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The Wolf Of All Streets
DeFi Is About to Explode – Stani Kulechov Reveals What’s Coming
00:50:55
DeFi Is About to Explode – Stani Kulechov Reveals What’s Coming
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- [00:00]
A
Now it's an interesting question. I would say that's. And most of the innovation is happening on the application protocol infrastructure, not the underlying blockchain network. And people can make mistakes and that's why you have blockchain with things like financial infrastructure. So something that is everyone's in mind is because it just works. Things that work aren't necessarily the most exciting thing.
- [00:22]
B
I'll take boring and working rather than exciting and broken. Anybody who's been in crypto for years remembers Defi summer and Defi being the most exciting users use case and growing market within crypto. Well now we have meme coins and speculation and NFTs and all the other things that have captured people's attention. But under the surface, Defi is still growing. You could argue that it's still booming and is ticking along, working as intended. When will Defi finally reach its promise? Will it become a parallel rail to traditional systems or replace them entirely? There's no better person to have this exact conversation with than Stani Hulachev, the CEO and founder of aave. For those who don't know a dominates the Defi space. He knows this stuff better than anyone else. You must listen to this conversation. That's dope. This has been an interesting cycle to say the least. Crypto I think we have massive interest in bitcoin, certainly from the institutional side. And the crypto degens and natives seem to have gone completely to the meme Coin casino and it seems like that's been a barbell and there's been very little in the middle. Right. There hasn't been a huge focus on utility. But while that's been happening, I just did some quick research on AAVE. You guys had an all time high in TVL at 23.1 billion in December. That may have even changed since now you have 45% of the DeFi lend space on your platform. Net deposits of 35 billion in 2024. How come people aren't more excited about Defi right now? When you look at these astounding numbers.
- [02:18]
A
I do think it's quite interesting because a lot of users who have been in the space for quite a long day, they understand the significance of Defi and from the user perspective. So being able to hold your own assets, being able to earn interest on your assets, being able to swap without using a centralized exchange, being able to just hold a stable value without an intermediary and this kind of power blocks that Defi brings are familiar for people who've been in the space for a while. Have seen the Defi summer a few years ago and the kind of like growth of Defi. But I do think that a newer user base and today the way you are coming on chain is much more diverse at the moment. So while Defi works and AAVE works really well, it's a revenue generating dao, it's profitable, it's generating over 100 million of revenue annually, which is amazing from if you consider how hard it is to create a profitable, successful startup. Think about how hard and difficult it is to create and participate in a profitable, decentralized organization. Way much complicated and harder. But AAVE and a couple of other Defi protocols have been able to do so. And I think it is big. But the reason that it isn't something that is everyone's in mind is because it just works. Things that work aren't necessarily the most exciting thing. The yield on AAVE might be exciting one day, it might be very high, the next day might be a little bit lower, but still competitive. So there's different drivers at the moment in our space that are kind of like a competing on attention.
- [04:17]
B
So yeah, I just laugh when you say that Defi is boring because anybody who's been here a while knows that Defi was the wild west for a very long time in crypto. Only in this industry could we think that Defi is boring.
- [04:31]
A
Yeah, I mean the boring part is actually really good because we've seen a lot of things happen after Defi summer. We've seen ftx, we've seen bridge hacks, smart contract hacks. And if you look at today and where AAVE is over all of these years and being able to withstand these various price movements, liquidations and all these kind of headwinds, it's in a really kind of like a good place in the sense that you want Defi to be a little bit boring, you want it to be resilient, you want it to be a system that you can rely with your own wealth and your own funds and generate that kind of like a wealth and capital protection. So there's far more things today available on Chain that are extremely exciting, but at the same time they might not be the best thing for the users.
- [05:35]
B
I'll take boring and working rather than exciting and boring. So I think it's just statement as to how much Defi has matured over the years. And anyone who's been here, we know that that means people get bored with it and move on to other things. It begs the question, who accounts for these incredible numbers? Right? You have 23 plus billion dollars in total value locked. That's a lot of money. That can't just be average people all around the world depositing, right? I'm assuming there's some institutional interest there. So how is it growing? Who' it? And how do you see, I guess that in the future as we see this institutional adoption of crypto, how do we get them into defi?
