Interview with Su Zhu: Community rather than VC has promoted the prosperity of DeFi, and DeFi decentralization is a process


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Su Zhu believes that the adoption of DeFi products will eventually be concentrated in Asia, and the VC model seriously hinders the development of DeFi.

Lianwen has been authorized by Uncommon Core to translate and publish the Chinese version. Uncommon Core is a podcast dialogue program co-curated and hosted by Su Zhu, the founder of Singapore’s compliance hedge fund Three Arrows Capital, and Hasu, an independent researcher of cryptocurrency. , Listening address

Compiler: Leo Young

Hasu , a well-known cryptocurrency researcher and host of Uncommon Core, recently discussed some hot topics in the current DeFi boom with Su Zhu , the co-founder of hedge fund Three Arrows Capital, on a podcast recently, especially the conflict between decentralization and centralization. Some views are worthy of attention.

Su Zhu believes:

  • Can’t expect DeFi to be decentralized as soon as these things are built
  • It will take many years for the prophecy machine to be complete, and it will not be possible to achieve true decentralization before it is complete.
  • It is difficult for DeFi projects to strike a balance between obtaining funding, attracting talent, decentralization, and providing products that users really want
  • The adoption of DeFi products will eventually be concentrated in Asia
  • There are problems in the encrypted VC field, and many groups are accustomed to follow suit, which accumulates risks

Hasu: DeFi is a hot topic right now, and it looks promising. However, I have also heard many people say that this so-called “decentralization agreement” is all about the moon and flowers in the mirror. People will say that every DeFi agreement is “secretly centralized.” Take management keys or governance tokens as an example. In the Maker protocol, if someone controls a sufficient number of governance tokens, they can basically control the governance contract and fork out any rules they want at any point in time. Another important component is the oracle. People say that these (oracles) are “almost centrally controlled.” For example, taking the Compound protocol as an example, people within the company may manage the oracles. They don’t even disclose how many different oracles there are or how they work. How do you respond to such claims?

Su Zhu : I think these are just current facts. You can’t expect these things to be built and then decentralized immediately . The reason is that there must be funds to pay the developers, and there must be the ability to change things that didn’t work in the first place. So, if you give it directly to the community at the beginning, you will never have enough funds to build your product, and you will not be able to extract some value from what you do.

Secondly, if you just hand them over, you will not be able to upgrade them correctly.

In 2017, we saw many scams by centralized teams. At that time, centralization almost meant a scam. However, for every protocol in DeFi, I believe that they have a development path and a roadmap. As time goes by, they become more and more decentralized , and many of them are linked to their available resources at various points in time.

As for the issue of oracles, you know, they must have several private oracles, because it will take many years for the oracles to be complete . It is impossible to achieve true decentralization until it is complete.

You blame them for starting to build various products before decentralization is really feasible. I think it’s a bit too demanding. On the contrary, before being completely decentralized, they should attract a lot of capital, but it depends on how high their own moral standards are. If they are kind, I personally think why not do it this way. However, if they absorb billions of dollars everywhere, lock these assets, and then run away with the money, it will be very bad.

I think people may easily fall into a state of mind: it is decentralized, it is good, and if it is not decentralized, it is bad. In practice, the product is to go into the center of the target, but they can not go to the beginning of the center, has not really been any project to the extent of completely decentralized.

Hasu: Decentralization is not just a fashion. It is not an end in itself. Decentralization is often a means to an end. In my opinion, this is the ability to withstand supervision. Therefore, the only goal of many cryptocurrencies is to regulate arbitrage, because it is better not to use the blockchain, right?

Su Zhu : Yes, by this standard, all DeFi teams have failed to some extent. Because they are still very public , they speak on Twitter, and they write articles on the Medium blog. They are everywhere and attend all meetings. They are afraid to do something dangerous, right? Therefore, so far, there is no clear agreement to synthesize stocks. Have you thought about why not? I think this problem is back to my original point, that is, you need to attract talents to build these things, and you need real skills to build these things. It’s not that these things pop up inexplicably when people wake up. At some point now or at some point in the future, I think something very cool and more disruptive will be released, a bit like the original vision of the blockchain.

