#496: Stani Kulechov on Decentralized Lending

Stani Kulechov is the founder and CEO of Aave, a leading startup in the decentralized lending space. In this conversation, we discuss decentralized finance, improving user experience and user interface, onboarding more developers, disrupting the banks, and decentralized lending. ======================= Exodus is an absolute game changer in the crypto wallet space, and we’ve teamed up to offer an exclusive discount for you, as listeners of the podcast. Sign up for Exodus today using my promo code Exodus.io/. This is a no brainer for both newcomers and crypto heavyweights - go sign up today. ======================= Diginex is the first company with a cryptocurrency exchange to be listed in the US. Their ticker is Nasdaq: EQOS, and they are the first crypto company that you can buy stock in. They also have a crypto exchange called EQUOS, which has been built to institutional standards, but is available to everyone. You can trade Bitcoin and Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees, by signing up using http://www.equos.com/pomp ======================= Money On Chain brings Bitcoin to mass adoption with solutions to meet the needs of different types of users: a fully bitcoin-collateralized stablecoin (DoC), a bitcoin on steroids (BPro), and a dizzying bitcoiner option for lovers of leveraged trading (BTCx). All this, without requiring the delivery of private keys. Money On Chain - Bringing bitcoin into the mainstream. Visit moneyonchain.com/pomp to learn more

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Stani Kulecov is the founder and CEO of Ave, a leading startup in the decentralized lending space. In this conversation, we discuss decentralized finance, improving user experience and user interfaces, onboarding more developers, disrupting the banks, and decentralized lending. I really enjoyed this conversation with Stani, and I hope you do as well. Before we get into the episode, though, I want to quickly talk about our sponsors. First up is Exodus. They're leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus

• 0:43Anthony Pompliano?

  has become one of the most popular and loved cryptocurrency apps. It's supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset's price history and your portfolio's performance over time. And maybe the best part, Exodus is integrated with the Treasure Hardware Wallet, making advanced security easy for everyone. You can visit exodus.com for your free download, or search Exodus on the App Store or the Play Store. Again, exodus.com. They're leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. Go check them out, exodus.com, or Exodus on the App Store or the Play Store.

• 1:26Anthony Pompliano?

  Next up is Diginex. Diginex is the first company with a cryptocurrency exchange to be listed in the United States. Their ticker is on NASDAQ, EQOS. Again, their ticker on NASDAQ is EQOS, and they are the first crypto company that you can buy stock in. They also have a crypto exchange called EQOS, E-Q-U-O-S, which has been built to institutional standards, but is available to everyone. You can trade Bitcoin and Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees by signing up using equos.com/pomp. Again, Diginex, the first company that has a cryptocurrency exchange to be listed in the US. Ticker symbol on NASDAQ, EQOS, and you can go and sign up today at equos.com/pomp, or use the link

• 2:10Anthony Pompliano?

  In the description. Lastly, do not forget, bang, bang, Money on Chain, Money on Chain. Got like a little song to it. Money on Chain brings Bitcoin to mass adoption with solutions to meet the needs of different types of users. They have a fully Bitcoin collateralized stablecoin called DOC. They have a Bitcoin on steroids, literally called B Pro, and a dizzying Bitcoiner option for lovers of leveraged trading, BTC X. All this without requiring the delivery of private keys. Money on Chain, bringing Bitcoin into the mainstream. You can visit moneyonchain.com/pomp to learn more. Again, moneyonchain.com/pomp to learn more.

• 2:51Anthony Pompliano?

  Head on over and learn why, if you are into DeFi, decentralized finance, you can be a Bitcoiner and be into decentralized finance at moneyonchain.com/pomp. Go learn more there. All right, let's get into this episode with Stani. I hope you enjoy this one.

• 3:08Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:34Anthony Pompliano?

  All right, guys. Bang, bang. Got Stani here. Thank you so much for taking the time to do this.

• 3:40Speaker 02

  Thanks, Anthony, for having me here. Pleasure.

• 3:42Anthony Pompliano?

  For sure. Let's just jump right into your background. You've built one of the more popular DeFi protocols. But before you did that, you had kind of a whole nother career. So talk a little bit about your background and before you found Bitcoin, crypto, blockchain, Ethereum, etc.

• 3:59Speaker 02

  Yeah, totally. I think I've been in the space now roughly in general, building things in blockchain over four and a half years. And pretty much kind of like smart project-based applications, credit financing. Before that, actually, I was in the legal industries and also I started to study law before that. So I'm on my I'm kind of a B education A lawyer.

• 4:26Speaker 02

  And the reason I actually went to law was because before that I was building financial applications, Web two applications, so practically what fintech is today, Neo Banks and so forth. And I started practically building products very early. I actually, my brother was had a lot of influence on this. He loved to develop things on open source, mainly on Linux. And somehow I also catch up the programming there when I was quite young. And yeah, some of the applications were quite interesting, actually. It was more related to financing app developers who releases applications in, let's say, App Store or Google Play.

• 5:12Speaker 02

  And constantly with fintech, I run into regulation. I was quite young, eighteen, nineteen back then, and that kind of got me to study law. I just wanted to understand like how, you know, the rules of business and rules of regulation work. And that was a good decision because there I actually started to think about contracts, like legal agreements and how to make them efficient. Because they usually aren't. Many times if you have a dispute, you are not going to the court because the system sucks. And you need to pay for it and there's a high chance of risk that you get a bad decision from them. And what blockchain does and allows to do is that you can actually have piece of code, so-called smart contracts that doesn't change.