- [06:21]
A
Yeah, it's really interesting when you think about the whole user base of the protocol because the way the protocol works, it's on chain application, essentially transparent. Everyone can actually see what's happening there. It's end to end, auditable. But what we don't really see is exactly who are the actors behind all these transactions, which is good for privacy. But on the other hand, based on our research and discussions with users that come to us, we see a lot of day to day users being like, just like you, Scott or me, that are in the space and they want to earn, yield, protect their wealth and being also able to use their cryptographic assets such as their, let's say Bitcoin in wrapped form or Ethereum as a collateral, borrowing against that as well and providing getting access to these financial tools. So the finance goal typically might be another type of investment opportunity. It might be down payment on a mortgage, it might be buying a new car. It's actually in many cases something that ties back to real life. So in one way to think about it is that the AAVE protocol is something that is running on chain, enabling these opportunities, but they actually get sourced. The destination of usage of these funds are connected into real life, which makes it amazing because it works globally in a resilient way. In terms of the institutions we are seeing more and more bigger accounts that also kind of like gives us some understanding that these are more institutional users. We talk to more institutionals today, so there's more actually usage now in that field. A lot of these institutions are very crypto driven, so they might do already strategies in crypto and AAVE is kind of a place to them to park capital or unlock these big holdings that they might have for new types of strategies. The most recent development has been around the tokenization piece. So taking value that is already existing in the traditional financial system and putting that value on chain and then giving programmatic access into that value. So I think that piece is something that is going to grow and we're seeing more initiatives in the avid dao, which is a, you know, anyone can come to the AAVE dao and create a proposal and basically propose Some sort of interesting idea that can go all the way to execution. And let's say that RWAS and tokenization isn't really a new thing. A lot of these stablecoins are effectively tokenized investment funds or tokenized pooled funding into treasury bills or these types of low risk investments. But that is a really, really growing space at the moment.
- [09:45]
B
And how do you as AAVE in the tokenization and RWA space, how do you compete with the platforms that are native to that? That's their core competency, that's what they do. They don't have other types of lending. I'm friends with Sid Powell from Maple Finance, for example. That's pretty much their singular focus is the tokenization of these assets. Do you find people going to them or do they come to AAVE for that as well? And what's the sort of interplay between the platforms?
- [10:15]
A
Yeah, tokenization is the kind of like a primary act of getting value on chain that doesn't natively exist there. And where AAVE comes into play is that how do you actually can use that value in the form of earning interest on that asset particularly or using that asset as a collateral to borrow another asset. So at that point we're not in the part of the actual tokenization process and we're more kind of like the next step of once you tokenize these assets and they exist on, let's say on Ethereum, what can you do with that asset? What do you do next? Effectively being able to hold something that provides you value of chain and being able to capture additional value on chain is a big value proposition. Being able to also use that value to unlock capital short term is also a big value driver. So all these tokenization use cases that are happening now on chain, whether it's through credit tokenization, what you for example mentioned, or bringing securities on chain or any other form of asset tokenization, that is an actual opportunity for AAVE to come and create a liquid market of lending essentially. So I think the more of this tokenization area is going to grow in the future, the bigger opportunity it is going to be in aave. And the way I see it is that we won't see one big market where all these assets are added in the same place. But the actual beauty of the AAVE protocol is that it's a set of financial infrastructure that you can deploy, add your own parameters into that, choose the governance effectively so you can choose avidao to govern these markets and have peculiar assets there. And I think that's the key of the system that we will see different types of markets, tokenized assets use as a collateral, and that way it provides the utility for everything that is coming on chain in terms of value.
- [12:39]
B
I'm looking at the dashboard on AAVE for the rates, so supply and borrowing rates. Obviously it seems that it's a much safer place to earn yield, but it's much lower than what's promised across DeFi, where you see 15, 20% yields, you know, Athena and all these other sort of platforms that are offering these massive yields. I mean you're, I'm seeing 2% on Ethereum, 4% on Tether, 0.02% on Bitcoin. So why, why, why would someone deposit bitcoin for a 0.02% yield?
