Moderator: Alex, Research Partner of Mint Ventures

Guest: Min Dao, founder of dForce

p>

Hello everyone, welcome to WEB3 Mint To Be, launched by Mint Ventures. Here, we continue to ask questions and think deeply to clarify facts, explore reality, and find consensus in the WEB3 world. To clarify the logic behind hot topics, provide insight into the event itself, and introduce multiple perspectives of thinking.

This episode is the second episode of the "Current Status and Future of the Web3 Track" podcast series. Let's talk about Defi. The present and future of the most mature track of Web3 business model. In the last issue, we talked about the topic of Crypto AI. In subsequent series of programs, we will invite corresponding guests to talk about Meme, public chains, Depin, games & social networking, Payfi, and web3 related topics.

Alex: In this podcast, let’s talk about Defi. We invited Mr. Mindao, an OG in the DeFi field, who had also participated in our podcast before. At that time, he was talking about AAVE and stablecoins. First, I would like to ask Teacher Mindao to say hello to our audience.

Min Dao: Hello everyone, I am very happy to come to Mint Ventures today to talk about DeFi. It has been some time since the last time we talked. The whole DeFi The track has changed a lot, and I think I can take this opportunity to give you a summary and share some observations.

Understanding and interpretation of Defi

Alex: Okay, very much looking forward to it. Among the listeners of our program are many friends who have not officially entered the industry, and there are also quite a few new friends who are interested in Web3. So the first topic we want to talk about is for those friends who have not officially entered this industry. Teacher Mindao actually started practicing in the field of DeFi a few years ago. If you have friends who are not very familiar with encryption or Web3, and they ask you what DeFi is, how would you use them? Can you introduce it in understandable language?

Min Dao: In fact, every one of meEvery cycle will face this problem, that is, how to explain Bitcoin, Ethereum, and DeFi. Because Bitcoin has reached a new high at this point in time, many people in the circle will ask me what DeFi is. I think the good thing about this is that many people have a concept of Bitcoin, which is a non-sovereign currency, or electronic gold, and a decentralized system. So now these friends ask me if they know anything about Bitcoin itself, my simple statement is: Bitcoin is a currency, we treat it as a decentralized currency, then DeFi is an expanded version of Bitcoin. In addition to currency, all the financial systems that we have access to in traditional finance, such as transactions, payments, lending, and banking services, can actually be realized in the expanded DeFi field. You can think of it as an expanded version of Bitcoin, an application version of Bitcoin, which is what I explain to my friends now, and many of them can get it. Of course, if you don’t understand Bitcoin at all, you may need to introduce it from the perspective of decentralization and non-permission, but I think most people now can easily get DeFi itself if you use this metaphor. some essence of.

Alex: Yes, then they often add another question, that is, Bitcoin can be understood as an electronic gold and a non-sovereign asset. But most of our current traditional financial services seem to be quite convenient. What is the additional value provided by DeFi? If they ask that, how do you think they can sum it up?

Min Dao: Because I come from traditional finance, I think people who work in traditional finance actually know that the current supervision of traditional finance is completely over-regulated. Yes, this is why it is so difficult to open a bank account now. There is now a lot of debate in the United States that many technology companies, especially some entrepreneurs in the currency circle, have been so-called debanked (cancelled banking services) and have no banking services at all. I think if we really compare with 10 or 15 years ago, traditional financial services are becoming more and more difficult to use, the threshold is getting higher and higher, and the resistance is getting bigger and bigger. So I think the biggest difference between what DeFi provides and traditional finance like TradeFi is that essentially I think DeFi is a return to the essence of finance, which is an information network. Our traditional finance has completely fragmented this information network. The differences between various supervisions and the supervision of banks themselves have resulted in information transmission being completely fragmented and the resistance is extremely high. DeFi restores it, and finance is information. So whether you are doing transactions, issuing assets, or making loans, you are returning to the transmission of information without any obstacles, so-called non-permission. This is also what I think in DeFiFacing the biggest improvement in traditional finance. As long as your information can be transmitted back to the so-called speed of light without any obstacles, the capital efficiency will be thousands of times higher than that of traditional finance. And we now see that this is actually the case, that is, in DeFi applications, you have to compare with traditional finance, such as lending and banks, trading and exchanges. The stock exchanges in the United States still have holidays and cannot be opened on weekends. You need to open an account and get permission. As an ordinary person, you cannot trade U.S. stocks, Chinese stocks, and Russian stocks at the same time. But national borders no longer exist in DeFi. So actually I think DeFi restores finance to an information theory perspective, it is information. So DeFi is about transmitting information most efficiently and at the speed of light. But in traditional finance, you find that information does not travel at the speed of light. I don’t think it can even reach the speed of sound, because there are checkpoints stuck everywhere, including national border checkpoints, regulatory checkpoints, and checkpoints between banks. So in terms of efficiency, in fact, going back to the most basic principle, DeFi must be many times higher than traditional finance.

Opinions on the current situation of the Defi track

Alex: Got it, let’s talk about a more in-depth topic. In fact, as of today, we can think that DeFi has developed for more than two cycles. The real round of applications blooming was actually the last round, that is, the round of 20 and 21. We call it the first year of DeFi, or DeFi Summer. A large number of new projects emerged, but in fact they have survived to this day. Very few. And judging from the current number of innovative new projects in this round, there are far fewer innovative new projects than in the previous round. Teacher Mindao, how would you evaluate the current overall state of the DeFi track?

