YouSaid · the spoken record

Tom Schmidt

lines on the record: 46
first: 2021-06-28
most recent: 2021-06-28
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Not every protocol, not everything that comes out is going to issue a token. You can just create software and have people use it. And that is perfectly fine. That's sort of covered under the existing understanding of the law.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“They don't have custody rights. They're not executing trades. Certainly they run this front end, but it's just a website, right? It's not actually doing anything. You can go on the Ethereum blockchain and make these same sort of trades or become a liquidity provider or whatever. Because the software is permissionless, because it sort of runs without a middleman requiring to run it, it's sort of like BitTorrent, where BitTorrent can be used for legitimate purposes, but obviously people can use it for malicious purposes as well. But that doesn't make the creators of BitTorrent liable for those malicious purposes. DeFi, I think, has created a lot of, again, sort of consumer surplus. It's made a lot of facets of my life easier just, you know, going over the wiring stablecoin thing that I mentioned just a few minutes ago, but that doesn't mean that, and certainly everything within it is not super palatable, but that doesn't mean you have to sort of throw the baby out with the bathwater. I think the other element sort of that you mentioned around securities laws is certainly something that we consider, but I think that really relates more to sort of token issuance.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“It's definitely something that we think about. I think one interesting thing about dragonfly is that our team is sort of split between Asia and the US. And so I think we talk about things very frequently that's very much US focused view. But increasingly, a large part of exchange volumes up until very recently, a large part of mining volumes and increasingly a large number of DeFi users are coming from Asia. They're coming from Japan or they're coming from China. They're coming from Japan, coming from Asia more broadly. And so what we see is sort of a lot of global talent around the world that might not live in the US, might not be American, and might not sort of be, I think, reliant on a lot of the same issues that you see in U.S. jurisdictions. I think to your earlier point, what we see with DeFi a lot and why we sort of emphasize this decentralized element is most of what we seem today is is really covered under free speech where users, you know, for example, the developers of Uniswap, they've written this software, they've deployed it, but they're not taking fees.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Like when you do that, we do. We do. You never grow out of that, unfortunately. You always get a little skittish. But yes, just 100% superior to trying to send an international wire, waiting five business days, you know, praying that you typed in the correspondent bank number correctly, a stable coin such as Dai is able to do that just instantly. And I think that's really powerful. I think really the answer and sort of the most succinct, maybe a little glib answer is that it's going to do for finance with the internet and for information, where instead of being siloed, instead of being opaque, instead of being limited access, it's permissionless, transparent access to anyone around the world who wants it. And I think what we've seen is entrepreneurs will take that and they will develop novel products that we couldn't even imagine right now and probably can't imagine right now that will create this massive sort of consumer surplus.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I tend to fall back on these sort of old reliables. I think Maker is really just an incredible system, not only because it sort of demonstrates the power of decentralized lending, where again, anybody can show up with collateral, borrow any time of day. They can repay anytime they want, et cetera. And the whole thing is sort of self-sustaining. There's no company, but also because it produces this very useful asset at the end of the day, which is DAI. People, I think, inherently sort of get the value of a dollar, the ability to send these dollars back and forth on a blockchain. We often use stablecoins for funding where a team maybe isn't incorporated yet, or maybe they don't have a bank account yet. We can just send them stablecoins directly to their Ethereum wallet, and then they can go and pay their employees who are sort of distributed across the world.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Have sort of this pseudo cap table, I think is really powerful and is starting to come back through the rise of a lot of these DAOs.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that is true. That whole sort of tokenization process that I mentioned is somewhat human intensive, but I think over time that will come down and become more automated. Another interesting thing that we see happening in DeFi is sort of like capital formation. DeFi principles really low barrier to entry where if I want to go and raise funds to donate money to a cause or purchase an asset or start a company or whatever, I can go and potentially pool funds with other people inside of DeFi, give them sort of a pro ride of share in it. And then we can go and all take our money and go to whatever it is that we actually want to do. And so, you know, we sort of saw this sliver of an idea, I think, in the initial sort of”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“I can go, I can work with a partner, I can create a token for this asset, again, in a very regulated, legally compliant way. I can put that token inside of Maker, and now I can mint DAI, and I can convert that DAI against pegged one-to-one with dollars. I can go convert that DI to USD, send it to my bank account, and suddenly a maker is undercutting all these other existing invoice factoring services by, let's say, three or four X. And so because there's no middleman, because there's no employees, because there's not a lot of this operational overhead, it's just a smart contract, you don't need sort of these huge buys employees that someone like a neobank might employ. I just need to go and tokenize this asset, put it into DeFi, and then start borrowing against it. So this is starting to happen, but I expect we'll accelerate in the next year or two.