits just given the uh the non-one-to-one reserve and what that does and benefit and how that benefits just the banks themselves. But regardless, I mean this is this is significant growth and I think we're seeing new protocols and new vault providers like Concrete growing to a billion plus TVL relatively quickly and doing so with significant client base.

So, Wall Streetification, which is what we're right in the middle of, and uh as you guys have are probably pretty clear by now, I'm not sure is necessarily a good thing. It's great for It's great for your bags, although maybe not so much right now. Uh but it needs to be a stepping stone. And I have reiterated this a few times over, but like this the compliance, the the KYC/AML side of things, the legal side of things, the uh man, I for example, BitGo specifically, as a publicly traded company now, and as a OCC chartered bank, meaning we are literally a federal bank,

the amount of blockers that come into play just to be able to build relatively simple products, nothing revolutionary. And so, if we start placing ourselves within this framework for everything, we're not going to be able to build anything new that is interesting, and we're going to be stuck with this world, which is where I believe we are now, that very little interesting tech has been built in the past 18 months. It's primarily just been repurposing of what already exists and trying to bring on new users to that existing technology. And to me, that is uh that is a inflection point and a point of stagnation that

we definitely need to surpass. Is that it? That should be. Up, there we go. Okay. So, yeah, did did the snake eat itself? Was Was our goal, you know, the herd is coming, trying to bring the herd, trying to bring Wall Street, starting with ETFs onwards, was that really the end goal or was that just something we were reaching for because we knew that's where all the capital lied. So, it it's it's just that conundrum, the ouroboros of did we did the snake eat itself? Did we set that goal, reach that goal, and now we're stuck in this cyclic environment, or do we have a way to break out and

bring back that true decentralized peer-to-peer goal of crypto? And ultimately it's it's it's between these two, between the two themes. Uh the Kafka Kafka novella ends with some uh less than positive outcomes, but the the alternative is the chrysalis. So, maybe we're still in that chrysalis, we're still growing, we're absorbing TradFi. I I spoke at DAS on a panel uh last week, on Friday, about tokenized deposits as well, and I made this point then, too. It's not necessarily going to be TradFi

anymore. TradFi is hitting this point where it's like the death of TradFi was never what we thought it would be. It's just the death of TradFi means that they are no longer traditional finance. It's just finance, they're using the same tech that we are, and they have unbelievable resources to catch up extremely quickly, and I can tell you they have. And it's it's at the point where we are now fighting the BNYs, the JP Morgans, and BitGo, as a federal federally chartered bank, we don't have all that much to differentiate ourselves. So, it's time to get back on chain and start building real, meaningful technology that is independent of these institutions that

would otherwise limit us. So, yeah. Let's prove it on chain, shape the rails, and hear the revolution. Absorb this and move on. Don't let this drive the narrative. Don't look at a regulation or compliance requirement as what you're trying to meet. Look at it and say, "Why is this here to begin with? How do we build something better? How do we eliminate the need for any individual parties to dictate our ability to do what we want with our assets and our fiat, and set new standards? Those are far archaic, just like the institutions that formed them to begin with, and it's time to level up.

So, that is the metamorphosis of DeFi. And yeah, I like final notes is like it's it's really really insane the conversations that I've had and BitGo's been having over the past year and a half. Like the amount of people that we've had like maybe a little bit of touchpoints with, where we're now in boardrooms with CEOs. And it's like there's no one you can't get a meeting with now. It's it's really really interesting and also clearly quite scary because we have more responsibility on us than we ever did before. There is no more blue-haired biohackers that are that are driving this space. There are very serious people that are either

looking to extract from us or build with us and it it's our time to really shine, and both mature to a certain degree, but also just do not stop. Keep the pedal to the floor. Thank you guys. Okay. If you guys do have a question, feel free to find me. Um or it is Jake on Telegram. >> Mhm.