- [13:10]
A
Yeah, the way AAVE works is that we are showing the spot rates. So we're taking the most transparent approach of interest rates and trying to show what exactly you get on every block, essentially. So if you go maybe two months back in the time, you could get 9 to 10% on USDT and USDC unaware. So these rates fluctuate based on the overall demand of DEFI rates across the whole ecosystem. So for example, if there is more demand on Athena, that causes more demand also in aave, because that's a way to actually leverage those positions or any other investment opportunity in DeFi. So in some certain ways, AAVE is basically the kind of like average rate of what you can earn in decentralized finance. Now in this kind of an environment where you have a lower rate, it means it's actually favorable for the borrowers.
- [14:19]
B
Crazy. That's what struck me that was going to be. Sorry to interrupt. That was my next question. Yeah, I mean, who would lend it, I guess at 0.02%, but you can borrow at 0.42% on your wrapped Bitcoin.
- [14:30]
A
Yeah, exactly.
- [14:31]
B
That's exceptionally low.
- [14:33]
A
And on top of that, I think one important thing is that when the rates are low, it actually introduces a new opportunity, which is the RWAs. So bringing these assets on chain, there's actually a viable, economical opportunity to borrow liquidity against that, because there are people who are willing to pay that rate. But I think the way that DEFI works today and overall on chain interest rate markets is that the moment there is additional traction for, let's say, derivatives markets, Bitcoin lending, Ethereum lending, overall, the market rates are going to go up, down the line and this, this kind of like a pattern will follow until the market is big enough that it's not focusing only on these Types of use cases in overall and you have.
- [15:29]
B
To have relatively high ltv. Right. So I'm looking at the WBTC as we talk. It's 73% max LTV liquidation threshold, 78% liquidation penalty 5%. So it's very, very safe. You would just see the move on Bitcoin you would need to see to get liquidated would be relatively astounding at this point.
- [15:48]
A
Exactly. And there's been occasions where the market has fluctuated quite a lot and the prices had dropped significantly. We don't need to go that much back in time when the markets went down. And in a one single time period, aave liquidated over 200 million worth of positions on chain. And that is something that is super remarkable because it means that we were able to build something that is extremely resilient. And AAVE protocol isn't only deployed on Ethereum, but across multiple layer two networks. So we have in total 13 different network deployments, market deployments at the moment. Which means that the whole system proved to be resilient across all these networks with their liquidity involved. And the reason for that is that within the AAVE DAO there is active risk management, meaning that when you have a dynamic environment, which is financial markets, you can't really have static conditions. So for example, if you today set a static condition of loan to value ratio, how much you can borrow against your Bitcoin or Ethereum or even interest rates, how much you can actually earn from that type of a business model you're setting, you're locking yourself into conditions in an environment that is changing in the future. So in the DAO these, these parameters are ongoing basis changed and improved by the risk managers that are service providers for the dao. And that's why the whole system works really well. Plus on top of that you can come, anyone can audit the system, can come into the governance forum and actually create better proposals if they don't like the ones that are there provided by other community members, for example. And I think that's the beauty of building decentralized money system where everyone has the same access to participate.
- [18:03]
B
200 million is quite a bit on chain as you mentioned. I think one of the big stories that was somewhat missed when we saw the collapses of Voyager and Celsius and Vault and FTX and all of them was that this was basically human error to some degree. I mean some of it was outright fraud, but, but a lot of human error. Cefi obviously completely collapsed. We had bankruptcies and in the background platforms like AAVE and DeFi in general just had orderly liquidations and kept on ticking and everything worked exactly as it should have. That should have been the biggest advertisement for Defi ever.