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Lot of the financial services that are becoming very popular in the US and Europe, but have this sort of truly global 24-7 version of them that is in many ways superior. I think synthetic assets obviously you're still sort of looking at ways to sort of expand the existing financial system, right? These are just sort of extensions of the equities markets. I think the really cool thing is sort of what we call real world assets. So how do I go and get a mortgage for my house from maker? How do I go and trade early equity for my company on Uniswap? How do I go and actually bridge these things to the real world? And I would say that is probably the most nascent area within DeFi just last month. Maker, I think, sort of broke new ground where they are taking shipping invoices and using those as collateral and maker. And so maker basically becomes this invoice factoring facility where if I'm trying to get liquidity for outstanding debt from this invoice.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the median housing sale in the San Francisco Bay Area, or it can be a synthetic number of barrels of oil that are going to be shipped across the Pacific this week or whatever it is, you can go and create these really novel financial products, again, without having to apply it, without having to jump through a lot of the arduous hoops that are normally required. That, I think, is a really burgeoning area of innovation within DeFi where I can go and sort of get access to these products wherever I am around the world. And we already see companies that are trying to do this, and we see a lot of limitations with traditional brokerages, for example, around geographical restrictions or trading restrictions as we sort of saw with the whole, again, Robinhood GME thing. These services can't be stopped as soon as this sort of synthetic GME gets minted. Anyone around the world can go buy and sell at 24-7 wherever they are. So there's actually room, I think, to sort of grow.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Middleman and without having to subject themselves to financial surveillance, which I think is actually a huge plus. I think going back to your initial question, these are all sort of just different types of financial services for crypto assets. The big sort of question is how you sort of break out of this realm, right? Like how do you get out of just lending to Ether or just lending to Bitcoin? And I would say there's a couple different ways. I personally want to think about it. One is sort of through this realm of synthetic assets where I would say DAI is a great example. DAI is a synthetic version of US dollar. But there's many protocols that use that same mechanism of posting collateral and then minting debt and you sort of using what we call an Oracle in order to keep it in peg with some target price feed. But for other types of assets. So you can go on DeFi today and you can go and buy synthetic Tesla, synthetic Apple, synthetic GameStop stock, anything really. And it doesn't even have to be a real world asset. It can be the synthetic price.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Financial services that, in many ways, are superior, just not accessible to many of the people who are using them. I think a great example of sort of this permissionless innovation, there's this service that we recently back called Ribbon. Ribbon, one popular way people get yield is they sell covered calls, right? So I have some Bitcoin, I have some Ether. I want to stack more Bitcoin. I want to stack more Ether. I sort of care about accumulating. When you sell these out-of-the-money covered calls, in theory, they're not going to expire in the money. And so you get to collect the premium and just sort of keep collecting more Ether, collecting more Bitcoin. Ribbon, you know, this is a service that isn't really accessible to many people in the US. If you do want to do it, you need to sort of post $10,000 in collateral. You need to go through all these different types of hoops in order to actually get access to this thing. Ribbon, you can go. It's all on chain. It's all trustless. It's all decentralized. Anyone can go and get access to this sort of sophisticated structured product without having to go through.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Or trade my Bitcoin for USDC or vice versa. I would say that's actually a small percentage of what's happening in DeFi today. Most of it is sort of around Ether and other sort of DeFi native assets. But certainly for people who want Bitcoin exposure, it's a great way to sort of get access to these, again, sort of permissionless.