Min Dao: In fact, I think the entire DeFi track is very similar to the innovation in the technology field, especially the financial field. At the beginning, a hundred flowers bloomed, and various Tell the story. Because everyone has not yet understood the narrative itself, during the DeFi Summer, new financial methods really came out every day. But you find that after sufficient competition finally comes, a few tracks will settle down, which are what we call verified tracks. In fact, looking at these two cycles, I think the foundation of DeFi, which we call primitive, has not surpassed that of 2019. In 2019, we happened to be in the first wave of DeFi. You can imagine that in 2019 there were Uniswap, MakerDAO, and Compound. Compound was the first to do pool lending. Aave was also known as Etherlend at the time and was doing P2P lending. Its approach was wrong., later it copied Compound’s approach and then got up. So at that time, the entire DeFi primitives were just three: stablecoins, AMM and lending. Let's look back at the present. The foundation of the entire DeFi has not changed. There are some variants above, such as making some order books, some including concentrated liquidity, and then AMM makes some improvements. In addition to the current pool lending, there is also isolation pool lending, but in essence I think it is not separated from these three methods. So the current situation on the track is that I think there are two particularly interesting changes from the two cycles. One change is that DeFi has been heavily commoditized. Every new chain, every Layer 2 that comes out, has the three big things: stablecoins, lending, and AMM swaps. These three major items, each chain, have been commercialized in large quantities. Of course, a lot of them are copied from the codes of these projects that are already in the market, because they are open source, and Uniswap and Aave all use these codes. But at the same time, another very interesting phenomenon is that while being commercialized in large quantities, the degree of concentration is also increasing. For example, Uniswap's spot trading share and Aave's share in the lending field are increasing. So this actually reflects that in the DeFi track, I think these two things, commoditization and increased concentration, happen at the same time. In fact, there have been many new DeFi applications in the past few years. Of course, this is also based on changes in everyone’s understanding of DeFi. From the traditional so-called DeFi with decentralization as its core, now there are many applications combined with De-CeFi. So I’m not saying that there is no innovation. In fact, the track has been highly standardized at the basic primitive level, just the three major items, and these three major items have also been commercialized in a very large amount, and the concentration is increasing. But also at the segmentation level, some new DeFi applications and tracks have emerged. I think this is a very interesting phenomenon that will appear as the infrastructure is developed.

Alex: Yes, you just mentioned the three major items: stablecoins, lending, and AMM swaps. And for derivatives, there are actually quite a lot of products that have been produced from the last round to now. What do you think of the derivatives category? Is it suitable to be done in DeFi? Are you optimistic about its subsequent development?

Mindao: This point may be related to another issue, that is, what is the underlying logic of the evolution of the entire DeFi track. I have always mentioned a so-called first principle of DeFi in my previous sharing. What are first principles? First of all, it must be where the resistance is greatest, and it will be applied first. for exampleSpeaking of Ethereum Layer 1 in the past, you can think that the main force of its medium is very large. Even if the speed of light is transmitted to Ethereum, because of its gas cost, its throughput is very small, so it can happen on the main network of Ethereum. DeFi is limited, which is the previous ones we talked about. For example, why did Aave fail to do P2P lending before, and why did it succeed with the pool model? Just because P2P lending cannot be used on a main chain with high gas and low throughput, its efficiency is too low, and the efficiency of individual matching is too low. Similarly, why does order book not exist on the Ethereum mainnet? At that time, dYdX did order book on the main network, but later withdrew it and went to StarkNet to do it. Now it is building an appchain to do it. You find that the order book on the Ethereum main network does not work, and AMM was established. In fact, I think the establishment of all DeFi applications follows one principle: from low-frequency applications, such as lending, such as AMM, which are actually not that high in frequency, and stablecoins, which are also large-amount, low-frequency transactions, to In the future, layer 2 or new layer 1 with better performance will become more and more popular. After it comes out, you will find that mid-frequency and high-frequency applications begin to appear immediately. Then what we just talked about, the so-called perpetual aspect, why are centralized exchanges doing it now instead of doing it on the previous Ethereum mainnet? Because centralized exchanges are a place where the most frequent applications can come out, perpetual can only be created in this environment. But we see that what is more interesting at this time is that the new high-performance layer1 and high-performance layer2, as well as appchain, are appearing in these three tracks at the same time. We are talking about perpetual trading, and the magnitude is huge. For example, in Base, Synthetix Futures, and Arbitrum like GMX, and now Hyperliquid, which is very popular recently, is the Cosmos SDK like dYdX. You will find that in fact, so-called perpetual applications are high-frequency applications, and they must have a high-frequency application. The frequency infrastructure supports it. That's why this cycle we're seeing a lot of perpetual coming out. I think perpetual in this cycle may not be able to compete with centralized exchanges such as Binance or OKX, because it still has many performance problems. But I think with layer 1, including things like Hyperliquid, you can think of it as an appchain that is very close to the experience of a centralized exchange. With the emergence of this kind of application chain, I think in the future, perpetual It is entirely possible to compete with centralized exchanges in this area. Of course, you can't compare one to one here, and you don't need to. Because after all, one exists in a DeFi or permissionless model, and the other has KYC and other things, which is more like a centralized exchange model. But in terms of performance comparison, I think it may be infinitely close to the experience of a centralized exchange.

