“We always want to do something good” (Stani from Aave)
the DeFi narrative and the comeback of ICOs
|dex.blue||Mar 9|| 4|
A Chat with Stani
Hi Stani, how are you doing?
I am good - thanks for having me!
You did an interview not too long ago with the DeFiant, so we know some details on your background. Can you tell us more about the moment you realized that Ethereum was the right decision for you and it’s what you want to commit to?
In my teen years, I was interested in development and even though I later decided to go into the legal field I kept being heavily being involved with FinTech start-ups.
It was about 2011 or 2012 when I knew about Bitcoin and how it worked but I was only really intrigued when I stumbled upon Ethereum, which was in early 2016. I was fascinated by the idea of smart contracts: The possibility of financial transactions within a trustless ecosystem!
That really sparked my interest, because I have always had a love for finance: financial instruments and economic transactions. So, not just the pure transferring of value, but the more complex stuff.
And then what happened next?
In the same year, 2016, we decided to enable trustless loan transactions in the ecosystem. Transactions in which parties don't have to trust each other but trust a code. We created our first Proof of Concept: Ethlend. It was basically the very first lending protocol on Ethereum and it went pretty well!
Since then we have been building, till we launched Aave this January. We aimed to extend the traditional DeFi narrative, by not just locking up value, but reutilizing it by giving it back to the ecosystem. And again we had a pretty good start: Our market size is currently $25 million and the total value locked is at about $20 million - so we’re happy!
How much did your motivation originate from a technical aspect rather than the ideological idea of offering people financial opportunity?
That’s an interesting point that no one has really brought up so far.
I think we always want to do something good. In finance, however, most ideas are improvements through technology. I personally believe that what technology allows us to do is to change the financial system we have today.
Instead of having eight people sitting in a cafe somewhere in London and deciding about the interest rates of every consumer on the planet, we could have a more decentralized system in which trust is not required as much.
I first saw these technical capabilities and from there I then realized you can change things in the financial space, that are currently a bit of a mess.
“We always want to do something good”. That’s a great statement which I think is true for most of DeFi.
“Good” can mean good for the ecosystem or good for yourself.
The thing is that we are raised in a capitalist society and we don’t really know what could be done better. It’s difficult to not think in a beneficial way, but what I like in DeFi, the Ethereum community, but also Blockchain in general, is that we are trying to reward ourselves by rewarding the community. This means we are making a better system because everyone is happy to participate.
Another aspect to this could be that the whole issue of making money doesn’t weigh as heavy since there is so much of it there anyway.
Well yes, there are two big opinions in DeFi:
You either say, we have smart contracts and once they are deployed there should be no fee extraction on the application level. Or, you do take fees and capture them back into tokenomics, to later improve the project.
Why do something with fees, if you can do the same thing without them? It’s a difficult topic!
Generally, I’d say there is nothing wrong with collecting fees or interest if you are using it to invest into building the protocol. We shouldn't be afraid of generating value, but we should always be putting back more into the system. That’s the difference between “OldFi” and DeFi: Banks use free capital to generate more capital for themselves and in the DeFi world we reward people who support and improve our financial space.
I’ve never seen a community like Ethereum, that is so open and honest and just tries to help everyone out. Technical composability leads to human composability.
Besides fees and interest, an essential part of this is, of course, raising money. Your project did an ICO. Why was this the way you chose to go?
Especially in Finland, where I am from, raising big amounts of money for projects that are complex and pioneering is very difficult. You have to be in San Francisco and you have to know people to raise risk capital of this magnitude. So, what I love about ICOs is that the fundraising is very democratic - people around the world can participate at whatever scale they want or can. It’s great if you do it the right way.
I think most people would agree on the positive aspects, however, in 2017/18 we had this ICO hype of which the perception today for many is very negative…
Due to it’s more democratic nature ICOs brought the risk of venture investments to a broader spectrum. It is common for an angel investor or a VC to make 10 investments, of which only one brings value and the other nine break. The same occurred in the ICO era. Many projects weren’t capable of going forward. And you had a few that were super successful because they had a legitimate idea and a good product-market fit.
So, for me, it’s as positive or negative as any other type of risk investment.
And the cool part about tokenomics is that, if you have a real open-source protocol and you have a token that governs it, it puts aside everything else that used to be important, like the status of the company and anything that relates to equity in investment. The only thing you need to know what the underlying protocol is and how it’s governed. For me, that’s the value proposition that came out of that ICO era.
And still, we haven’t seen many ICOs in the past two years. Aave, but also other projects like Kleros have done this in the more recent past. Do you think we will be seeing more of this again?
I think we’ll see fundraising based on tokens, but more with legitimate projects, since the standards to be successful here are very high. You don’t only need a good idea, but you need good tokenomics and solid governance. Those who reach those standards will be able to move forward in this direction, but anything else we won’t be seeing as much.
Who sets these standards of what good tokenomics is for example? Or better: Who decides if these standards are met?
That’s interesting because there isn’t a standard body that could say how this should be done. The way the DeFi community works is that it’s consistent with key stakeholders - these are the users, other projects but also influencers. If someone moves forward in the space and comes up with a better proposal, it will immediately be copied. This works, because everything is open source.
The community itself sets ideas and if you deviate from these ideas you risk that the project won’t be followed by the community any longer. No one wants to take that risk.
Would you say these controlling mechanisms, also in terms of community, are working well at the moment?
The thing is: You can’t control the community. The moment you lose the community your system breaks down.
DeFi, or any technology that is dominated by community-based projects, has a narrative and that’s what you have to follow.
Ethlend basically created the P2P lending for the Ethereum market system and then other projects came up with the pool model, so with Aave we then created a pool model that also utilizes the collateral assets - we basically continued the narrative and thus improved things.
Apart from Aave, what projects out there are currently pushing the narrative or anything you’re a fan of?
The space is changing all the time and there is so much good stuff out there. I like PoolTogether or also Curve is great. But something I have been promoting in the past is the idea of a collateral swap: you can close, for example, your MakerDao CDP without actually returning the Dai through opening a new one with different collateral.
Are you an active user of Dapps like PoolTogether yourself or are you missing the time for that?
I interact with DeFi all the time and that’s what I love to do, but I usually don’t come around to using the same services on a daily basis. I try to do a lot in the whole space and I think once you have your MetaMask setup and some assets in your wallet you can use everything that’s out there, which is really great!
And for Aave what’s happening next there?
Currently, we are focusing on the governance side of things. We now have an open-source protocol, so we are upgrading our tokenomics and on top of that we have a governance smart contract that has just been audited. Also, we are working on publishing a paper on our governance soon.
I think the protocol is, of course, important, but how it’s governed is just as important.
I just really want to encourage people to go out and try Aave or any other DeFi protocol. Play around and try to educate yourselves, understand the value proposition of the project but also of the whole ecosystem and I think this way everyone can find their own interest and their own curiosity.
Couldn’t agree more. Thank you so much, Stani!
It was great, thanks for your time!
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