I must say that the ideal thing is very fascinating: get people together, come up with good ideas, do them, and then publish them. Everything works fine, and no one tries to profit from it. Unfortunately, this is not the real world. Even for products that are well funded and developed over many years, development work is still in progress, and loopholes are still being discovered. Take smart contract audits as an example. If it is a team without funds, a poor anonymous team, who will pay for your product audit?

Hasu : Yes. You can compare DeFi projects with projects like Bitcoin or Ethereum (mainly Bitcoin). For a long period of time, the audit was conducted by core developers. Bitcoin is like having dozens of unpaid auditors. This can be done when the project has a strong ideological basis, but it is difficult to do for more mundane financial services.

Therefore, it is difficult for DeFi projects to strike a balance between obtaining funding, attracting talent, decentralization, and providing products that users really want. In my opinion, what users really want is those services that may violate regulatory regulations, and DeFi is too advanced to provide these things, such as S&P 500 component stock synthetic assets or Tesla stock synthetic assets, etc. Wait.

There is another topic of governance that is interesting: who controls these DeFi protocols? I think for Maker and Compound, the main investors are from the United States. A16z is the largest investment institution in these two projects. A16z itself is a US-based fund, and they may have to comply with court orders or other things. Therefore, I am thinking…what are the pros and cons of building a DeFi agreement in the United States, and also think about, for example, your company and major investors are in the United States, are you willing to let this emerging DeFi agreement leave the United States and move to Asia or Switzerland?

Su Zhu : I think the adoption of DeFi products will eventually be concentrated in Asia . Due to the high difficulty of these projects, the developers of many of these projects are based in the United States. But soon there will be changes, because DeFi applications really need to attract users and need to keep in touch with people’s actual needs. There have been many good projects recently, and they are all in Asia.

I also want to talk about the issue of token distribution. The Maker and COMP issues you mentioned are also issues that I often struggle with. I think the goal of VC is to finally exit and then return the money earned to the limited partners . That kind of thinking is obviously not the goal of the project you support, right?

The product you support hopes to be immortal, right? They want smooth governance and mass adoption. However, the funds supporting these projects will eventually need to be withdrawn. Investors need to consider how to make the token price higher or how to withdraw. This may be detrimental to the team-high token prices may not be conducive to adoption, but investors need tokens The price is high, which will definitely hinder the development of DeFi.

But the irony is that you know that some of the smashing projects in the past few months, such as Aave (its token is LEND), the price of LEND has increased by 50 times, and Synthetix ‘s token increase has also reached an astonishing rate Multiples of. Both of these are very grassroots Ethereum projects, with a very large community of anonymous users and contributors , and are very different from VC’s way of thinking. Moreover, I think there are also problems in the VC field. Many groups are accustomed to follow suit. If A16z makes a deal, then everyone wants to make the same deal. Many funds subsequently invest in each other. I published an article on this issue at the end of 2018. If you have studied how many such funds invest in each other , you will understand that this approach is actually very dangerous for this field, because they all want to cover the other’s ass.

Think about the Coinbase gang , then look back at how many VCs support Coinbase, and then go back and see how many tokens supported by these VCs are listed for trading by Coinbase. So I’m thinking, is the same in the DeFi field? The answer is yes, it seriously hinders the development of DeFi because they cannot take risks and cannot propose projects that solve actual use cases. They must consider how to tell a good story, how to push up market prices, and how to put their current investments into the next fund-raising PPT.

But I think the situation has changed a lot in the past few months. After the death of the entire ICO, only ultra-blue-chip funds can raise funds, and other funds have difficulty raising funds because investors are now thinking more precisely. They Know that the distribution of funds also has a strong power law distribution .