DeFi’s potential space and evolution

Alex: In fact, you just said that from 2019 to now, the three major items of DeFi are or are the most popular ones in the market. The types of applications being verified haven't changed much. Therefore, many people say that the basic innovation of DeFi has actually been completed, and think that there may not be too many surprises in the future. It seems that this round we haven’t seen as eye-catching products as the last round. However, some people still believe that the potential of DeFi is far from being unleashed. What is your opinion on this point of view? If DeFi still has a lot of room for growth in the future, what do you think are its driving factors? How might it evolve?

Mindao: In fact, at the basic level, because the entire DeFi is based on the blockchain architecture, it is block by block, so we see why at the basic paradigm level There are not many innovations, essentially because whether it is the Ethereum mainnet, layer2, or Solana, the underlying infrastructure is still built according to the block by block model. But the whole DeFi, the change between this cycle and the previous two cycles is that everyone’s understanding of DeFi has changed a lot. DeFi used to be called decentralized finance, but I feel that now everyone no longer regards decentralization as a core component. More importantly permissionless. I have seen quite innovative ones this cycle, like Pendle and Ethena. Pendle is an agreement for swapping fixed interest rates and floating interest rates, which is similar to a fixed income agreement. Ethena is a typical USDE stablecoin. In fact, its strategy for making stablecoins, when we entered the currency circle, I have been doing it since 2014, which is the so-called basis point arbitrage. As for the entire trading strategy, what the market has been doing since the advent of Bitcoin is nothing more than how to do basis arbitrage between spot and futures. Ethena turns this thing into a token, and then completely democratizes the so-called in-house strategy that was only used by some traders before, and then allows the market toCapture the so-called returns based on the fluctuations of Bitcoin or other currencies in this market. If you ask our people from the past few cycles, no one would think that Ethena is a DeFi project, because its entire infrastructure is added to a centralized exchange for arbitrage, and although the assets are under custody, the custody itself is not in What is entrusted in the contract is entrusted through the escrow agency. So from an architectural perspective, you can’t actually see it as DeFi. But from the perspective of its tokenization, from the fact that everyone can use its currency to mint it and swap its existing tokens, it is DeFi. So I think you can call it an application like De-CeFI or Ce-DeFI. There are many applications like this in this cycle, such as some projects in the Bitcoin ecosystem and some projects in liquid-staking, many of which are similar to this approach. So I think we have actually greatly expanded the definition of the entire DeFi at this time, and then you find that the TVL contribution of the entire DeFi in the past cycle, there are a lot of these like liquid staking, as I just said Projects like Ethena, as well as on-chain projects like RWA, actually contribute a very large proportion of the entire TVL to the entire DeFi renaissance. So I think the evolution of DeFi is the evolution of the entire concept, from the purest so-called decentralized finance we used to have, to open finance, and now it is actually a hybrid, with centralization and decentralization mixed together. So from this perspective, I think the subsequent subdivision opportunities may produce many very interesting combinations. Of course, if you go purely from the most primitive, fundamentalist DeFi level, there really aren’t many options. Because basically no one is working on the previous track such as decentralized stablecoin, or there are basically no projects on the stablecoin track like Ponzi, which was especially degen in the past. Unlike the DeFi Summer when a lot of them came out, there is this kind of decentralized stablecoin with on-chain governance. So I think after the entire definition changes, you will find that many new applications are still emerging in the DeFi track, and TVL is growing very fast.

Limiting factors for the development of Defi on Solana

Alex: Just now, Teacher Mindao mentioned that the first one is the change in the definition of DeFi, and the other is the value that DeFi really provides. From so-called decentralization to permissionless, it becomes convenient and accessible to everyone. I have always had a problem before, that is, a chain like Solana is actually very different from Ethereum in that Solana may have fewer and more concentrated nodes, and V God has been emphasizing the efficiency of Ethereum.Points are decentralized and more censorship resistant. But now we return to the user experience. Decentralization is not that important. In fact, Solana is very good in terms of accessibility, that is, technical usability, and experience. But even though Solana has reached this cycle, we found that its DeFi evolution is not very resonant with the business data of its entire ecosystem. We look at its DeFi TVL, the stablecoins on the chain, and some TVLs of DeFi projects. It seems that they have not evolved very fast, compared to the business data of Ethereum. For chains like Solana, their DeFi evolution is relatively slow. What do you think are the possible reasons or limiting factors?