• 5:54Speaker 02

  So once you deploy the code into a public blockchain ledger, it executes exactly how it's programmed. And this is, for example, how Bitcoin works. If you send transaction from one address to another and you have the right practically instructions, it cannot go to anywhere else. And this is just a simple example of what may be inspired to come and build financial applications. And I started with Ethereum because it was more kind of like an open system where it can do quite complex stuff and more what I was wanted to build back that day when I started.

• 6:37Anthony Pompliano?

  Give us an overview of what you're working on now with AVE. Like I mentioned, it's become one of the most popular DeFi protocols. What is it and how does it work?

• 6:48Speaker 02

  Yeah, in essence, what AVE is, it allows the users to come to AVE and practically deposit cryptographic asset and see them to grow. And that's how simple it is. So traditionally, when we look at cryptocurrencies and digital assets, we usually hold the market exposure. So it's kind of like, we believe in the technology, we believe in the culture, and we believe that there is some future of the asset that we are holding, whether it's Bitcoin, Ethereum, or AVE, or some other asset that is in a cryptographic form. And what's interesting here is that what AVE allows to do is that you kind of get a cash flow for your asset.

• 7:32Speaker 02

  So not only you have the market exposure, but you also have the cash flow in form of interest rates. And this is what AVE practically does. So when you deposit, you basically start to see your balance growing, and at the same time, you can borrow from the protocol against your deposit. So let's say you could deposit from Bitcoin, which is kind of like Ethereum for Bitcoin, or Ethereum, in which you might be in long position, but at the same time, you can borrow so-called stablecoins, which are USD-backed currencies that you could use in decentralized finance, for example.

• 8:10Anthony Pompliano?

  Got it. And so when you think through this, the idea of decentralization versus the centralized entities, talk me through the framework, right? Because the actual product, you know, experience or the product functionality that you're building here, it exists in the centralized world, right? There's plenty of companies that do some version of this. What is the advantages, in your opinion, between centralization versus the decentralization? And then why choose to build this as kind of a DeFi protocol, rather than go build it as one of those centralized entities?

• 8:46Speaker 02

  Yeah, that's a good question, because I see benefit in the blockchain system. I like the lending models that there is now, for example, in centralized finance, where we have BlockFi, we have Celsius and whatnot. And what there is interesting is that it definitely allows flexibility. For example, you can get loans against crypto collateral, for example fiat currencies. But what's beneficial in DeFi is that practically, because everything is on smart contracts, you kind of see all the transactions there and you can see also exposure there. So when a user or anyone is looking at the Arbit protocol, you actually see what's going on there. And that means anyone can audit, for example,

• 9:31Speaker 02

  what are the exposures there in terms of risk and what kind of collateral there are used and what is the current liquidity there. And also, many of these things are actually built in rules. So because they're based on smart contracts, it actually means that you can't change those rules arbitrarily. If you want to change them, you practically need to deploy new contracts and invite that liquidity there, or then you have some sort of like a governance model, which is token-based and the community governs how those rules can be changed. And what's surprising is that actually even centralized lenders are using DeFi in the backend. So they're also connecting to the liquidity.

• 10:15Speaker 02

  So liquidity doesn't actually look at whether it's in centralized finance or decentralized finance, it just finds its way where there is arbitrage. And centralized finance has different kinds of risks than decentralized finance. But some decentralized finance might have risk related to some amount of liquidity and also like the technical risk, which is practically smart contracts and so forth. But I think like the transparency and the fact that rules are built into the contracts is the main component here.

• 10:45Anthony Pompliano?

  Yeah. And so when you think through this, there's a couple of different aspects to the decentralized finance, right? There's obviously what I'll call kind of a base layer in Ethereum, which is serving as one protocol. There's then kind of other key components of infrastructure that applications will be built on top of. And then there's the actual applications themselves that have kind of, you know, built on top of a protocol and they're kind of the interface, if you will, or the user experience to the user. How do you think of AVE and kind of where it fits in that technology stack in the decentralized world?

• 11:20Speaker 02

  Yeah, I think kind of like, Atal, we definitely have this, we have this horizontal approach in the sense that we're building, we build a protocol and that we are constantly improving with the community. And that means that that protocol is accessible by other smart contracts and other kind of applications that that's so some of the developers might build on top of AVE. So it's practically developer-first protocol, mainly because it's developer-friendly. It's very easy to integrate. The documentation's quite good in the sense. And that is kind

• 12:00Speaker 02

  of like how we went to the market when we launched the protocol last year. But we also kind of have always had the focus for the past years, whatever we have built, that we actually want to get touch in the end user. So everyone else was trying to solve in 2018, 2019, and 17 even, that kind of like, let's build a protocol that some other protocol will use. And kind of the end user aspect just disappeared somewhere and no one was taking responsibility of creating financial products for the end user. And we always wanted to kind of like have this connection. And that is why we also build a user interface where you could connect with your own wallet. So it's practically bring your own wallets

• 12:45Speaker 02

  and you come there and it's web three connection. Then you can actually deposit into AVE, Earn, or Boro Against. So we definitely do have both of the Approaches so so most of the liquidity comes from other places. I mean, there's over one hundred different integrations and products built on top of AWE. But we are very proud that we also kind of like focus on the user experience and try to get all the way to the uh end user uh as well. So it's kind of weird uh doing two things at the same time, but it's uh it makes sense as well.