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“That does make sense. I mean, I think the way I sort of think about purposes or sort of, don't I have been discussing what for sort of three main buckets, one of them just being financial services for crypto assets. So by and large, a lot of the services that you see in DeFi today are for Ether. So people hold ETH, they need liquidity against it. They want to trade it. They want to borrow it, whatever. All these sorts of different services allow you to do that. And there's even more sophisticated derivatives now where I can buy and sell decentralized options against my Ether and I can really do anything I would do on a normal exchange, but do it in DeFi. And increasingly, this is happening with Bitcoin as well, as maybe you alluded to, where there are tokens such as wrapped Bitcoin, which is sort of like USDC for Bitcoin, where a custodian holds onto your Bitcoin and midst WBTC on Ethereum. And now, you know, sort of going back to that initial Bitcoin DeFi dream, I can put my Bitcoin as collateral and I can borrow against it or I can trade my Bitcoin for each.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's sort of a little bit of this trade off where you can have that stability, you can have that, or you can have that decentralized stablecoin. But if you want to be perfectly stable, if you want to be really not volatile, there's a little bit of a crutch right now where it's sort of dependent on USDC. I think most of these teams have plans to gradually wean off of these centralized stablecoins because they see these same sort of risks. But you're right that right now it is a risk in the ecosystem.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Count is frozen. It's sort of functioning the same thing. And so there's always this risk that hey, that might happen to Maker or Compound or Uniswap or any of these services where they're sort of reliant on a stablecoin right now. Over time, I think sensible regulation will come around, hey, how are these things actually going to interact with the traditional financial system? I certainly don't think it's going to be everyone needing constant on-chain financial surveillance all the time. But in the interim, it is sort of this weird place where there's always a little bit of risk that something like that might happen. I think to your point that sort of speaks to the need for something like DAI, which right now has a percentage of its backing in USDC for the purpose of stabilizing it. So certainly they could get rid of USDC tomorrow, but basically DAI would trade above a peg because people like to take that USDC and quickly arbitrage die by minting it when it's above the peg and selling it and sort of capturing that spread.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“We'll put that up. I have to go through KYC AML. We have to be using. Everyone who's in sort of this middle party is being MSB. There's a lot of regulation in between to make sure maybe bad actors can't use this. With USDC, once it's minted, I can go and send it to you on chain, it's pseudonymous, you're just one address, I'm one address. And really, the KYC AML part takes place off-chain. So if you want to go take that million dollars and you then want to go redeem it, then you have to do KYC. But in the interim, it's all sort of being transferred on-chain. There's always this risk that, and we see this occasionally where USDC and Taylor both have the ability to black list and freeze addresses. So if they determine that these funds were seized as part of a hack or maybe they're being used for money laundering or funding terrorism, granted, this is a very, very, very small percentage of all the sort of activity that's happening, they can say, hey, actually, these tokens are frozen. They're not redeemable anymore. We're going to, you know, it would be like, you know, you're banking.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the stablecoin risk is a real one. Maybe for listeners who aren't aware, a stablecoin such as USDC, which I realize I've been referencing quite frequently, it's a token that lives on Ethereum as well as a few other blockchains that is backed one-to-one by dollars that are in audited US bank account. So one dollar comes in, one USDC is minted, and simultaneously you can then go and redeem that USDC so you can give center the name of the company, give them the USDC and they'll redeem it and wire you US dollars to the bank account that you want. So really, really simple one-to-one back. Now, the problem is this is sort of a little bit of a golden age of this is sort of pure regulatory arbitrage, right? Where if I want to go and send a million dollars to Yujo through a wire or through PayPal or whatever, yeah.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Settlement layer that anybody can tap into. And again, that allows sort of permissionless innovation, but you can still have these really nice financial services that sit on top of it that give people a really simple yield that that's when they get access to or really put them really easily borrow money if that's what they want. The two don't necessarily have to sit in conflict.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's about having exposure and having the ability to sort of go down to the metal and get access to it or audit it or do whatever you want. But there's always going to be people who are not going to want to be their own bank. I always hated that slogan that I think a lot of crypto people push because it's just not something that is appealing or feasible for a lot of people. I think of it a little bit sort of like email, where most people don't run their own email server. Most people don't have their own email client. They use a hosted service like Gmail. And Gmail sort of runs the email server for them. But email itself is still an open protocol. Anyone can go and run their own email server and I can go send you an email. You can go send me an email. That open protocol is always available to us if we want to use it. But of course, for convenience sake, a lot of people are going to end up using a lot of these sort of hosted services at the end of the day. So the beauty is you have this sort of global permissionless 24-7 auditable.