- [18:39]
A
Yeah. And so I can share interesting stories. So when I started building aave, it was called Eatland. Back in the days, it was 2016 and 2017. And my idea was to build this whole system on chain. So how do we get lending and borrowing on chain? Collateralized and effectively creates global interest rate markets for all relevant assets that are going to be on chain. And at the same time, we saw Celsius, we saw salt lending, probably one of the first ones. We saw blockfi, we saw Genesis lending. So we saw a lot of these companies coming into the market offering the exact same thing, but managed centrally by a company. Actually, everyone kept telling us that why are we doing it this way? Why are we building on chain? Because we could scale our business faster. We can take dollars instead of stablecoins. And stablecoins weren't actually a thing on chain until 2018 at some point. So it was very early on. But we kept actually building towards this direction because we think that smart contracts can provide something really valuable which is guaranteed execution. So the smart contracts will execute exactly the way that you program, and you can govern how those functions can be changed in the future. Together with the community, you have the full transparency. The whole system is auditable, not just aave, but anything that is on chain. You can see the whole exposure across multiple protocols and so forth. So in overall, after all, with all these centralized businesses going down, what we realized is that the decentralized lending market, AAVE actually was able to eat all this market share. And since ever then, there hasn't been a centralized business entering into the space and providing lending and borrowing at the same scale as avidas, because it doesn't make any more sense to do so because you can get everything and more resiliently from the AAVE protocol.
- [21:00]
B
Yeah. So being that we've seen massive growth, but obviously to be competitive to, you know, tradfi, we would need to see billions and billions and yeah, hundreds of billions, if not trillions of dollars in value being locked into DeFi. So what's the path at this point to increasing these already impressive numbers? But to be on the level that we would see in, you know, legacy markets.
- [21:27]
A
Yeah. The way I categorize the growth is that AAVE can grow based on the asset growths in on chain. And, and that means that there's a limited capacity for crypto assets to grow. Obviously, crypto asset Will they will grow significantly. We're big believers that all these protocols under underlying networks will onboard the population to actually like there's going to be like a big transformation from the same way we had like transformation of finance from you know, clayboards to paper, from paper to digital. And now we will have from digital to on chain. And what I think is going to happen is that these crypto assets and networks will keep growing and be the whole backbone of finance. But the second category of assets that will be significantly even higher is just purely cash, stable cash in stablecoin forms. And then the last more category that kind of is part of stablecoins as well, depending how do you want to categorize is securities that will come on chain as well.
- [22:46]
B
Tokenized stocks.
- [22:47]
A
Exactly, exactly. And tokenized stocks are interesting but even more interesting are the businesses and the stocks that people don't really have access. So like the reason Tesla is or any other stock that is listed on a publicly traded exchange is somewhat interesting is on chain because I maybe have programmatic access and it's easier for me to buy from non custodial perspective. But it still exists there so people have access to it. But there's a lot of really amazing companies out there that aren't traded publicly, are still private and probably are going to be in private because it brings them better execution and environment. And providing that access to everyone is really everyone can be in the part of the future of a company that will change the world effectively. That's why I think crypto by itself and crypto assets is not enough. We have to go and tokenize everything and AAVE will be backbone of all of these because we need interest rates, markets, we need the ability to unlock capital and do it in the most resilient fashion.
- [24:07]
B
What if BlackRock wants to just earn some yield on their dollars? Another cash treasury or Apple? What if Apple says I want to participate in defi, I want to take our pile of billions of dollars of cash and just passively earn a yield. Although I'm sure that they're actually doing that probably with short term Treasuries. But let's pretend in a world where they become interested in defi and they have this massive pile of cash, can they come on AAVE and do that? And how do we convince them that this is the way to do it?
- [24:39]
A
They can execute as of today and over time that execution environment becomes more easier. Because the thing is that AAVE provides as a base principle is anyone can connect and basically start supplying assets supplying stablecoins and today there's more and more options, how they get from fiat to stables. There's still problems with debanking. I just got debunked actually today.
- [25:11]
B
Oh my gosh.
- [25:12]
A
Yeah.
- [25:13]
B
Not in the United States though, presumably.