• 13:17Anthony Pompliano?

  Talk a little bit about kind of the governance uh mechanisms that you have. Talk a little bit about kind of um you know, the token uh versus the protocol and and for those that are unfamiliar with how some of these decentralized protocols work, just kind of walk us through it.

• 13:33Speaker 02

  Yeah, so uh it be kind of like now many of the the the DeFi protocols are based on on kind of like a governance. And there used to be before this whole governance period that is is very fascinating at the moment. There used to be this idea that once you deploy uh decent plus finance, the contracts, you should not should not change them. You should not upgrade protocols and that should be immutable code. Uh which I kind of agree because in the sense uh you know, you you you want to have this certainty and use the blockchain power uh in kind of like the immutability and and and but at the same time, I understand that kind of like when you deploy something, you might want to fix some sort of bugs or

• 14:15Speaker 02

  you might want to improve the protocol because innovation is something that uh constantly evolves. And uh I think whenever you deploy code, it means uh that your code, because it's public, it has a uh expired date. That means that someone else is looking at your code and they're developing the next innovation. So you need to kind of like continue innovating. And what governance allows you to do is you can actually deploy code and uh it's not immutable completely at that point. But what you what what it means is that you can uh control how to upgrade that code based on the token governance. And the view here in the system is that you you practically uh can't go arbitrarily change those parameters. For example,

• 14:58Speaker 02

  uh a risk parameters in the protocol might be how much you can borrow against rapid coin or Ethereum. Uh what kind of assets could be elicited into the protocol? And and this is kind of like what the governance decides and all the token holders uh in in in the in the process. And and this is quite of interesting because uh. It actually, they are actually controlling a protocol now that has roughly over 6 billion, 6 billion worth of value locked in those contracts, which is kind of like fascinating at the same time. And all the like interest that the borrowers are paying partially is set aside into the protocol, DAO treasury. So DAO is this organization which practically governs it.

• 15:43Speaker 02

  And in the future, it could be distributed anyways, given grants or practically back to the token holders, or however the community decides to end of the day.

• 15:53Anthony Pompliano?

  So when you think through this, a centralized entity would essentially build a product. They would have users come in, they would have that revenue generation from the users. And then the decentralized entity has a centralized P and L, and that's where kind of all of the profits would reside, right? When it comes to these decentralized entities, in many cases, it's going into a pool and it's either being distributed on kind of a pro rata basis of ownership of the tokens, or there's some sort of voting mechanism as to what to do with those funds. How exactly does the revenue that is generated by AVE, where does that go? And then kind of how does that get distributed to stakeholders? Whether it's, you know, people who have the equivalent of equity, the governance, the tokens, etc.

• 16:38Speaker 02

  Yeah, that's a good question. So but each and every asset that is in the protocol has its own so-called reserve factor, which practically means like, based on risk assessments of the community and also partially of the AVE team, actually, it's decided what could be the reserve factor, which means what is the amount of interest generated to the depositors is set aside actually to the AVE treasury. And currently, it's started to accumulate in the version 2 launch, which was during mid of December. And actually, those ones are sitting in that treasury, DAO treasury. So only the AVE token holders can decide what to do with that treasury.

• 17:23Speaker 02

  But the cool part is that The treasury is growing in the form of A tokens. So quickly to explain what are A tokens is that as a depositor, as a normal user, when you deposit into the AWE protocol, let's say USDC, 100 USDC, you get in return 100 AUSDC, which is kind of like a certificate of what you deposited, kind of received into the protocol. And that AUSDC grows in your balance algorithmically all the time, whatever you store it. And that is practically interest-bearing token. So if you send it to your friend, it still keeps growing and so forth. It's kind of like a very interesting concept

• 18:06Speaker 02

  and kind of global permissionless settings account. So the treasury actually also grows in A tokens. So even like they're not allocated yet anywhere. They're still are working there and growing in balance as same way as the A token holders are getting their balance increases. And the AWE governance, practically what we are now working

• 18:30Speaker 02

  quite a lot is to create a grant program from the DAO that practically is some of the a mechanism where community developers just come and get grants. And how the process is actually working in terms of voting, you actually don't need to vote yourself. So let's say, you know, previously governance, decentest governance, you expected kind of like that everyone will participate and vote. But the truth is that not everyone wants to actually be part of participating actively. So you could actually delegate your voting power to someone else, so-called protocol politician. And separately, you could actually delegate your proposition power to, let's say, a developer that could create those proposals

• 19:14Speaker 02

  and put them into the blockchain, practically a piece of code. And the protocol politicians will vote on those proposals, whatever is kind of like their agenda and your mandate that you gave them. So it's very fascinating part of the whole, kind of like a DeFi part.

• 19:35Anthony Pompliano?

  For sure. And so let's kind of play devil's advocate for a second, right? There's a bunch of people out there who would argue, hey, why do you need a token? Let's maybe start with that first, right? So when you've got the token element to this, talk through a little bit as to is there the possibility to do it a different way? And if not, then how you thought of the design of the token specifically?

• 20:00Speaker 02

  Yeah, definitely you can do it without a token. And practically, you have some cons there. And one of the things is, for example, when we

• 20:08Speaker 02

  and I will go into a sort of

• 20:12Speaker 02

  tell an example why a token is also important in the in the kind of like backstopping the protocol. But you could actually deploy the same, very same code and then put it on chain. But the thing is that if you need to change the code and all the liquidity that is there and you deploy another practically pool, what you need to do is you need to then migrate all the liquidity. So you need to say to the user that withdraw everything from this pool and put it to the another pool. So it creates a bit of like a user interface issue. And I think kind of like being able to upgrade pools in the future, but which is kind of like you have a high threshold on what can be upgraded and what can be changed is very important in the sake of innovation.