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Compound, they'll take that comp, they'll sell it for more USDC, and then they'll go give it back to you at the end of the day. So from an end user perspective, you don't sort of see what's actually happening. You just sort of think about the yield that you're getting. And so for a lot of users, I suspect that's going to be the way they're going to use DeFi, much in the same way, most people, they don't think about trading bonds or selling complicated derivatives. They just think about putting money in their bank account and the bank sort of handles how to get actually interest on it. I would say there's still a good amount of abstraction that's remaining to make this stuff really palatable to end users, not even talking about a lot of the transaction costs and a lot of the scalability issues. But I suspect that's going to be a large part of the way people actually get exposure to this thing.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Amount of deaf interest in order to get leverage on some of these assets, right? Like the futures markets often hit 300% annualized or even lending markets hit 20% ETR in order to borrow stablecoins to get leverage on some of these assets. But if you're not a crypto person, if you just want to sort of earn some interest on some cash that you're held laying around, you can go to services like Coinbase or Blockfi and they will take your USDC and they will lend it out for you and you don't have to think about anything that's sort of going on under the hood. I think actually a great example of this is in China there's a company called Matrixport, which is actually one of a portfolio companies. And they've sort of pioneered this sort of CDFI. So it's half centralized, half decentralized, where it's a custodial service. They own Bitcoin. They own your USDC. They sort of take care of it for you. You can't lose it. But under the hood, they'll go out and they'll yield farm for you. So they'll go put your USDC into competition.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Buy SP and put it in their 401k and not really think about it. And so I think the answers comes from a couple different vantage points. One is just from a sort of offerings perspective, I think there are going to be more and more abstractions built on many of these protocols such that the end user doesn't really end up thinking about this kind of thing. And the impermanent loss example, you can sell off some of that yield to pay for any impermanent loss that you might experience or you might buy puts and calls so that you can sort of hedge out some of that volatility that you're exposed to. Ultimately, that can be bundled inside of structured product and sort of given to an end user. And so I'm not thinking about what's in this basket of goods that I'm buying. I just know, hey, I want to earn some yield on asset XYZ. And maybe this is a good way to do it. I think actually the stablecoin market is a great example where cryptocurrency users are willing to pay a large”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think right now there's definitely a huge sort of prosumer power user element to DeFi where there are people who sort of live and breathe this stuff and they sort of biased towards being active with it, right? Like I like tending my yield farms and I like sort of playing around with new stuff. And for the majority of people, when they think about financial services, that's not what they want, right? They want to.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Have been better off just holding on to that ether instead of putting it into the smart contract, but with enough volume, you can in theory make enough on fees in order to compensate for that loss. So at a very high level, that's sort of how the whole AMM impermanent loss sort of thing works is you're sort of banking that there's going to be enough volume so you're going to be able to create enough fees in order to offset sort of this drift in asset prices.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, so here's the caveat, right? This would normally be an absolutely terrible value proposition, right? You lose money as soon as you start to put assets into this smart contract. The way AMMs make up for this is by charging fees. So Uniswap, for example, charges 30 bits on every trade. And the idea is that with enough volume, those fees will begin to make up for any of that impermanent loss. And additionally, you sort of want what we call mean reverting assets. You actually want a lot of volatility because that's going to encourage people to trade. That's going to allow you to accrue fees. But ultimately, at the end of the day, you want those assets to sort of return to the ratio that they were when you put them in initially. And that's how you sort of avoid impermanent loss. But to your point, if those assets never return to that initial ratio, so let's say you become a liquidity provider for Ether when ETH is $10 and ETH goes up to $1,000, ETH is probably not going to go back to $100.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this thing is basically able to offer you a quote for any amount of asset you want to buy or sell through the smart contract. Now, the problem is, again, let's say you're that LP, you're the person who put in 10 ETH and 10 USDC. Well, now you suddenly sold a bunch of ETH as ETH has presumably gone up in market. And so you're worse off than if you had just held ETH and USDC. You have 5ETH, you have 20 USDC. That's only $30. You would have had $40 if you had just stayed. Impermanent loss refers to this concept that in a concept product market maker, as the market moves, you will have less busy, less assets, less money than if you just held on those assets and not put them into the smart contract.