- [25:15]
A
No, this was in Europe. But it's still, it's 2025 and it's still happening. So it's really, it's not great, but it just showcases like how bad the financial system is, that if you have a business and you want to be an entrepreneur and you want to found something and you have a risk of losing the lifeline of paying the people's bills that are actually working for you and contractors and even collecting revenues, there is so much work to do still here. But in case of these bigger companies, they have more and more better access and I think over time the fintechs will understand that. There's a huge opportunity here to actually plug into DeFi. A lot of the revenue that is coming into fintechs today isn't actually the transaction volume. It's not that they're client bases are exponentially growing, it's the assets that they're managing of their users. So they're doing that in the existing traditional financial mechanisms and infrastructure, but in the future they could do that in DeFi. So what I think in the next couple of years we're going to see more and more integrations into the fintech ecosystem, like integrating DEFI into the existing fintech ecosystem. And that's where also these bigger companies come because they can use a trusted platform as an example or a trusted broker that helps them.
- [26:46]
B
You obviously you're decentralized, you're a dao, so it's not like you're a company that's going out and seeking regulation in various markets like a centralized exchange or other protocols would have to. But I would imagine there's still some regulatory challenges to growth based on this sort of wide breadth of different regulatory regimes around the world. Right. Some places where it's still the wild west, you can do whatever you want. Some places with extremely strict regulation where you might be entirely banned. And then places perhaps like the United States, where it remains to be seen, but clearly is thawing and the environment is improving. So how much does regulatory environment and change affect your business or even your adoption day to day?
- [27:31]
A
I think significantly, because the regulation itself, by what it is, it defines of what we can do and can do, not just as a company who is contributing to the whole ecosystem within DeFi and Web3. So the rules are really important even Though we're building and these networks are decentralized so they can operate as long as there's incentives for validators to run these networks. There's still a lot of effect from the regulation. And I think regulation is actually something that is welcome because it helps to actually clarify what is safe to do, what are the rules that we all need to follow. But the devil is in the details in the sense that wrong type of regulation can actually kill a lot of innovation or increase the barrier to entry so high that you can't really innovate on a level such as a startup. And I do think that for example peer to peer lending, crowdfunding was really big a few years ago and the space kind of like created a lot of opportunity. We saw a lot of innovation, but was quickly regulated in the uk, in the US and across Europe. And after that we basically saw that the cost of actually being able to provide these services and platforms increased significantly. So we didn't see any interesting innovation since then. So a lot of examples, not just from financial industry, but other industries where the regulation can really put a full stop into the innovation. And I don't think it's intention of the regulator itself to stop an industry necessarily unless if it's in our country it was.
- [29:40]
B
But yeah, okay, yeah, exactly.
- [29:43]
A
Thinking about the more of the future, but if there aren't the right stakeholders to actually commenting and helping and contributing to that piece of legislation, what quickly can happen is that the nuances of that regulation can actually stop certain things. So now we have to think about, for example, how do we need to think about DAOs, how do we need to think about decentralization, how do we need to think about smart contracts, what can be regulated, what shouldn't be regulated and how do we leave enough space for innovation. Because one of the biggest things that Web3 has been able to do is attract enormous amount of capital, enormous amount of talent and create enormous amount of interesting innovation. And even there are some projects that are already entering into a stage where that generating revenue like the AAVE protocol and avidao. So we need to be really careful on the actually the detailing. And I think in US we do have a really amazing situation in the sense that there is kind of like a progression on what will be the regulation and different stakeholders can participate into that. There's some also positive tailwind in the UK that is looking into regulating more crypto and thinking about what pieces can be regulated, how stablecoins should be regulated and how not. That is coming into 2026 European Union already has MICA regulation which establishes a lot of the rulings. So I'm net positive as long as it doesn't kill the innovation.
- [31:34]
B
I agree. I laugh at the fact that SBF was kind of the guy on Capitol Hill pushing for regulation that would have massively damaged defi when you look back at what he was proposing and how favorable it would have basically been to centralized exchanges like ftx. So it makes you worry about which people will be tapped to participate in that regulation, whether their opinion is based on self interest or actually for the industry. So I still think it's touch and go. As much as things have improved, there's still a lot of landmines out there. Let me ask you, if you were regulating Defi, what guardrails would you put in place? Or what do you think would be sort of a sensible structure defi perspective?