Min Dao: Actually, I think this is because people may have a big misunderstanding about DeFi. They think that as long as a chain is fast enough, funds can be transferred immediately. Move over. Because we have been doing DeFi since 2019, I think DeFi is the same as all financial companies. The longer it runs, the more sticky it becomes. The so-called stickiness of financial companies is actually a safety threshold that is constantly increasing. For example, how do you test whether a system's DeFi is robust enough? For example, Ethereum's current DeFi system is approaching a TVL of US$200 billion. It is equivalent to saying that there is a bounty of 200 billion US dollars in the ecosystem, which means that the funds are used for various hackers to attack. The TVL here did not come out of thin air. It was only after Ethereum had already incurred losses of nearly tens of billions of dollars in the past that such a high moat appeared. So why Solana can't migrate this thing? In fact, the entire trust cost and security cost are very sticky. This is why the value of Ethereum is that as long as there is enough time to operate forward, these TVLs are difficult to migrate. And I think another very key issue is that because I have used new applications in these ecosystems, I don’t think that in terms of interactive experience, chains like Base or Arbitrum’s chains will lose much to Solana. . The gas cost is actually lower than Solana, just use it on Base. The only bad thing? I think it’s due to the user’s perception. As far as Solana is concerned, there is no layer 1 or layer 2, and there will be no so-called confusion. But there are too many Ethereums, Arbitrum, OP, Base and Superchain are just a bunch. Conceptually, I think retail investors may have this kind of confusion when it comes to go to market. Going back to the question you just mentioned, why do you say its TVL and its DeFi can’t move there so quickly?Migration, I think this network effect, including Solidity as a development language, has the most comprehensive tools first, and then has the most audit cases and the most components. From this point of view, I think it is very difficult for a chain like Solana to be completely copied. And back to the most fundamental question, why does Ethereum go to Layer 2 and what are the advantages of Layer 2 in competing with a single chain like Solana in the future? In fact, I think if more companies want to issue a chain in the future, because you don’t expect Bank of America or JP Morgan to say, I will put all my financial infrastructure on Solana, they will definitely issue a chain. In this case, you will definitely choose a large public chain to support it. For example, it may be a Layer 2 built on Ethereum. Under this premise, if you can actually find more TVL and combined applications, from this point of view, I think it will be more difficult for Solana to leverage Ethereum’s TVL. So you find that the network effects between TVL are mutual restraints. It is not simply that when the currency of my chain rises, all the applications of my TVL will be over. Including the interesting phenomenon I saw recently is USDT. USDT is now integrating the coins of all its chains, migrating many other Layer 1 USDT currency issuance rights to the Ethereum main network in large quantities. In fact, it is also based on safety considerations. Therefore, with the so-called stickiness and security of DeFi, I think that no matter how good the experience is with other new Layer 2, it will be difficult to pry this thing off in a short time, let alone on Ethereum. As I just said, in fact There are many Layer2s that will not be worse than these new Layer1s in terms of performance.

The advantages of MOVE language

Alex: Got it. Suppose we see that many public chains in the MOVE language, including some EVM-compatible Move L2, have been released. Recently, Movement has just been listed on Binance. As for the MOVE language, one of the value propositions they have been promoting is that using the MOVE language to build DeFi is safer than using the Solidity language to build various financial services. As a developer and entrepreneur, do you think this advantage of the MOVE language is so attractive to developers?

Mindao: We have seen these ecosystems, including Solana and their team. We have known each other for a long time. They all use Rust. In fact, the Rust language requires In terms of expressiveness, many people may say that it is much better than Solidity and can doLots of stuff. Not only MOVE, in fact many new public chains like Tezos have developed their own new languages, and they also use various so-called formal verifications. But you will find that these new languages ​​​​disappear quickly. I think the core problem is that it is difficult to strictly say which language really has innate advantages from an architectural perspective. I think for a developer, the most critical thing is time, which is your timing. The sooner you use it, all the mistakes and problems that should arise in Solidity have been filled by our developers with real money. In this case, would you say it is more unsafe? At least from our development perspective, that's not how I see the problem. Because it has enough cases, enough tool support, enough automated auditing tools, enough auditing companies to cover, and enough hackers. For example, it is very simple. If I send a bounty, there may be tens of thousands of white hat hackers in the Solidity range, but there may only be hundreds or thousands of hackers in the MOVE and Solana ecosystem. So I think security itself is a variable, and there is no absolutely so-called safe language. The biggest problem is how the new language will build its own moat in the future. If there is not enough potential energy to start, it will actually end up in a state, just like burning firewood. The firewood is wet and will never reach the ignition point. In this case, its security itself may not be a deterministic thing, unlike Solidity, which has enough written cases to verify it. So I think there is no so-called absolute advantage or disadvantage in the language itself. On the contrary, I think it is very difficult for a language to be replaced if it has a network effect. This is why we have recently seen projects like Monad trying to make Solana’s high-performance underlying architecture compatible with EVM. You see that there are quite a lot of new infrastructures at Layer 1 coming from that route. How can we make the new higher-performance infrastructure of some public chains, such as EVM, compatible with this execution environment, or make a new The public chain comes out. There are actually quite a lot of projects along this route now.

The impact of political changes in the United States on the encryption field

Alex: I understand, as you just said, Monad, including Movement, seems to be in this direction. Then this year, a pretty big change actually happened. Starting in November, Trump won the presidency, and the Republican Party also won a majority of seats in the House and Senate. In particular, the United States seems to have greatly changed its expectations for the development of the encryption industry. Recently, the Fifth Circuit Court of the United States ruled that OFAC’s previous sanctions against Tornado Cash were illegal. What do you think about the current political changes in the United States for DeFi and even for the entireRegarding the impact of the crypto field, what are the optimistic parts and what are the possible risk factors that are not optimistic?