• 20:55Speaker 02

  Because if you stop innovating and define someone else comes and continues that innovation, which practically means that that other community has more innovation, kind of like an influence and might get better network effects. But in terms of like the governance token that we have, in essence, the Obitoken holders, they are practically making risk-based decisions all the time. And that means that if you, they're voting for listing new assets that could be used as a collateral, they're voting for risk parameters. For example, how much you can borrow against a certain particular asset. So they're adding constantly risk or removing risk. And once they're doing that, actually, there's an ability then to transfer the risk to themselves.

• 21:40Speaker 02

  So we have this kind of like a safety module. Where the AVE token holders can deposit their AVE tokens there and get rewards in AVE. And what they're actually doing is they're backstopping the protocol. So let's say if there's some sort of like exploit hack that leads to a deficit in the protocol. In that case, up to 30% of that stake can be slashed and covered the protocol. And this is kind of like something that was very important to add because we were thinking during the beginning of 2020, that what's the most important thing to us and to get the protocol to scale? And that's practically deposits and liquidity. And how to get the liquidity is that we have to provide as safe as possible protocol for the depositors.

• 22:25Speaker 02

  And also beyond that, like we have to have a way that if there's some sort of a mistake happening and could be an exploit or something because people code. And also like it's not always, we've seen it before, quite a lot of hacks and we have to achieve comfort level. If you go to the mainstream and also institutional adoption. So what the protocol governance is actually doing, not just risk-based decision, but they're backstopping the protocol as well from this kind of like a risks.

• 22:56Anthony Pompliano?

  And so when you think through kind of how this has grown so far, what are some of the high-level statistics, right? Just in terms of market adoption, because one of the things that I think is really important conversation is there's a lot of tribalism, there's a lot of kind of religiousness in crypto. Whether that's good or bad, I'll leave that debate to other people. But the one thing that is very clear is that in many cases, we can just see what the market is adopting. And so whether it's on-chain data, whether it's companies revealing, you know, it's kind of their metrics and their growth. When you think of AVE, kind of what are the high-level metrics that you're proud of? And then also that you think is important for people to understand, just in terms of kind of validating the market adoption?

• 23:40Speaker 02

  Yeah, what's important, of course, kind of like is that the market size itself in AWE. So we have probably just 6 billion worth of value locked in the contract, which means that's the collateral used for the borrowings. And of course, we have this so-called flash loan functionality, which means that you could borrow from the protocol without a collateral for one Ethereum block. And it works in a way that you can do in one block many kind of transactions, but then you need to settle on that block, which practically means that you can borrow from AWE without collateral, buy an asset in Exchange 1 and sell an asset in this and plus Exchange 2,

• 24:24Speaker 02

  and then return the kind of like a flash loan. And if you don't return, all of those transactions will fail because you failed to fulfill one of the conditions of that first transaction. So that's in essence the flash loan. There's a lot of information out there in the so-called the internet about flash loans and way more technical explanations. I will leave it to you guys. But that's kind of like, we had 2 billion worth of flash loans last year. So that's an important metric. But even more important metric is that we have so far in this year, 2 billion worth of flash loans.

• 25:00Speaker 02

  So that kind of shows like how intense the growth is. But I also like to emphasize the interest rates because that also tells like what kind of liquidity crisis there. And not just prices, but crunch there is at AWE because apparently the yields are at 8%, 9% in the past 30 days, which practically means that there is not enough liquidity in AWE or in DeFi in general. And this is the moment where actually now institutions are looking at those yields and looking how they can participate in kind of like quantifying assessing. And it's not hard. I mean, it is hard for institutions to participate

• 25:41Speaker 02

  because it's just, DeFi is a bit bespoke and everything is completely new. And I think like, for example, the Tesla practically taking Bitcoin, their balance sheet and those kind of moves, like they just strengthened the narrative of like what blockchain, what cryptocurrency is, what Bitcoin is and eventually kind of like it expands the idea that actually, you know, you find opportunities not only in traditional finance, but in this completely, for them it's new world, but for us it's kind of like we've been like kind of like been been here for a while and trying to kind of spread the message.

• 26:25Anthony Pompliano?

  Absolutely. When you think about what you're building, it is decentralized finance, it's on the cutting edge. If it is successful, it will disrupt a lot of what goes on in the traditional world. How do you think about interfacing with that legacy world with any of the legacy banking institutions? Is it something where you just say, nope, we're not even gonna, you know, really worry about them and we're just gonna go build our thing and if it disrupts it, it disrupts them. But they kind of have to catch us as the innovators? Or do you see ways that you can work with them and interface with them that's in a kind of a win-win or mutually beneficial manner?

• 27:02Speaker 02

  Yeah, I think in ideal world, practically, you know, traditional finance and decentralized finance, they they pretty much need to work together in the sense, I think there's been kind of like many years that we have been doing best of things. We have a different kind of terminology, we have different culture, we have a very strong meme culture. That's the kind of like, that's, that's, that's what, that's the product of the freedom if you can innovate and have fun at the same time. And with traditional finance, I think, you know, why DeFi is growing so fast and also like building protocols in general, underlying protocols as well? If you take a look at like, what's, what's the?

