Cryptonatives: DeFi Dad

Today’s segment of Cryptonatives features a DeFi super-user and educator who’s making DeFi more accessible to the masses through his wealth of content.

In the following Q&A, DeFi Dad tells us the particulars about his current favorite DeFi strategies and looks back on some of the inspirations that he’s drawn from his current work at Fourth Revolution Capital.

PWN: What do you think defines a cryptonative?

DD: One of the things that I really love about crypto is the fact that it’s open and permissionless, meaning that anybody can get involved. You really just have to have the bravery to set up a wallet and connect through the internet, which is obviously a certain privilege. The fact remains, though, that there's no credentials required. If you look at the traditional finance world, there's a lot there that is required to get involved.

Lately, I've been thinking a lot about the fact that there's so much that has been developed in terms of really powerful financial tools – new and fun sorts of applications web3 gaming and NFTs in general. It all comes back to the fact that you have the freedom to do what you want, when you want, with your own money or property – whatever it is, as long as it's a digitally scarce asset that lives on a blockchain like Ethereum.

So for me, a cryptonative is someone who buys into the foundational goal of a level playing field that anyone can participate in. In the crypto space, there are a lot of builders, investors, and users who come from very different backgrounds, but the level setting is the date that they first got into crypto. For example, you’ll hear people say, “I’ve been in Bitcoin since 2012,” or “I learned about Ethereum in 2016”. There's an instant sense of commonality in sharing that.

More than anything else, a cryptonative is anyone who's been brave enough to hold any amount of crypto, whether or not it's in a self-custody wallet or in an exchange. I think there's some edge to those who are actually using web3 applications who are brave enough to connect something like MetaMask to an application and actually interact with the blockchain.

PWN: As a cryptonative, what are some of the DeFi tools and strategies that you find yourself using? It would be especially to learn about your activities related to trading, lending, borrowing, staking, and so on.

DD: Starting from square one, you need a wallet that allows you connect through a browser to any decentralized application. Other options include having a smart contract wallet or a mobile wallet like Argent, which is really easy to use and dummy-proof in terms of being able to manage and securely store your tokens.

This being said, it’s still important to establish some sort of relationship with fiat on and off ramp, which has normally been a centralized exchange or crypto bank like Coinbase, Kraken, or Binance. We're likely going to start seeing wallets or neobanks that are very DeFi friendly and have direct on ramps and off ramps from fiat-denominated checking and savings accounts directly to a layer-1 like Ethereum or Solana as well as Ethereum layer-2s. That has been a radical shift in the past year. Juno Finance has an insanely DeFi friendly wallet that I’m currently using and loving.

From there, you need to know where your money is at all times and how it's invested. A good tool for this is a DeFi dashboard. I used to work at Zapper and am still an advisor there. Zapper has one of the best DeFi dashboards for seeing where all your money is, whether it's just a token, a borrowed position on Aave, or some DeFi farm that you're in. Other good options include Zerion and DeBank.

Once you’ve set up a dashboard, the first simple use case is trading – in other words, being able to swap any token for another token at current market prices. One of the more powerful tools there is a DEX aggregator. You can go and trade on Uniswap, or you can find the best rate across different automated market makers. Nowadays, I think 1inch and CoW Swap are two of the best places to get the best rates.

Trading then leads to lending, which is a beloved use case because it's easy – it allows us to continue to hold onto something that we're already long, like ETH, and be able to lend that and earn passive interest on it.

Maybe even before lending is staking, because staking requires the least amount of risk amongst all the different opportunities. You can use a liquid staking derivative like Lido, and you can earn around 5% or so and still borrow against staked ETH. While you can accomplish similar things in traditional finance, you need to jump through quite a few hoops to do so. In DeFi, it’s as simple as depositing assets into Aave.

PWN: Is there one particular strategy that you've recently explored that you're really bullish on at the moment?

DD: I tend to spread bets across different opportunities in case one of those somehow implodes or blows up in my face. I think the strategy that I'm most comfortable with right now is staking, since we're past the Merge and there’s a lot of execution risk that we've overcome.

Beyond staking, lending ETH was so incredible leading into the Merge because there was so much demand to borrow it (and there still is actually a lot of demand). So my go-to strategies are staking and lending as well as finding ways to combine those different use cases so that I can maximize earning as much passive yield as possible.

PWN: What are some of the main issues facing cryptonatives in today's financial ecosystem? What issues have you faced and how are you mitigating these?

DD: There are a few different perspectives here. For anyone who has been in the crypto space for at least five years, their mindset is likely looking at least five or 10 years out – and even five years feels like many decades in crypto. If I'm thinking that far out, the hard thing is the volatility in between there. For example, ETH hit an all-time high around 4,800 US dollars. And now, it has drawn down to as low as around 890, which was like an 80-85% drawdown. Now, it's back up to 1,600.

So, you know, anyone who bought ETH that low is up almost 2x. But for most people who bought during the height of the bull run, they’re down a lot, it's just hard. In fact, many stocks look like the crypto market right now because they're down 70, 80, or 90% in some cases.