Min Dao: I think from an optimistic perspective, it has exceeded my most optimistic expectations. I did not expect it to be so ruthless. It is the Trump bull market. Ordinary children enter directly to do DeFi projects. I think the entire Crypto penetration of Trump comes from family members, such as Donald Trump Jr. His children have done DeFi projects, and Baron is because of another child who is still studying and is also involved in Defi NFT. I think it may have a particularly large impact on Trump’s inner circle. In addition, I saw that Vance, and not to mention David Sacks, were all infiltrated by people from the PayPal mafia. So you can see that in the circle of roles that Trump can involve, basically all of them are Pro Crypto people. So I think at the level, there's no doubt that it's more optimistic than I expected, and I think it's probably overly optimistic. This is what I am more worried about, including whether to include Bitcoin in the US reserve. From an optimistic perspective, I think there is indeed no ceiling for this cycle. On the contrary, this optimism itself may break the so-called 4-year cycle in the previous currency circle. I think there is a high probability that at the legislative level there will be a regulatory framework that is completely targeted at Crypto, instead of completely incorporating Crypto into the so-called security law system for supervision like the existing SEC. I think it is possible that a completely independent regulatory system will emerge. If this appears, I think it may not only be DeFi, but also very optimistic about the development of Web3 as a whole. From a pessimistic perspective, in fact, it is now obvious that cryptocurrency itself is no longer a so-called non-partisan issue. I think it has become an issue of partisan alignment. This is what worries me. After the entire election, the Republicans and Democrats have formed a front on Crypto and Against Crypto. I think cryptocurrency is now regarded as a polarizing issue between the two parties. What if after 4 years of Trump, the Republican Party is no longer in power? Will these be changed again? This is a topic that has become difficult to return to neutrality, and it is a core issue between Republicans and Democrats.

Alex: Yes, Trump may not necessarily be in 4 years, but may be in the mid-term elections in 2026. Will the Republican side of the Congress be able to get so many seats? , there will also be challenges at that time.

Min Dao: Yes, but I think the better thing is that the entire operation this time is notJust talking about Trump coming to power, including the Lobby in the House and Senate, in fact, the American political arena is already a little in awe of the entire Crypto Lobby. What I mean by "awe" is not necessarily a complimentary word, it may be a derogatory word, but I think it has too great an impact. In particular, several Lobby teams supported by Ripple's organization have a winning rate of 85% in the election of the U.S. Senate. As for the Senator he backed, these 100 Crypto Senators have a winning rate of 85%, which is very high. winning percentage. So this is actually quite scary, because it means that in the future, all those Against Crypto people may not have the opportunity to enter the legislative agreement in the United States. From this point of view, I think it may also trigger some counterattack from the Democratic Party or Anti-Crypto people.

Alex: Yes, I see that Fair Shake is already preparing for the 2026 midterm elections and has raised tens of millions in advance.

Min Dao: Yes, of course this is a good thing, not only from the administrative level, but also from the legislative level.

Conjecture on the process of Bitcoin entering the financial system

Alex: Judging from your current observations, it is actually one of the narratives that everyone is most concerned about in this cycle. This is the process of Bitcoin entering finance. Now not only the government level, but also the state level is enacting Bitcoin preparation bills. I think that relatively quickly, Pennsylvania and California are already submitting legislation at the House of Representatives level. Are you optimistic that it can be legislated at the level in the next four years?

Min Dao: I think it may not be that easy to legislate at the American level. I think it would be easier to handle at the state level, because the financial scope that the state level can control is relatively small. If you put it at the human level, I think it might be difficult. One of them is that I think there is still a very powerful faction in the United States. Most people think that although Bitcoin is now called electronic gold, many people still regard it as a non-sovereign currency. It is this positioning itself. I think the most fundamental thing is to fight against the so-called debasement of legal currency and the so-called devaluation of legal currency. So in terms of its fundamental purpose, I think there is a certain conflict with regarding the United States as the only international reserve. As far as the aspirations of most people in the United States are concerned. In fact, many people in the American political arena hold this view. They believe that although Bitcoin is called electronic gold and competes with gold, they believe that it ultimately competes with the US dollar. And indeed, it is similar to all fiat currencies.PK, because of the debase of legal currency, Bitcoin has room to grow. So from this point of view, I think the resistance is quite big. Of course, this depends on how confident Trump is to push this forward. It’s hard to say. Depending on his style, he might push really hard. But this does not mean that the President of the United States can just push it. It must be passed at the legislative level.

Alex: Yes, I quite agree with what you just said, because in fact, I have seen many US sanctions, including Russia and Iran, they are now Taking Bitcoin as a potential reserve option, and then their imaginary enemy is the US dollar, which means that it is better to use Bitcoin as a reserve. This will indeed challenge the status of the US dollar as a basic reserve asset.

Min Dao: Yes, so now everyone actually defines Bitcoin as electronic gold, which is actually a very clever strategy. Let’s just say that we are PKing with gold. We will first reach the ratio of 13 trillion or 15 trillion, and then we will finish the PKing of gold. Now no one talks about competing with the US dollar, but I think the bottom level is still the same. You want to talk about gold, but you are electronic gold and can be divided infinitely. How is that different from currency? There is no difference anymore. But the currency circle is also unwilling to make this issue particularly important. But I think the U.S. Treasury Department or the financial circle understand these very clearly.

The possibility of large companies purchasing Defi projects

Alex: Let’s talk about a topic more focused on DeFi. Now we look at Bitcoin ETFs, Ethereum ETFs are also available. It is no longer big news that listed companies or even financial institutions hold BTC. It is normal for most companies to buy Bitcoin. In your opinion, as the encryption industry becomes more compliant in the United States, will they consider considering some blue-chip projects in DeFi, such as Aave and Uni, as mergers and acquisitions of these traditional financial companies, or at least as a potential equity participation? Target, do you think this is likely to happen in the next one to two years?