• 27:44Speaker 02

  What kind of development there is actually in Bitcoin, in the Ethereum protocol, and in DeFi in general? I don't know about other protocols, I don't follow them, but you know, this is mainly what I actually keep my eye on. And the reason that it's moving so fast is pretty much because the technology is open source and anyone can contribute. And that practically means that, you know, there's no competitive modes. We all are there in the final war zone, in a good way. You know, we look at what others are doing, we try to improve our protocol. And if you look at, the only thing that matters is this constant innovation and how your team is able to do and innovate constantly.

• 28:29Speaker 02

  This is the kind of a thing I'm looking in our team and also like in other teams I'm trying to help in this space. And if you look at traditional finance, there's a lot of modes. And this mode thinking is exactly what, for example, Warren Buffett and the previous financial, kind of like advocates are telling that you need to find your mode, but in DeFi there is no modes, it's just like you need to constantly innovate. And the only way kind of like you could survive is you need to contribute as well. And this is what happens, has happened in Linux world, because it's not anymore in Linux that there's two and a half thousand contributors contributing for every release, but a big

• 29:10Speaker 02

  part of those contributors are actually people working in bigger companies and contributing to Linux, because it's mission critical software. And I believe like in the future also, traditional finance and banks are also contributing into these open source protocols. And that's good for them as well, because it kind of shifts the legacy systems that they have into this kind of like a better backend of finance, and they can focus on bringing better services for their own user base.

• 29:39Anthony Pompliano?

  And so when you think through kind of the regulatory framework, right? So we talked a little bit about interfacing with the banks and the cooperation there. You guys have this kind of license in the British financial system. Maybe talk a little bit about the license that you have, why that's important as you continue building this and then kind of how you think about, even though it's decentralized, you know, kind of by nomenclature, you still have licenses. And so does that mean that all of DeFi will eventually kind of have regulations around it or just how you think through that?

• 30:10Speaker 02

  Yeah, so practically what we have, so there's two things. There is the decentralized protocol that is running autonomously on the Ethereum blockchain and it's governed by the Bitcoin community, token holder community. But also we basically have an entity that is responsible for integrations and building businesses on top of the protocol. So there's like two separate kind of like a thing. And with this entity that we have in UK, we basically went and applied for electronic money license. And the idea is there that we, we want to build gateways into the decentralized finance. And that means, that means for the mainstreamers that actually don't have direct access to

• 30:51Speaker 02

  DeFi, they could actually convert their pounds, dollars, euros into stable points and then interest bearing stable points and get the DeFi exposure. But in terms of like regulation, these are two different things. And kind of like it boils down to this bigger discussion, like, like how to regulate protocols? Because if you think about it, so Bitcoin is a protocol, Ethereum is a protocol and DeFi, the decentralized DeFi protocols, they are, they're all financial protocols in one way or another. And they have some inflation, which is kind of way to reward the upholders of the network. And then many DeFi protocols, they, they have just wider functionality than, than

• 31:36Speaker 02

  let's say securing a network. What, what our system does, our contracts, it basically secures lending and borrowing, platters and so forth. So in this sense, like, if you think about all of this, Centralized protocols, it's kind of like an ocean. And I think like when it comes to regulation, uh what's the best thing and most efficient to regulate is actually the ports. That provides the access to the ocean and that's the kind of like exchanges of the world and and the front front ends that. Take custody of the user funds and I actually believe uh this might be actually happening is that. Uh the bigger, the the biggest ports will be those centralized uh participants that are. Having now, let's say centralized uh exchanges or centralized lending services.

• 32:20Speaker 02

  And I I think tho- those will be the kind of like a gateways to DeFi.

• 32:25Anthony Pompliano?

  So when you think about the biggest obstacles, right? Is uh for the developing of uh this ecosystem and specifically AVE and the decentralized protocol. Uh that you're building, what are the biggest obstacles or challenges moving forward?

• 32:42Speaker 02

  Yeah, I I I think kind of uh one of the biggest issues in my opinion is definitely that we are trying to build like we are trying to use the same security. Into, you know, all the transactions that we have. For example, if you take a look at. Uh the Bitcoin network. So what what's interesting about Bitcoin is that, you know, you have this network that. Uh uses the most uh sound and and kind of like a security method to ensure the store of value, right? So so practically, uh it's very difficult to break that protocol uh because of the the consensus mechanism and you're using electricity to. To to kind of like secure the network. And and that's that's very good in terms of like like s- s- storing of value.

• 33:24Speaker 02

  And when we look at, for example, what's going on in Ethereum, what's interesting there is that. You know, all the transactions are not equal. So let's say, uh you might have a trading functionality or you might have uh. Lending a borrowing, uh you might have actually gaming their uh collectibles. So it it's just like operating operating system where you can have any kind of an application, it depends how you code it. And what's the challenge there is that it's kind of like a traffic jam at the moment because everyone wants to build and use the same signet level of security, which. Practically means uh that you know the network gets congested congested and everyone is paying the same price, which is actually the high price.

• 34:07Speaker 02

  So now the kind of like a question is that how we solve the scalability, so how we can like apply the security uh where you need it more and and and apply less security where you actually don't need it that much. This is like where the discussions of layer twos come in. So for example, if you have site change on Ethereum, that you actually could actually do most of the transactions and settle into into the Ethereum network and and and keep the state that way. So I I think that's the kind of like a current uh challenge that we have i- i- in the whole ecosystem.