- [32:19]
A
It's really important to kind of like give a lot of, I would say like buffer for the community to be able to govern the rules. They want to operate within the dao. So I think that's, that's a really key part of it. I would also like try to map out what decentralization means and where that type of a spectrum is and once you reach decentralization, what that means to the project itself, to the DAO and the contributors. And a lot of these daos actually are kind of like foundations. So there aren't really real daos. They have some sort of like a legal wrapper there. And that's also kind of like a sad progression of having to wrap a DAO under a foundation because the rules are unclear. So that piece is the most important thing is that what happens when a project hits a certain point of decentralization and isn't operating as a business and what that means to the responsibility piece, because if you have hundreds of people participate or thousands participating in a governance model, you know, is it decentralized enough that there isn't really responsibility within, within the, the, the protocol or where that line basically is drawn? And I think that's fundamentally is going to be the biggest question for, for regulators to figure out now where, where to, to where to draw the line.
- [33:56]
B
Basically, Hester Peirce at the sec, who obviously is now in charge of the crypto committee there, was floated for a while to be the chairperson, but obviously has been in the minority with Gary Gensler for the past few years, has been floating that exact idea for literally years, which was called obviously safe harbor. Understanding that if you're going to create a decentralized Protocol, it's probably going to have to start with some sort of centralized authority and then there's some sort of scale over a three year period, you know, for example, where you slowly take these steps towards decentralization and you reach some goal. What you just described is like basically the perfect regulation has been proposed by a one of the five SEC chair people for years.
- [34:44]
A
Yeah, exactly. And what's interesting about the safe harbor is that you can't really have a decentralized system in most cases from the get go. And the reason for that is that a lot of that innovation now is happening on the application level. So no one like you still see new blockchain networks and some sort of innovation there, but that kind of area of innovation is somewhat capped. And most of the innovation is happening on the application protocol infrastructure, not the underlying blockchain network. And that usually means that you start from somewhere and over time, as you create resilience, you can start decentralizing the system. I actually think that's a good thing because you can protect the protocol, protect the users in many way by actually holding some sort of a control on certain functions of smart contracts without fully creating like a overhead governance. Because governance, while it's a really great way of managing a public good, it's also overhead in the sense that if you want to make any kind of changes into the actual code bases and whatnot, you can't really do it just like that. You have a public process and you need to expose every single change that is happening because that's executable code. So that's a rigorous process for anything. So if you are just innovating in the beginning, that type of a safe harbor will actually create a lot of innovation and also will create actually then a question at some point whether there is enough product market fit to decentralize. Why this is important as well is that we've seen a lot of projects in the past couple of years that they try to decentralize as soon as possible without any proper users, without significant signs of product market fit. And what really happens is that a lot of investors go and buy their tokens and at some point the value drops down and there's still no users. So you don't have that ability to take it slower and start from a centralized path and decentralize over time.
- [37:04]
B
It's interesting that you talk about the token. Obviously AAVE token still has done exceptionally well since inception, right? I think trading well over $200. But there was a time when it was over $600, right? And so when you look at your metrics that I described at the very beginning of this conversation, you would think that that value would accrue to the token and the token would be trading at all time highs. But we have this interesting interplay where price discovery in crypto in general is generally dependent on where the attention of the community is focused. Right. And so even when something does exceptionally well from a utility or fundamental perspective, it doesn't mean that necessarily the price of the token goes up. So how does this value increasing eventually accrue to the token, which obviously is what the community and the people participating want to see go up?
- [37:55]
A
Well, I think in overall the same kind of thinking applies to for example Ethereum and this kind of like a bigger undervalued projects where if you think about Ethereum and this whole idea of programmable virtual machine that everyone can use and create applications like the AAVE protocol, this is something that is needed for pretty much all finance. So it is fair to say that DEFI is the one type of a use case that has product market fit on chain. Stablecoins is another one. And arguably that's also kind of part of DeFi. So that the financial decentralized financial infrastructure is there and few protocols like AAVE and a couple of other ones have been able to establish actually profitability from that perspective. And the way I think about the valuations, where I don't like to think too often, but I think it's just a question of time when the attention goes towards where there's actually most progress and what is actually keeping its value. In our perspective, we have a roadmap that we're contributing into the avidao from the AVA Labs perspective and you have dozen other service providers that are contributing avidao with their own roadmaps. It's a truly decentralized ecosystem where if you move one piece of block, that revenue doesn't really drop, which is very different approach than for example a traditional company. So I think that there's a lot of attention in things that are very short sighted, but eventually what is going to take off is what has the highest utility for the users in all these use cases. So I think it's a question of time and my kind of like a main metric is not even tvl, but just trying to understand of actually how many users were onboarding all the time and different user Personas. That's why the institutional part is really interesting. Tokenization is interesting because that just unlocks a lot of that potential.
