In a nutshell, Gnosis builds new market mechanisms for decentralized finance. It’s the creator of three interoperable product lines that allow users to create, trade, and hold digital assets.
Read on as we take a deeper look at Gnosis’ current activities, Stefan’s advice for bolstering security practices in DeFi, and his hopes for the future of blockchain technology.
PWN: What do you think defines a cryptonative?
SG: When I think of the term cryptonative, I first relate it to the concept of a digital native. This is someone who was already part of the digital transformation while growing up, so the internet was already a part of their daily lives. If I now translate this into what a cryptonative is, it’s a person who, while growing up, has already become used to having exposure to crypto in some form. They’re bound to have their own wallet, actively use exchanges, and understand the benefits of crypto versus the old fiat world.
When applying this definition, then probably I wouldn't even consider myself a true cryptonative, since Bitcoin’s white paper was released in 2008, and by that time, I was already in my 20s. However, we all help to define what we work on and the eventual definition of what constitutes a cryptonative. Now, there are fortunately quite a few people who can confidently think of themselves in this way, and the number is rapidly growing.
PWN: What first inspired you to start working on Gnosis Chain?
SG: Gnosis Chain was previously the xDai Chain. We saw big potential in merging Gnosis and xDai because Gnosis has always been an application developer that builds core infrastructures (such as for exchanges, wallets, and payments) for EVM networks.
On the other hand, we had the core infrastructure provider on layer 1. The xDai team successfully built a network which had significant organic growth. It also built core infrastructure including a block explorer, and we shared the mindset of making everything open source and seeing everything more like a public good. That's why it was a good match in terms of teams and vision: we saw that together, we could accomplish more than each single party. Upon merging with xDai, we also defined a new technical roadmap which is focused on following Ethereum 2 — not only following it, but also front running it.
The most anticipated event today in blockchain is the merger of Ethereum 2 with Ethereum 1 (in other words, merging the consensus layer into the execution layer). This event will first happen on Gnosis Chain. Gnosis Chain has its own version of Ethereum 2 running in parallel to the Beacon Chain for Ethereum. We’re first going to merge it into our execution layer, so it's very important that this works as expected.
We have a slightly different configuration of the Beacon Chain in that we have faster fidelity and can also introduce changes (on Ethereum and first on Gnosis Chain) that are interesting for both dApp developers and layer 2 operators to see how they work. In that sense, you could say that Gnosis Chain becomes a sort of staging environment, or like a sophisticated, less conservative version of Ethereum.
PWN: What are some of the DeFi tools that you notice people using?
SG: There are three main pillars which I see as kickstarting the entire DeFi space. First up are money markets, which is what Compound and Aave are the most successful at doing on Ethereum. They allow users to borrow and lend assets in a very interesting and efficient way on Ethereum by having interest rates algorithmically defined by the market in the contract. It really kickstarted the whole DeFi yield farming idea and at the same time, it added a lot of liquidity which then could be utilized everywhere else in the ecosystem.
Other very important applications are decentralized exchanges. Millions of tokens are present on Ethereum — people want to trade them and they want to do so in the most efficient way. To accomplish this, I don’t see any other way than having a decentralized exchange where you can add new token payers without asking for permission.
A third set of assets that continue to become increasingly important are decentralized stablecoins. Right now, everyone's still relating everything to US dollars — in the future, though, this might not be the case. So having an asset on chain that’s tracking the US dollar but still being decentralized is huge. With this in mind, MakerDAO obviously remains number one in this case by making it possible to create a censorship-resistant currency on Ethereum.
PWN: In your opinion, what’s the role of security within DeFi? How can bolstering it encourage adoption and support cryptonatives?
SG: Security affects DeFi on different levels, and one that is quite obvious is the security of smart contracts. As everything deployed on Ethereum is just code, smart contract code can have bugs which can result in catastrophic events in which money is lost. Fortunately, there are good practices that developers can follow in order to write secure smart contracts.
The issue, however, is that there currently isn’t an easy, transparent way for newcomers to evaluate those risks. The ecosystem is missing a registry or agency that can give ratings to different platforms in terms of their smart contract risk. For this reason, my personal advice is to only use protocols that have been around for a long time, have deployed significant capital, and are promoted or developed by known teams (as opposed to anonymous individuals). The longer a system is up running with significant capital deployed, the more likely it's actually going to work.
There's also economic risk to consider. This is similar to that of the traditional finance world — it’s the process of coming to understand how different assets are connected and what could potentially cause cascading effects in the system. For example, if you have tooling protocols, then you’re basically exposed to the risk of the entire pool. So if one of the assets in the pool defaults, then you will have that debt in the protocol which has to be shared to everyone else in the protocol. That's why it's very important to be very, very careful in what kind of assets you add to a pool, and it’s also why you should do your best to develop a sense of the assets’ own security.
PWN: Which web3 services would you recommend people to use to be able to become natives?
SG: If you’re at the very beginning and simply want to get some exposure by participating in yield farming activities and using your capital, then I would recommend going to money markets. I think Aave and Compound are very conservative in terms of their risk exposure, so I would consider it very safe to put your assets into them to earn some interest on it.
If you want to trade and exchange tokens, I’d recommend checking out CowSwap, which is our own exchange. It leverages all the other existing exchanges, but at the same time, it also protects users against front running through MEV protection.
PWN: At this time, which ideas excite you the most?
SG: Generally, I would say what excites me the most are the ways in which we can bring the leverage of blockchain that we created for ourselves over the last five years to a significantly larger audience than what we’ve had in the past. There are many opportunities to bridge the gap.
For example, DAOs are no longer used solely for crypto — some of them now also have a real-world impact. Today, there's more and more political involvement organized via DAO structures that exist on the blockchain, and I think we will continue to see more of this. To me, this is very encouraging, as I like the idea of using blockchain as an investment mechanism for new assets beyond only crypto assets.
Another thing to think about is how we’ll eventually be able to reinvent money itself. The ideas around universal basic income are most likely to succeed using blockchain as infrastructure. We have our own project that we’re working on called Circles, where we have a completely decentralized way of creating identities and make it possible to create Circles money within those identities to allow for true universal basic income.
Looking at each of these ideas on a high level, I would say that they strive to answer the question of how we can meaningfully connect the real world with blockchain and provide more people with leverage and financial freedom.
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.
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