Min Dao: This is also a very interesting topic. We now see the actual relationship between Bitcoin ETF and Wall Street or traditional finance. They only regard it as another trading asset, such as electronic gold. In fact, it is still separated from traditional finance, that is to say, it is only regarded as part of AUM and part of the scope of asset management. If users want it, I will give it to them. But I think there have been several interesting changes in this cycle. One is that, except for what we just said, these two are completely independent entities, there is actually no difference between Bitcoin and gold. I, BlackrockThe company also provides different products for users, and the others are actually not related to the Blackrock company itself. But Bitcoin and MicroStrategy are more interesting. MicroStrategy is also a traditional company. It is a software company, but now it is a financial company. You can think of it that way, right? But its relationship with Bitcoin is actually the relationship between ETF and Blackrock we talked about earlier. They are completely independent entities. Bitcoin and microstrategy are now twins. Why a twin relationship? The key point connecting the two twin brothers here is volatility. Bitcoin volatility and micro-strategy stock volatility, these two points are connected. Bitcoin fluctuates, and its stock fluctuates. Its stock fluctuations will also affect the fluctuations of Bitcoin. So I think this is a particularly interesting phenomenon, because there is actually such a dual-token mechanism between Bitcoin and American listed companies. One of them is Bitcoin and the other is the stock of the listed company, just like ours When playing this kind of dual tokens in DeFi, the sub-coins and the parent currency are linked to each other's economic models. What is particularly interesting is that Bitcoin and micro-strategies form a dual-token mechanism to some extent, which establishes a link between the stock price volatility of traditional stocks and Bitcoin. So back to the DeFi level, if Blackrock buys Aave and Uniswap tokens, I don’t think this is sexy enough. I myself predict that in the next three to five years, there will be a twin relationship between DeFi and listed companies, similar to the twin relationship between Bitcoin and micro-strategy. What does it mean? My DeFi protocol controls a listed company. This listed company may open a bank, may do lending, or may do banking. It can open the legal currency channel to Aave, or a listed exchange, it can transfer its Legal currency is directly transferred to DeFi on a chain. This is why I really think it is possible to form twin coins in DeFi and Wall Street companies. I think this is what is really likely to happen in the next cycle. Because now we see that in addition to micro-strategy, companies including Marathon and many mining machines have begun to buy Bitcoin. Using micro-strategy is actually equivalent to saying that its stock is not only related to the difficulty of Bitcoin’s computing power, but also related to the price of Bitcoin. So I think the greater possibility and more interesting point of DeFi in the future is that we call it "pre-listed company, post-DeFi". Your listed company serves as another channel for my DeFi to issue bonds, do equity financing, and get bank licenses, and then connect the two worlds. I think in this regard, according to Trump’s approach, for example, the World Liberty DeFi he is currently engaged in, the next step may be to issue stable coins, and the next step will be to obtain a bank license, right?It is possible to install it in his own listed company, which is completely possible. I really think it may happen in the next three to five years, during the period when he takes office. Of course, in addition to him, traditional DeFi projects may also make some attempts in that direction. I think this is more interesting, that is, how to establish a relationship between "coin" and "stock" in terms of mechanism and the economic model. If your DeFi makes money, the shareholders of my stock will benefit, and then the expansion of the balance sheet on my stock side will also help my DeFi to attract more traditional funds. I think this is a more interesting combination.

Alex: This point of view is indeed something I have never heard of before, and it feels very novel and imaginative. There were stock versions of BTC and micro strategies before, and later there were DeFi versions of listed companies. I think this is really interesting. That’s back to the views of those large financial institutions on DeFi matters. They may now be more like what you said, configuring a Bitcoin channel so that their customers can buy it. They are more of an asset manager. Do you think they will end up developing DeFi-related financial applications on their own, such as a potentially better version of Aave? Is it possible for them to do such a business? For example, BlackRock or some other financial institutions.

Mindao: In fact, we have seen that traditional banks like JPMorgan Chase have their own internal blockchain systems. Of course, this is not connected to the public chain. The most commonly used one here is for foreign exchange settlement. You can think that its entire model is not much different from Curve’s model, or there is not much difference in Uniswap’s pool. But this type of application is actually more about inter-bank clearing, and I think this is what he may do as the first step. Then the next step is how to push it to the public chain and use the public chain infrastructure to do it. This is also back to what we talked about earlier. In fact, I think the most critical point in the competition between the entire public chain, such as a single chain model like Solana, or the multi-layer model of Ethereum, is that these financial companies will use it in the future. What attitude does it take to connect to the public chain? If he wants to do it in a controllable way, he must send a layer2 or layer3 himself, and then connect to the public network. So I think if he wants to enter DeFi in the future, it will definitely be controllable, that is, it will be in a permission chain. I think it may be particularly similar to the current model of Coinbase and Kraken, but it will be more conservative than them. That's the core of how I feel they play next game, they're more conservative than they are. Because Coinbase is still a company in the currency circle after all. But you find out that Coinbase actuallyIt is still more conservative than Binance. When Binance was doing BSC, many of its methods were actually more radical than Coinbase. Why radical? Because Binance may have some of its own DeFi projects, which may be incubated or built by itself, but Coinbase basically does not want to incubate such projects. So I think if financial institutions enter the market in the future, they will most likely be similar to Coinbase and Kraken. He will deploy a layer 2 and then build some DeFi components. And there is a high probability that some open source codes like Uniswap will be used. It's just that their permissions, access, and whitelists may be added to his entire logic. I think there is a high probability that it will unfold in this way.