- [40:17]
B
You could see a doubling, tripling or Quadrupling overnight, effectively, if one of those gained real adoption, a whole new use case, completely unlocked as you described before. There's only so much growth within crypto itself. So a whole new user base, a whole new market, effectively unlocked for ways that people could use the protocol as it's already basically built.
- [40:38]
A
Yeah. And if you think about it, like all finance is going to be on chain and that's not something that happens overnight. We probably there's less than 0.00000, like a lot of zeros there. One percent of finance is actually on chain. Yeah, of course we're talking about like a little bit over 100 billion. Fluctuate between 100, 200 billion depending on the cycle. So it's truly nothing at this point. And over time, that's why I would say that it's going to take decades to get everything on chain. It just took us quite a lot of time to get from paper to digital. And that transformation isn't really complete in finance. There's still a lot of reliance on paper. Even you have this digital infrastructure and people can make mistakes and that's why you have blockchain for things like financial infrastructure. So I think it's going to take three to four decades to just get this adoption going. But things like tokenization will definitely help because it allows traditional institutions to actually rethink the way of how they create value and utility for their assets. So assets in the future are not only about getting someone to invest into assets, but actually a component of programmable infrastructure where you can make use in.
- [42:06]
B
What do you do with them after you invest in them?
- [42:08]
A
Exactly, exactly. So and the reason why this is going to take decades is we're not just changing the technical substrate of a financial system, we're changing the effect of the concept of money in overall. And doing that, it's a little bit tricky. Right. So we had a lot of tailwinds of regulation headwind and getting now more tailwind is great. But even with the best regulation and best people, best talent working in the space, it's still going to take decades for adoption.
- [42:44]
B
Yeah. And the other huge aspect of that is that it's one thing to go from paper to digital, it takes a long time. It's a technological advancement. This technological advancement and transition also requires killing the largest companies in the world and all of the third party incumbents that are capitalizing from the existing system. Right. It's not like Citadel and the DTCC and Visa and MasterCard are just going to go quietly into the night. And be replaced by. Right. So it might take decades just for them to figure it out and be able to capitalize it and utilize it. They'd be able to slow it down just to make sure that their interests are represented.
- [43:23]
A
Yeah, it's the same pattern. Obviously this has been very difficult for even fintech companies. We saw some of the biggest fintech companies really kind of like not paying any attention into DeFi and stablecoins and now are acquiring stablecoin companies at billion dollar acquisition prices. Exactly. And then traditional finance, we do have BlackRock that is already doing things on chain. Even at AAVE we participated in Project Guardian with JPM which was the first kind of like bank that did an experimentation directly on chain with DEFI on a permissionless network with a permission protocol. So things are moving onwards. But at some point obviously the bigger organization you are, the harder it is to actually scale this. Because even if the so called blockchain department or the kind of like a closet enthusiast DeFi enthusiasts that are working in these institutions, they will have hard time convincing the rest of the organization, especially if they're clueless. And I met so many people from bigger banks that are in a great positions and they don't have any idea what's going on. They don't know anything about DeFi, don't understand why it's going to replace a lot of their functions and change their business completely. And they're absolutely clueless. And this is actually like the most incredible thing that I, if I would work in a traditional finance and I know that my work will going to change in five, 10 years from now completely or might replace me, I will be interested in that technology. I'm not saying that all these banks are going to fully be replaced, but they need to go into transformation and understand how they can tap into this ecosystem. And some of the institutions are already participating in this arbitrage.