• 34:42Anthony Pompliano?

  Got it. And then when you think about um kind of the user experience or the user interface, uh obviously uh when you compare it to, I don't know, let's let's say Square or Robinhood, right? Maybe the functionality is different, but just the uh kind of slick uh design, the gamification. Uh there's so many things that they've done really well that make it dead simple for users to use those uh kind of fintech platforms. Uh DeFi, um Bitcoin, Ethereum and kind of all of the products. Uh they don't have a lot of that same uh kind of design superiority, if you will. Is that gonna change? How will it change? What is needed to kind of drive that change? Just kind of talk a little bit about, you know, what's gonna happen from a user experience and user interface standpoint?

• 35:27Speaker 02

  Yes, definitely, I agree. And like a few years ago, I mean, the user experience was a little more horrible. So it was so difficult, you don't have even a stable coins and and it's very like uh everything was way more clunkier back then. So we we have we have improved quite a lot. But even now, like in terms of like user experience, uh it's it's it's it's not that super actually bad. Because, you know, depositing into ABE is just one one transaction away if you have uh already. Assets in your wallet, I think, and same if you want to swap tokens, there's very easy way to do it, for example, in Balancer and so forth. But the kind of challenge is like, how do you enter in the space when you are not like crypto native?

• 36:12Speaker 02

  But for crypto native people like you and me, it's just like, it's that simple, right? But then when I go to someone else, to a friend that isn't in the ecosystem, like how they will understand and how they understand to store their keys? And I think it's a question also a bit about education. So I really liked the tweet recently on what Elon Musk actually tweeted that, you know, you should kind of like avoid wallets where you don't have the keys, because that's the kind of like a thing. And I don't think actually you need to avoid, I mean, you need to choose, but that's like the main thing that people need to be educated in. And I think like, in terms of like, the approach by Robinhood and how they're improving the

• 36:58Speaker 02

  the kind of like user experience is because those applications were invented to basically fix the user experience. The same way as financial technology, fintech is invented to improve the normal banking experience. And what DeFi was invented, and let's say Ethereum Bitcoin was invented actually to fix the backend completely. So the approach is completely different. Like, we came here to fix like, what actually is very legacy system and make that better. And now we're working our way like down all the way to the user experience, which is kind of like now the last part that is going to get fixed. And in fintech, Robinhood, they actually started from the user experience.

• 37:39Speaker 02

  So they kind of, they have an interesting approach there. And that's why like, you know, they get traction, but we're working towards fixing that. It's the last step, but it's the most important one.

• 37:52Anthony Pompliano?

  I love that. If you zoom out, you look 20, 25 years from now, talk to me about the future of DeFi. Is it the dominant financial system? Is everything decentralized? It's all open protocols and users are using it? You know, and kind of the centralized system is completely forgotten? And they've had a transition to the DeFi world? Is it a coexistence? What does that world look like? And kind of how do you just think about the future of DeFi, you know, 20, 25 years out?

• 38:20Speaker 02

  I I I think what will happen is is that DeFi will be quite big. So so definitely like it it will be a a kind of like an ocean liquidity ocean and and you could plug in. You could draw liquidity from from this ocean and and you can supply liquidity. But I don't think like a I don't think it replaces completely like centralized providers or centralized finance. Because in in essence, like it definitely brings efficiencies, but kind of like you don't want to put everything on on chain. Because it's costly and in some cases you want to use a database and and you know and settle just periodically in in the main chain. And most of the financial transactions might happen in a trust network.

• 39:02Speaker 02

  So let's say if you have Circle, you have Revolut, you know, they could interact between each other by using

• 39:09Speaker 02

  the the the blockchain, but also if they have a trust network and and they have funds in, let's say Bitcoin and Ethereum. They could also decide between each other that hey, we trust each other. So let's just move database numbers and and save some transaction costs and we we both have like a good relationship. So it doesn't need to boil down all the way to to practically that let's have all the databases in blockchain. Because you know, you you won't have to apply that security cost. And I I I'm sure all the like all business people want to, you know, pay for that. And but it will empower a lot of people. So now, if you take a look at the A tokens, for example, it actually is a permissionless global savings account.

• 39:53Speaker 02

  So anyone who holds that that those tokens are actually getting USD nominated yield. So so they actually have a access to to stable currency, USD nominated, and and that increases in balance. And and that's quite cool thing, especially in places where you have local currency that sucks completely. And like has this kind of like huge inflation. And and I I I think it's it will empower quite a lot of people. And I think we're doing at Abbe, we're doing very well in the deposit side. And now where we kind of like are trying to work is in the borrowing side, how we can make. Underpiledized moments and how we can make this system work and empower people.

• 40:34Speaker 02

  And I think DeFi is just one thing. I mean, there's more in life than finance, right? So it's pretty cool that if you can empower things that are non-DeFi related, NFT space, creator economy, you know, like creators that are trading art and accessing to the space or through labor and helping there out and off-chain as well. So I, I, I think like there's way more cooler things than, than finance. And I, I hope like, uh, we can empower it to some extent.

• 41:02Anthony Pompliano?

  Absolutely. What, what do you think is, uh, the other interesting projects in the space? And you've done a ton of angel investing and you probably can't name all of them that you think are interesting, but just two or three that off the top of your head, you find fascinating, uh, valuable and, and worth paying attention to.