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Formula, sort of the most popular style of AMN is what we call a constant product AMM, meaning instead of asking a market maker, hey, what kind of quote can you give me if I want to buy or sell 100 shares of Apple? The answer is whatever the formula sort of spits out. And so that's the quote that you're going to get. And the way this works, again, in a constant product sense, is let's go with another simple, really simple example. Let's say I want”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, yeah. So permanent loss refers to this future, this byproduct of what are called automated market makers. And so automated market makers are smart contracts that perform the function of a normal market maker on a normal order book based exchange. So normally, let's say you want to go and I don't know, trade Apple stock on the exchange of your choice. Maybe you want to buy at a certain price, you want to sell at a certain price. You have a market maker who's holding inventory that is quoting you on both sides, right? They're posting orders to buy. They're posting orders to sell, to provide liquidity to this market so that if anyone wants to show up, they can buy or sell Apple stock at a reasonable price. Now, these same sort of market makers exist in crypto where you go on Coinbase and you have market makers holding Bitcoin inventory, US dollar inventory, and they're sort of posting these orders to make sure that there's sufficient liquidity in the markets. An AMM basically replaces that function with”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“And certainly there's a lot of overlap with FinTech, but there's a lot of things that are new and sort of expand the market beyond what something like a strike could do, for example.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Available some of the time, and you sort of have to trust that the data is available, but sort of that the core base layer is not auditable and is not transparent the same way it is with a lot of the projects that are being built in Ethereum or in the Ethereum DeFi ecosystem. So those are sort of how I think about a lot of the value props of DeFi. The fourth obviously being and sort of the direct analogy to FinTech is programmability. The difference being with DeFi is I don't have to rely on a particular company to grant me API access to be available when I'm available to have particular uptime, to do whatever it is I need it to do. The API is sort of embedded into the contract, into the product itself. So as long as the Ethereum blockchain is running, which it almost always is, you can go and call into any of these contracts as a programmer and actually go and build new applications. And so those are sort of a few of the core value props when we think about DeFi.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, site sort of 2008, where you had all this sort of crazy debt, all these crazy derivatives that were piling up. And after the crash, we saw that many different parts of the US financial system were levered like 3.5 to 1. And that wasn't really revealed to us until after the crash because there was not really a lot of transparency. It was just technically wasn't really possible to see all the different instruments and all the different ways people were positioned. With DeFi, as I was sort of alluding to earlier with Maker, you can go to any of these websites right now. You can look at the Ethereum blockchain itself and pull the data. And you can see exactly how much data is issued. You can see exactly the credit balance of every account. You can see the revenues of Maker. You can see who's going to get paid, who's going to get liquidated, et cetera. And so this thing is 100% transparent and 100% audible. And that just prints us this huge sort of step function leap over what is possible today where you can have people that maybe make an ATI that is up or”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“This whole thing gets really exciting, where I don't think you incorporate it. I don't have to live in a particular locale. I don't have to meet certain requirements. As long as I can write software, I can go and experiment. And I think that sort of permissionless innovation is sort of what made the internet what it is, where I don't have to go and apply to the FCC for the license to broadcast and buy all this equipment to set up a television station. I can just go and take my camera and start posting it to YouTube. And that's where you sort of get this consumer surplus where these entrepreneurs all around the world are constantly devising new better financial services and they have a very low bar in order to actually deploy them and make them accessible to anyone around the world. So you have not only sort of permissionless access, but you also have permissionless access for builders who can, again, just use this thing as long as they can actually write software. And the third thing that makes it interesting is sort of transparency around it.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's another great question. And I think it's frankly a large part of the appeal of DeFi. I would say regulatory arbitrage, I think at face value maybe sounds like a bad word. But when you look at something like Uber or you look at something like Airbnb, where regulations were probably overly arduous and probably hampering the growth of this market, I think what's interesting about DeFi, there's a couple main components. One being the sort of permissionless access. So anyone around the world can go and use these different protocols any time of day, any time of night, anytime anywhere you are, you can go and trade. You can go and borrow. That's a pretty powerful, I think, concept that you don't have to be living in a particular area. You don't have to be of a certain status or be able to post particular collateral in order to use any of these things. And so you have this truly sort of global market from day one. The other, as maybe you were sort of alluding to, is sort of permissionless to build on top of. And that's where I think.