Demystifying DeFi - A Conversation with the Pioneers

Apr 20, 2021 - 5 min read

As a pioneer in the crypto and blockchain space, Bitcoin Suisse is keenly interested in following each new wave of innovation in the industry.

One area that has grown exponentially is decentralized finance – or DeFi as it is known. On Wednesday, 14 April 2021, Bitcoin Suisse hosted an exclusive online event for its network of clients and partners with representatives from four of the most dynamic DeFi projects – Aave, Uniswap, Curve and Compound.

The discussion included Michael Egorov (Curve), Nick Martitsch (Compound), Ashleigh Schap (Uniswap) and Stani Kulechov (Aave) – as well as Bitcoin Suisse Head of Research Dr. Raffael Huber and Crypto Product Owner Chris Lüscher.

The Ecosystem and the Players

As noted by Raffael Huber at the beginning of the event, DeFi has taken huge leaps forward over the past year with the Total Value Locked in DeFi protocols having now surpassed USD 50 billion. The ever-growing ecosystem, built for the most part on Ethereum and strongly leveraging the composibility made possible by the blockchain, now includes protocols for decentralized borrowing and lending, marketing making, insurance and more. The four projects participating in the event are all leading the way – in their own ways:

  1. Aave – a rising star in DeFi, Aave is a decentralized lending protocol
  2. Uniswap – Uniswap is one of the first and most popular decentralized exchanges in crypto
  3. Curve – the Curve protocol enables swaps of same-peg assets with aggregated, yet decentralized liquidity
  4. Compound – a popular decentralized lending protocol with algorithmic market making
Trends and Topics

There were several hot topics in particular covered in the conversation, with the very recent launch of Uniswap’s V3 being one of them.

Ashleigh Schap (Uniswap): “In V3, the biggest change is that we are going to allow range-bound liquidity. Uniswap is now going to be a fantastic oracle because it allows you to take a much more precise time and liquidity specific ‘measurement’ on-chain. It will allow you to have a decentralized oracle that lives on-chain, that can’t be turned off.”

Another overarching question dealt with the topic of Layer 2 and scaling solutions, which is “a top priority for all our projects” according to Ashleigh Schap from Uniswap.

The development of Layer 2 solutions may have significant implications for the further advancement of DeFi as different projects have begun using different solutions: Optimism for Uniswap, Gateway (built on Substrate) for Compound, Polygon for Aave and zkSync for Curve. The jury remains out as to which approach will ultimately prove most effective.

While there has been increasing talk of regulations putting a dent in DeFi, the event’s participants generally expressed optimism about the future of the industry. As pointed out by Nick Martitsch from Compound, regulators still have a long way to go as they try to understand the fundamental functioning of DeFi. “Instead of KYC for DeFi, what you might need is KYP – Know-Your-Protocol.”

Looking to the future, there was general consensus that DeFi is moving quickly and the future is bright. Compound aims to become a completely open and composable layer for the financial system as it continues to move into the territory of traditional finance.

Nick Martitsch (Compound): “We think that in the next few years, there is going to be a convergence between traditional finance and DeFi, to where Compound and other protocols may be an underlying yield-generating facility that other types of financial institutions are able to plug into and offer a host of other products and services that weren’t possible before DeFi.

Stani Kulechov (Aave): “Since we launched in January last year, we have over USD 6 billion worth of value locked in the protocol, which practically means that there is a substantial amount of interest in depositing and earning interest on a variety of assets.

The technology and opportunity of DeFi continue to be explored – and as the conversation brought to light, many more innovations are just around the corner.

Michael Egorov (Curve): “I think we have found something…I think Curve will try to go the route of fully automated market makers (AMMs) which hopefully can outperform the ways which were done to date.

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