• 41:19Speaker 02

  I, I love the, uh, project, uh, it's called Paris swap. So, so practically what they're doing is they're, uh, I mean, DeFi liquidity is all over the place. So you have this, this like decentralized exchanges and that work in an audible fashion, which are very complicated to use. And then you have this kind of like a automated market makers, such as for example, Balancer, uh, Uniswap. So, so there you just provide liquidity and then other, other users could just swap their, um, assets. And, and what, what, uh, Paris swap is doing is that they're pulling all this liquidity, um, into one place. So you just don't need to shop for, for, for your liquidity and just make your exchange assets without getting this, uh, slippage.

• 42:01Speaker 02

  So this is like a very powerful thing because it actually like, uh, uh, pulls, pulls all the liquidity into, into one source and you can integrate that into whatever you're building. Uh, if you want to access DeFi liquidity. And I, I, I think they're, the interesting part is that they, they do it in a very gas efficient way. So that's, that's something that they're very proud of. Uh, and another project which is Quite fascinating is called Opium Network. So it's very, the name is a bit funky, but what they actually do is they do derivatives on chain. And what's interesting there is that they have a system where they can list different kinds of thinkers

• 42:46Speaker 02

  and actually provide insurance in form of, because insurance is derivatives. And that is what the DeFi space needs at the moment. So when we have institutions, they are looking at what, you know, if they're, if they're depositing into OvA, they're kind of like trying to quantify what's their risk, how they, how they can hedge their risk. And, and, and that is why like insurance plays quite, quite big role in space. So those two things are for me, something that has been, uh, been progressing recently quite fairly well.

• 43:20Anthony Pompliano?

  Absolutely. Before we finish up, I ask everyone the same three questions. The first is, um, what is the most important book that you've ever read?

• 43:32Speaker 02

  Most important, uh, I, I think like recently, I would say the, the book's name was Empire of Cotton. And, and you know, interesting there was because it was like cotton as a kind of like community. Uh, you know, we all wear cotton. So, uh, Prakti was like how it affected kind of like our lives over the centuries. And like how it has been like part of everything that's, almost everything that's happening in this space. And it's, it's, it doesn't just tell about cotton, but it also tells about like instrument in general. So let's say cotton is just a community. Uh, in one way we see like the currencies as a community or whatever we're trading

• 44:15Speaker 02

  and how it plays like a lot of importance in our culture. And I, I think like, uh, that was one of the important books. And I don't read much, like that's, I have to say, uh, it out loud because like I would love to read, but it's just like being in this space is just like horrible. Like if, if anyone is going to DeFi, like, like don't like think twice, like you will like have no personal life. So, you know, this is something you need to think of very seriously.

• 44:44Anthony Pompliano?

  I love it. The second one's more personal. Sleep. I've got friends over at Eight Sleep and they've convinced me to not sleep five or six hours, but more like eight or nine. And they've built an awesome product suite, including this thermo-regulated bed, which basically allows you to make it hot or cold. I sleep super cold and absolutely love the product and have gotten much, much better sleep because of it. What's your sleep schedule? And how's that evolved over the years?

• 45:15Speaker 02

  Yeah, so I have to say that sleep is the most important thing for me. So if I can't get enough sleep, my performance gets, it's going to be very, very weak. So it's really like, if I don't get enough dream or enough rest, like I definitely will be like a weak person. And it's just something like it's very frustrating for me because, you know, sometimes I need to wake up middle of the night and help someone. And or just like I have long days and, you know, early wake-ups and it's just killing me because I know that I'm kind of like angry to myself because I can't function properly. And this is something

• 45:58Speaker 02

  is very difficult. So I think sleep is the most important thing you need to have. And if you sleep well, you can actually have more healthy diet as well because, you know, you don't, your body is working better biologically. So I think that's something. Also, if someone is looking to come into the fight, you might say that it's not easy, easy to get some sleep.

• 46:25Anthony Pompliano?

  Sleep is completely converted me. I like to joke that I'm a convert to the sleep religion. So I'm all in on it. Last question's more fun. Aliens. Are you a believer or a non-believer?

• 46:39Speaker 02

  Well, I do believe that there might be some other people looking maybe like us or not like us. So definitely there might be somewhere. I haven't seen any, so that's the problem. Like, I would like to see at some point if there is, but the problem issue is that traveling from other places might take some time, but not to sound too crazy, like crazy person. I mean, there's, there is a lot of value in the protocol at the moment. So I would say that I believe, but I haven't seen any, anyone, anyone that looks suspicious.

• 47:12Anthony Pompliano?

  Absolutely not suspicious. What, what, uh, one question do you have for me to finish up? You could ask me one. What do you got for me?

• 47:22Speaker 02

  Yeah, maybe I would ask you kind of like a question about, what do you think about DeFi?

• 47:31Anthony Pompliano?

  Yeah. Look, I, I think that it's very obvious that decentralized finance is going to be, you know, a thing, right? And it's probably going to be the main thing. I think that there's lots of people who want to put me into different buckets, right? You know, for years people have been like, oh, he's a Bitcoin maximalist. And I've always kind of said, no, I actually don't think that I am. It's just more so that most of the things that I saw in the very, very beginning of DeFi, frankly, just seemed unsustainable to me, right? And so one of the, the examples I always use is if you go back to 2010 to like 2015, there was a ton of companies in venture that would go and they'd brag about, look at how fast we're growing. Look at how great our growth rate is.

• 48:16Anthony Pompliano?