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“They're a good example of one of the few protocols that actually has those sort of cash flows turned on. But certainly to your point, there's a lot of speculation right now around, hey, when are fees going to be turned on? If they're going to be turned on at all. I think there's a counter argument too, which is, hey, these are all very nascent protocols, right? You really don't want to be charging fees right now. You want to be incentivizing growth. It's sort of like, you know, if you're an early stage startup, you don't want to charge full fee. You don't want to sort of be maximizing revenue. You want to be maximizing growth and think about how to sort of turn on revenue down the road.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“There's not enough collateral to back that up. So, where are you going to get enough collateral to sort of reback this diet? And the answer is that the MakerDAO protocol will mint and sell more MKR in order to recollateralize itself. So in one sense, you're governing the protocol, but you're also taking on this risk because there's a chance you might be diluted if this system accrues debt. And so in response or in compensation for that risk, MCARA holders also get reward in that they are entitled to all that interest that is being accrued by the system. That interest is then used to buy back MKR off the market and effectively give that back to MKR holders. So MKR right now, you can look online. There's a website makerburn.com, which will tell you how much cash flow is basically being given back to MKA holders every single year. And it's pretty insane. I think the last time I checked it was maybe $100 million or $200 million that is bought off the market and basically given back to MCARA holders.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Up, they can put down collateral and then they can borrow DAI, which is the natural stablecoin, their native stablecoin against that. So you can put down $200 worth of Ether. You can borrow 100 DI against it. And now you have liquidity, which you can use for operating expenses to pay taxes, to send to your friend, whatever. You have this die, which is pegged to a dollar, and you can use it for any purpose. Now, Maker, obviously, it's a lending facility, so I have to figure out how to set rates. Rates get set by MCAR holders, so it's not being done programmatically. MCAR holders basically determine how much interest to charge people who want to borrow against and people who want to make die. They also take on risk where let's say that they onboard bad collateral. They want to add iron token as collateral into maker. People mint a bunch of dye, suddenly die is, suddenly, you know, the price of iron drops by 99%. And now you have a bunch of unbacked dye. So you really want dye to trade at a dollar.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, this is maybe a little bit of a touchy subject in DeFi because people do not want to sort of screw it around this topic. But I think a lot of people, a lot of investors definitely see it that way where with Compound, there's no company, right? There's no entity that I want to get take equity in that is going to take some profit. But the protocol itself obviously generates tons of revenue. And so there's sort of an idea that, hey, these are sort of going into the company treasury. They're on this protocol balance sheet. And if I have control over that, much in the same way that maybe I have governance rights in a company that has $100 million on the balance sheet, certainly those governance rights should be worth something, even if maybe I'm not entitled to dividend rights at the moment because I can vote in dividend rights down the road. I think one of the very earliest DeFi protocols makerDAO actually launched with this sort of baked in where MakerDAO, it's a decentralized credit facility where anybody can”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Comp two people who are using Compound, so people who are borrowing, people who are lending, anyone sort of proportionally to how much you're actually doing either of those things. So how much capital you were actually borrowing or lending. In addition to this 6%, you started to get this supply of comp tokens. And basically that yield comes from sort of the market price of where people think comps should be trading at. So if I'm earning, again, 6% on that USDC, them earning a few comp tokens and let's say comp is trading at a few hundred dollars suddenly you sort of project out these sort of two combined assets I'm getting both the USDC, the stablecoin interest plus the comp. And suddenly my APR looks huge. And so people have basically been tweaking this over and over again different ways of doing this liquidity mining where they're incentivizing growth of the protocol by giving away this native protocol token. And that's a large part of where you see a lot of these numbers come from.