I'd say as a user, it's really important that we continue to try new applications even if you don't transact – just explore them to understand what’s possible. With the work that PWN is doing now, I no longer have to simply hold NFTs. Instead, I'm gonna be able to borrow against a basket of NFTs. And that's a huge use case that has been unlocked in DeFi.

I’ve recently been working with a lot of founders at Fourth Revolution Capital. We have a fund that we've invested in more than 50 teams across DeFi, NFTs, web3 gaming, and media. Most of the founders that we work with have raised a few million dollars, and at least about half the teams we've invested in have a token. From a builder perspective, it's nuts because there's so many cool ideas and new protocols being created. There's a number of NFT-based applications that offer users opportunities beyond just buying something that they think is cool and holding it in their wallet for future use.

A good example of this is the emerging world of web3 social media, which is essentially rebuilding traditional social media with a decentralized tech stack. NFTs play an important role in that – for example, if I put out a short-form post on something like Lens Protocol that comes in the form of an NFT that others can potentially collect, there's a chance that this kind of content will begin to be valuable and profitable for content creators. So all in all, web3 builders are currently living a pretty good life.

In addition to covering the current challenges of users and builders, I’d like to speak about issues faced by the bigger capital allocators like angels or investment DAOs. For those who raised money at the height of the bull run, they're living a fantastic life right now. They're looking at prices down 90%. They could market buy something, but instead, many are looking to invest in early-stage projects. On the other hand, you've got others that are down a lot because of the current market conditions. There was a period of time around the market crash where there wasn’t as much activity from founders, but during the past few months, I’ve been hearing some really exciting pitches.

Think about web3 gaming: There's so many creatives who have come over from the traditional gaming space who are trying to build a new game that they would've built in the legacy gaming world, but they're seeing some of the benefits of using some tokens or NFTs in the game. This is really promising for the web3 gaming space as a whole.

Between the intersection of NFTs, web3, AI, and media, we're currently living through a boom in terms of fundamentals. So my general message to everybody out there is to be patient – it's going to take some time for the markets to correct. At the end of the day, founders are building really cool ideas –  it's real utility, it's sticky, and it's not gonna take 10 years for this stuff to be widely useful. I can’t even imagine what things will look like in five years because there's so much coming in such a short amount of time. We should all be excited.

PWN: Can you imagine a future where digital assets will be used to back a 15-year mortgage and owning real estate?

DD: This is a good example of a future that many of us in the DeFi space have discussed. More specifically, it’s a future in which traditional financial use cases and instruments will be much more capital efficient, can provide for better rates, and can be that much more accessible. There are projects out there that are making this a reality. It’s adult DeFi, and it definitely looks a lot like traditional finance, but it’s making use of all of the money Legos that we love in DeFi.

The folks at Maple Finance have originated almost $2 billion in loans now. They now have the ability to allow anyone to run their business lending to market makers and other sorts of crypto institutional borrowers, but they have the power of pooling all that capital on Maple without having to ask permission. Long story short, all of the puzzle pieces are coming together. A house recently sold as an NFT on the blockchain and is more than twice the value of the home I grew up in.

Still, that value is pretty small in comparison to how much NFTs sell for, so it makes a lot of sense that ownership can be transferred using something like an NFT. The issue with all of this – and we'll get better with this over time – is how does digital scarcity and property rights that are assured through a blockchain translate to the real world? The short answer to that question is, well, you need the real world. You need more of it to have time to adopt to coming on-chain.

We don't want everything to come on-chain, but I think the house is a great example. One day, I’ll probably be able to buy a house or condo the old-fashioned way. There will still be middle men and lots of paperwork involved, but there will be alternatives. The alternative of buying a house through the use of an NFT will save a lot of time and money, and that will ultimately drive more adoption.

PWN: What are you most excited about in DeFi leading up to the next bull run?

DD: Overall, it’s DeFi at the intersection of, of a lot of things. In addition to NFTs, there's DeFi powered by AI, which is a wild use case. It can lead to better DEX aggregators and other resources.

Additionally, I’m excited about the traditional use cases that have yet to come on-chain that will allow many more people to benefit from DeFi. Over the last few months, watching the trading volume on networks like GMX, Gains Network, and Synthetix, you realize that people have no reason not to opt to be able to trade permissionlessly, 24/7, whatever they want, whenever they want, with lots of leverage. That’s what DeFi enables – it allows you to truly be in control.

PWN’s Cryptonatives is a Q&A series with some of the brightest minds within the web3 and DeFi space who are building and making active use of the services that today’s crypto ecosystem has to offer. Through shedding light on their experiences and lessons learned throughout their careers, it’s our team’s goal to educate the masses and further spread our guests’ wealth of knowledge.

*Read through our previous Cryptonatives interview with Mario Havel from the Ethereum Foundation.

Have someone that you’d love to see featured in the series? Reach out to us on Twitter or Discord and let us know.*

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