Alex: Got it. In fact, whether it is Coinbase or Kraken, they have basically chosen the OP stack without exception, and have basically entered a large ecosystem of Superchain. I heard what you said before, and I actually think that if such a large financial institution wants to build its own chain, it is more likely to choose the Ethereum ecosystem to do it, right?

Min Dao: Yes, I think in fact, regarding the so-called chain performance you mentioned, the current Layer 2 performance of Ethereum, including future improvements I think the performance can fully meet the needs of these financial institutions. The most critical point is that I think Ethereum Layer 2 includes very different strategies between the two Layer 2s of OP and Arbitrum. For example, OP has built a lot of Layer 2 Superchain ecology, which may have to be solved in the end. How to combine the liquidity between Layer 2 is to have inter-chain communication, so that transactions can be completed in one transaction in Layer 2 of different Superchains, solving the so-called current Layer 2 split liquidity problem. I think that after this problem is solved, it will bring about another network effect. More people will be willing to join in, and the liquidity network effect will be particularly strong. Then there is the fact that it may become difficult for other people to leave this network. This is why I am not worried about whether Coinbase will independently develop Layer 1. As long as there are enough chains and the liquidity and network effects between chains are established, it is not that easy to break away from it. After you break away and become a Layer 1 into an island, it may not have better value than in the modern Layer 2 architecture.

Impressive projects andJudgment Dimension

Alex: I feel this is a more in-depth one that I have heard recently. It is very novel about the moat of the Ethereum ecosystem compared to SOL. Very insightful point of view. As you just mentioned, we actually saw some new products in this round. So in the past year, which products have left a deep impression on you, whether it is the new development of old projects or the emergence of new projects.

Mindao: There are two new projects popping up that I mentioned earlier, Pendle and Ethena. In fact, I think Pendle's model is quite frustrating, because when they first came out to offer so-called fixed and floating interest rate products, I saw it at the time. Because I come from traditional finance, I think its particularly bad design is that it has an expiration date. I have always had a very big bias. I think that building products with expiration dates in DeFi is basically a dead end and will definitely not work. In the past, there were many option transactions with expiration dates, or option products such as futures transactions, but basically none of them were done later. So when they came out, they were doing this so-called fixed-income product with an expiration date. I didn’t look at it at the time. I felt that this didn’t seem to hold true in Crypto. But this time after the LSD and Restaking protocols came out, I think they have indeed found this very niche market. At least at this stage, with a large number of these staking agreements and re-staking agreements, they have indeed introduced two waves of gaming groups, one They are large investors who are interested in fixed income and do not want to bet on the rise or fall of Utoken or the number of points. In addition, it satisfies the so-called speculative needs of some retail investors or amateurs for U token. I think it is a good combination of these two groups. I think at this point, at least at this stage, they have indeed found the market demand point. So I think there are a lot of DeFi narratives that we might easily dismiss when we first look at them. Of course, I don’t think the Pendle model is the final model. I think whether it is interest rate swaps or fixed-income products, there may eventually be a permanent one, such as fixed-income and variable permanent products. Split of earnings. It's a bit like a perpetual contract. You can keep trading, instead of saying that I have to roll my position again after expiration. I think it's possible that Pendle is working on something new as well. I think this track really seems to have found a very important application of what he calls product market fit in this cycle. In addition, Ethena, I think he turned a trading strategy that we are accustomed to into something that everyone can use, andIt has now grown to a $5 billion position. I think they are indeed tokenizing the entire income market. What they are doing now is the best from a token level and from a retail investor's accessibility perspective. And now we see that after their product came out, all the exchanges are now doing it, including Binance, which also launched FDUSD, and I saw OKX and Binance here. The interest rates in their lending markets are actually basically Anchoring the underlying return of this rate arbitrage. So in fact, exchanges are also learning this strategy. Therefore, I think these two products can really find a better foothold in terms of innovation in this cycle. The other aspect is the on-chain aspect of national bonds. In fact, we see that in DeFi this cycle is completely different from the DeFi summer. During the DeFi summer, everyone really relied on subsidies, and there was no so-called real yield. But we see that in this cycle, MakerDAO now relies heavily on the income from the underlying government bonds for transmission. This point also goes back to what we talked about earlier. Is this thing actually called DeFi? According to the traditional definition, it is not called DeFi. But this cycle is what we call the combination of De-CeFi. For example, we just talked about Ethena. All its positions are on centralized exchanges, and MakerDAO's treasury bonds are all managed in offline trusts. In theory, it is also a very centralized thing. But you find that this so-called combination of centralization and semi-centralization actually solves many real income problems, because these are real incomes, one comes from the leverage market, and the other comes from the income from U.S. Treasury bonds, and then through this Real income can be obtained by users through the distribution of DeFi. So I think the evolution of the entire DeFi, we have seen from the pure definition of the so-called fundamentals to the current mixture of more pragmatics, is also a very interesting point in this cycle. In addition, a phenomenon that has appeared in the past year or so is that we have seen in the past that all DeFi has coins, and coins must be issued. We now see that Polymarket and Pump.fun have very strong so-called income needs when they do not issue coins. What trend does this indicate? It’s like Polymarket and Pump.fun can’t come out without a good infrastructure. Both applications rely on a good infrastructure, Polymarket is based on Polygon and Pump.fun is based on Solana. So we can see that as the performance of our so-called Layer 2 and new strategies gets better and better, there will be a lot of things that don't require tokens. They may not require tokens at all, but at the same time they provide enough uses. Value DeFi applications. This is particularly obvious to us now. Going back to what I just said, I said DeFi’sThe principle of uniformity is that as performance gets better and better, some applications that rely on this high-performance chain will emerge. For example, we just mentioned Polymarket and Pump.fun are typical applications of this type. I think there may be a lot of this in the future. Including that we now see many Trading Bots without coins, but Trading Bots are particularly profitable. Like Pump.fun, it can make $1 million or $2 million a week. I think this point is very different from the previous two cycles we mentioned. In the previous two cycles, it was basically difficult to start a project without tokens. But now we see a large number of applications of this type, which actually do not require tokens at all, and have found market demand for them.