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Takers of all of that for us. And then they also set the rates programmatically. So Compound had been around for about a year and a half or so, but about a year ago, so this is March 2020 or May 2020, they announced this program, which has since been dubbed liquidity money, where in addition to the returns that you would get, the interest that you would get just for lending out assets to somebody who wanted to borrow. So let's say maybe 6% on your stablecoin, your USDC, your Ether or whatever, they'll also give you some comp tokens. So comp is the native governance token of compound, where people who hold comp can vote on how to upgrade the compound smart contracts over time. So if you want to add a new feature, if you want to add new types of collateral, if you want to adjust rates, comp holders get to vote on chain as to how that actually gets upgraded. So there's no central party that actually controls this thing. So Compound started giving away about 50% of the total supply of”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, this is, I feel like what has sort of brought in part DeFi into the mainstream maybe over the past years, people see these eye-popping returns and wonder kind of what's going on because it sounds kind of insane. I think we sort of saw that with the whole Mark Cuban iron finance thing maybe a week or two ago, I think yield in sort of the DeFi space comes from a couple places. The main source of yield that sort of drives, again, these huge numbers that we talk about actually comes from these protocol tokens that are given away. And very concrete example of this. One of the first projects to do liquidity mining was compound finance. Compound finance, it's a decentralized money market on Ethereum where people can deposit lenders and borrowers can deposit assets into the smart contract and then borrow against it. And if they wish. And so I don't have to call up a lending desk, get a quote, hope that they're open, have them custody my assets. The smart contract sort of”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“You could also say maybe it was just too early, right? A lot of things that are happening in DeFi right now, again, were being discussed five years ago, but if you don't have the users, if you don't have the liquidity, if you don't sort of have sort of this confluence of people and capital, you can't really get a true market farming. And so some of the problems we're obviously technological, where, you know,”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Are there a number of very early attempts to basically build DeFi these same sort of financial services on Bitcoin? One of them is still around and quite well known. It's called Rootstock, basically a sort of sidechain that sits alongside Bitcoin where people can write smart contracts that they can on Ethereum that do the same sort of things that early DeFi protocols can do now. Another sort of blockchain called BitShares that came out on the same time that again had a lot of the same ideas that we see in DeFi now where you could mint debt, you could borrow, you could exchange, it's hard to say why a lot of these didn't take off, certainly for some purposes, the developer experience of building these things is pretty brutal compared to the developer experience of building something on Ethereum. And so there's an argument that, hey, you just don't have that sort of nexus of developers who are going to make all these things that interlink. It's just probably not going to happen. You're not going to sort of hit that.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Exchange where you and I can agree to a trade off-chain. You can sort of find each other. And then this smart contract basically acts as sort of the counterparty. It's the executor at the trade. So we don't have to trust each other. No one's actually taking custody. This piece of code sort of runs it for us. So I ended up working at 0X for about two years and then joined Dragonfly about a year and a half ago to do investing for us and specifically focused on DeFi.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Hey, there's this new asset, but it sort of stuck. It's this form of money, but we can only just sort of send this money back and forth. And people want to do other things with it, right? People want financial services. People want to be able to exchange. But in order to do that with Bitcoin, you have to go through a centralized party like a Coinbase or like an FTX. And they have to custody your Bitcoin. They might go down. They might lose funds. They might exclude you. And so there's sort of those weird paradox where you have this great decentralized currency, but you don't have any financial services that are also that also have those same properties. You know, one of those main functions that I mentioned was exchange. Decentralized exchanges have been around for a long time. People have always been trying to build them. I ended up getting back into the cryptocurrency space in 2017 when I joined ZeroX, which is one of the very first decentralized exchange protocols to run product for them. And ZeroX is sort of this peer-to-peer.”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's funny that DeFi is now sort of a thing that people talk about. But it did sort of come from nowhere. I think in many respects my sort of entrance into crypto sort of parallels DeFi in some way is not to get too poetic. I really got into crypto during college. I was writing this sort of computer science ethics paper on interesting topic that anyone can choose. And I ended up doing this sort of Bitcoin regulation back in 2012. And I thought this was this brand new asset. No one really knew what to do with it, sort of thinking through, hey, how might this thing be viewed in the eyes of the law? And then sort of actually pivoted into Bitcoin mining from my dorm room along with a couple other friends. And that was sort of when I got interested in the cryptocurrency space overall. If you look at those early days of Bitcoin, sort of 2013, 2014, the things that people are doing are doing in DeFi these days, people were talking about back then, back on Bitcoin talk, where they're trying to do where”
2021-06-28 · Odd Lots · Tom Schmidt Explains What You Need to Know about DeFi · IDENTIFIED FROM THE TRANSCRIPT · source