  And then what you would realize is like, they weren't actually growing fast on an organic standpoint. They were simply just spending a bunch of money to drive users, right? So if you look at like the direct to consumer companies, all that kind of stuff. So when they shut off the advertising, growth shut off. And so what I think that, you know, let's look at like yield farming, for example. One of the big kind of knocks I've had there is saying, look, it's unsustainable to simply say, hey, if you come use our product, we're going to give you, you know, 200, 300% annualized returns. Cause we're essentially just using paid marketing. It's a new version of paid marketing. Once I stopped doing paid marketing, then like that kind of mercenary type user is just going to go find who's paying 300% today, right? They're just going to go run to the next one and kind of just leave the protocol to do it.

• 49:01Anthony Pompliano?

  Again, that doesn't mean that it's DeFi is not going to work. It just means that like that specific application. Another thing that I've been very kind of critical of is ICOs, right? And so in 2017 and into 18, I kept telling people like, look, people are going to get in trouble for this stuff. It is the sale of unregistered securities in the United States. I don't think that that's the best thing that people should be doing. Therefore, like be careful. And again, I think people took that as like, oh, he's anti, you know, innovation, whatever. Look, I'm just calling it how I see it and ended up being right on that. And so with all that set of like, I've been very, very critical of some parts of it. Ultimately, I look at decentralized finance as if you take everything in the traditional world,

• 49:45Anthony Pompliano?

  everything's going to get digitized. So we're going to have digital stocks, bonds, currencies and commodities. That's been my thesis for years. Where that plays out, I think, is where a lot of the debates, like when people say like, what do you think about DeFi? Like everyone wants to go debate like what technology stack it gets built on. To me, it's like, before we even get into that debate, it's just like, of course decentralized finance is going to be a thing. Like you've got to be an idiot to not think that at this point. What that entails though, I probably have a nuanced view, right? Like digital decentralized money, right? A kind of an open protocol like Bitcoin to me is DeFi, right? It's like that is part of decentralized finance. It's not the totality of DeFi, but it's also not excluded from DeFi, right? It's one piece of it. You've got to have decentralized kind of sound money.

• 50:28Anthony Pompliano?

  Then if you start to go and you look at, let's take what you're building or maybe with Uniswap or something like that. Like I always just say to people, I don't think I'm smarter than the market, right? And like, you can't argue against $6 billion locked in value. You can't argue against, you know, take a Uniswap where they're doing between 600 million to maybe a billion dollars in annualized fees on that exchange. Like those are big numbers that are very, very compelling. And so I think that everyone gets caught up in this like religious war to some degree. And to me, it's just like, look, I actually don't care if it gets built on Bitcoin, if it gets built on Ethereum or gets built on some protocol that hasn't been started yet, right? Like at the end of the day, I just know.

• 51:10Anthony Pompliano?

  That we're going to have a decentralized, open digital financial system and really just a digital, open decentralized system in general, not just finance, but kind of everywhere. And so for me, like, I'm not a developer, like, I'm not going to be the one to go build the kind of overarching dominant platform. Instead, I just want to understand, like, who's building what and where is the market adopting things? And then just go and accelerate what's already happening, right? As an investor and kind of someone with a large audience, that's my greatest contribution is I can provide capital and then I can provide distribution from kind of an awareness and user acquisition standpoint. And so I've been spending a lot of time kind of just trying to understand, you know, what's working, what's not working, kind of what's, do people think is sustainable? What do people not think is sustainable?

• 51:56Anthony Pompliano?

  But to, you know, it's just a foregone conclusion. If you fast forward, you know, 20, 25 years that like, everything is going to be decentralized, everything's going to be digital and everything's going to be on these open protocols. I think that just people get caught up in like the debate today of, you know, which one wins on this fact or that fact. And at the end of the day, like, a lot of them are doing different things, right? Like, it's, you wouldn't say that AVE is competing with Uniswap. You wouldn't say that AVE and Uniswap are competing with Bitcoin, right? Like, those are all different things going after different use cases, different problems. And so I think that people just have to remember that, like, the world's not as black and white as they want it to be. And the nuance is important here. So that's kind of my general thoughts on it.

• 52:35Speaker 02

  Yeah, I definitely agree. I mean, those were pretty good points. I mean, like, you have different kinds of protocols and different kinds of applications. And, and I, I, I think the DeFi is kind of like wider than, than we see. And that's something that people need to go over with this kind of like tribalism. Because like, there's like, there's so many things to build, you know, so many people to help. It's just that it makes sense to stop kind of like and, and, you know, push back because there's just, there's just innovation and opportunities everywhere. Like, and you can build them very well. And that's, that's the cool part.

• 53:10Anthony Pompliano?

  Absolutely. I completely agree. Where can we send people to find you on the internet or find out more about AVE?

• 53:17Speaker 02

  I think on the Twitter, AveAves is our handle. So following that, there's a lot of stuff. Our Discord, you'll find our Discord there as well, Ave.com. You will find rates and also all those social media, Telegram. I'm pretty active myself. It's quite, people get quite amazed that they can actually reach me out. And I like to keep it that way. You know, can't, you know, be discussing all day on topics, but you know, but, but still, I like, I love to talk with people, so that's pretty cool.

• 53:52Anthony Pompliano?

  I love it. You're doing a fantastic job. People obviously find it valuable, so keep going and we'll have to do this again in the future.

• 54:00Speaker 02

  Yeah, definitely. Thanks for having me here, Anthony.