Alex: As an investor, when you invest in a DeFi project, which dimensions will you focus on, or what do you think are the moats of a typical DeFi project? Which ones?

Min Dao: I think it depends on the length of the investment cycle. If we only look at the cycle of one or two years, it may be narrative driven, that is, there will be more narrative driven, such as investing in some popular DeFi projects with some mechanisms. But from my perspective, I look more at longer cycles, that is, across cycles. If we look at it from a long-term perspective, we must be able to truly survive projects for several cycles. I used to think that the community was very important, and it seemed that it must be driven by a particularly strong community, but now I find that the community may not be the most critical for DeFi projects. Because we now see that several DeFi projects with the highest valuations and highest moats may actually have little to do with the community. For example, Uniswap now has a market value of tens of billions of dollars. Uniswap has a large number of users, but it is difficult to say that it has a community. AAVE is different. AAVE has a certain community. You can see discussions in the forum. But I think Uniswap, including AAVE and Maker, has two big moats in the end. One is of course continuous innovation, and each time it is a further innovation than the cycle. Another key point is that their brand is particularly powerful. Now anyone can fork Uniswap, V1 V2 V3, fork it. I think perhaps 60% or 70% of Uniswap’s current market value is due to its brand. This is something that others cannot fork, and I think these projects have basically achieved it. Of course, in DeFi, if you want to have a brand, it depends on two things. One is the continuous innovation I just talked about. But you may not be the first to createNew ones, such as AAVE, are not the first innovation, but they have continued to do so from 2019 to now, while Compound has stopped doing it. The founder of Compound is now working on other projects. After becoming a true DAO, there is very little innovation in Compound, but AAVE is actually still innovating in every cycle. The other one is DeFi. I think the core thing is security. Uniswap has not had any security incidents. Compound, Maker and AAVE have all happened, but at least these security incidents have not stopped them from getting started. So I think when these two points are achieved, its brand value will actually continue to strengthen with each cycle. I think this is its biggest moat. It is difficult for you to see other projects below, and you can see that the projects with increasing concentration are all projects with very high brand recognition.

Principles for configuring Defi projects

Alex: In terms of specific secondary asset allocation, in addition to BTC and Ethereum, there are some blue-chip options we call DeFi. Will such projects, especially leading projects, be included in your investment allocation list? Let’s still talk about the long cycle.

Min Dao: I basically don’t know how to match. The fundamental reason why I don’t deserve it is that we are already doing DeFi and have already invested time and energy in this setup. So this may be a big difference between me and other investors, that is, we don’t need to double this thing, and more allocation will be in the public chain.

Alex: Yes, if we talk about an ordinary Web3 investor, his portfolio may include BTC, Ethereum, and some public chain tokens. . Do you think projects like DeFi should become part of most ordinary investors’ investments?

Min Dao: Actually, I have shared before that I think the most important thing in investment is the investment portfolio. For example, when I entered the currency circle in 2013. I said at the time that in addition to Bitcoin, 30% of my investment portfolio was invested in some random projects, which must be non-Bitcoin projects. I invested a lot at that time. In 2014, I invested in Ethereum’s ICO, so I bet on Ethereum. In addition to Ethereum, there were many ICOs, about three or four at that time. There were very few ICOs at that time, especially in 2013 or 2014. There might be a few ICOs a year, and basically everyone invested in them. Of course, the allocation ratio was different. I think if you are a retail investor, portfolio construction is the most critical.Able to work all in Bitcoin and Ethereum. Of course, what I am talking about is that we really need to rely on this currency to turn over, not to double. If we want to turn around, I think the first one cannot be all in mainstream coins. For example, some radical people are 100% all in altcoins. I know there are people around me who are 100% compensated. If his earning power is strong enough and he allocates funds and doesn't mind losing money, then I think this strategy is not wrong. It’s 100% all in, even into meme coins and degen coins. I think there is no problem with this. If you are structuring your investment, I think at least 30% may be invested in so-called alternatives, in addition to mainstream currencies. DeFi here is definitely a track worth configuring. In addition to DeFi, I don’t know what other types of applications in Crypto actually have value capture. Now all the so-called real yield and real income are DeFi applications. So at this point, I think if you really don’t consider mainstream currencies and only consider altcoins, DeFi will definitely account for a large proportion, I think it will be at least 50%. Then the remaining 50% may be used to replenish some Degen coins, memes or other types of tracks.

Alex: Okay, today I am very grateful to Teacher Min Dao for sharing with us a very in-depth and wide-ranging topic. Next time I have the opportunity, I welcome Teacher Min Dao to share with us. He shared with us more of his insights and opinions on the topics of DeFi and Crypto. Thank you for your time.