- [45:23]
B
Yeah, it's like five guys in an office who are the blockchain department at a company with tens of thousands of people. Yeah, exactly. And it's very exciting that they're there, but I think it just lets us know how early we still are. I think with that level of institutional adoption, I know we're kind of running out of time, but there's one thing I definitely have to ask about and that's been the proliferation of mean points because we talk about the prices of everything else I talked about at the beginning, but that's clearly where all the people who have been in crypto forever, who are speculators are going to spend their time at the moment. Right. We've seen the rise, fall, rise, fall rise of Salana as being sort of the meme coin casino. I'm not implying that's all that Solana is, but what do you make, I guess, of the meme coin market? Do you think that Trump coin and Libra token and a potential Kanye coin, these could be sort of top signals. We finally get a ceiling in some of the insanity ending and maybe the money flows back into things like AAVE and you know, real utility. Or do you think that we've flown the coop on meme coins and that's where the money is going to continue to go?
- [46:28]
A
That's an interesting question. I would say that's the biggest problem with these meme coins are that I remember reading a statistics about pump fun where was it 98 or 99 point something percent of. Was it even 99.8 point something percent of the users are actually losing on meme coins. So when you think about adoption and if you have hundreds, you have a group of 100 people and you know only one or like one partially wins from that equation, those 99 other users won't be happy. So I think there's an argument that yeah, they will come and create a wallet. You know, we saw that in the NFT craze. We saw, we're seeing that in this meme coin craze. We saw that when Bitcoin ethereum prices went up multiple times at different periods of the past decade. Those people aren't actively using on chain and why would they. There isn't that many things. There's aave, obviously that's amazing. It's not a full build ecosystem yet, but it can definitely create more wallets. But it creates more losers than winners and that might actually set back users. When you think about something like AAVE and being able to just earn yield, that's great because that creates something better than the existing traditional world. More transparent, more accessible. There's still a lot of people that don't have even access to dollar and of course not dollar yield. So that's like a major improvement as well. So yeah, I'm not that excited about meme points. I hope we don't see anything crazy and I want to see more builders going back to building fundamentals.
- [48:20]
B
Is there anything that I might have missed before I let you go? Anything that you'd love to touch on?
- [48:26]
A
No, this is probably everything we covered.
- [48:29]
B
Yeah, I mean I have to say you just alluded to it at the end, but Yield or otherwise. Stablecoins have proven still to be the killer app so far for crypto. And then being able to put those to work I think allows people to see what's possible with all other assets. And so I think that the growth of stablecoins and people testing defi with stable coins will still be sort of the gateway drug to real world assets and tokenization, all these things. Let me ask you one more question. If 99% of the people who are getting washed out on pump died fund, which we know is true, what percentage of users use AAVE and continue to use it or come back or ballpark?
- [49:08]
A
That's an interesting question because in AAVE you don't really have daily users. Users come in and just supply and they might keep there for a year or they might be more frequent user and actually daily user, but I don't have an exact number but it's actually in overall it provides a long lasting use case so you could keep your funds in AAVE for a year, for a longer period shorter. And for us, we don't mind if users come and use only once or twice. Our goal is of course capture that feedback and improve and create a better experience and that's why we're building the AAVE4. But in overall like we're excited for any anyone that is coming on chain and also making that easier for users.
- [49:56]
B
What I was getting at there is it's a much stickier experience. It keeps people coming back when it actually works and is boring and you make money doing it exact. Great way to finish stadi. Where can people check out aave? Follow you after this conversation and next conversation we'll actually talk about Lens protocols as well. We didn't even get there.
- [50:15]
A
Nice. Yeah. So you can go to aave.com and you can find more information about the AAVE protocol and the AAVE dao. Even participate in the community forum Stani Kuleshev on Twitter and Stani on Lens as well.
- [50:32]
B
Thank you so much Donnie. Really appreciate taking the time. Glad we got to do this and we will catch up very very soon. Thanks again.
- [50:38]
A
Thanks Scott.
- [50:40]
B
That's dope.
- [50:54]
A
Let's go.