Polygon Presents “DeFi For All: Build DeFi For Mass Adoption”
Our Xend Finance DeFi Hackathon 2021: Decentralizing Africa and Beyond was treated to a great panel session from Arjun Kalsy, Head of Growth at Polygon. Arjun presented the deck above about building DeFi (Decentralized Finance) for mass adoption, how the Polygon ecosystem is facilitating growth, explaining DeFi composability, breaking down the DeFi ecosystem, and the industry’s future.
You can see the deck Arjun presented below:
To watch Arjun Kalsy talk us through his Polygon deck, you’re going to want to watch the YouTube stream here:
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Complete Transcript of Arjun Kalsy’s Speech and Presentation is Below
So great to be here and you know I’ll not take too much time and I’ll jump right into it, but I’m very excited to talk about what’s happening with DeFi and how Polygon is thinking about it.
So let me try and share my screen, and what I wanted to do was, as part of this presentation, was to cover some interesting ways of thinking about DeFi like for example how do you think about decentralized finance? What are these different Legos and how do they work? So I’ll just go live and I hope you are able to see my screen. I just wanted to start with a quick brief ‘about us’.
I’ll just give you a quick brief about Polygon. We started in 2017, our objective was to try and scale the Ethereum ecosystem, of course you know there have been scalability concerns ever since the 2017 cryptokitties episode. I don’t know how many of you remember but this was a time when Ethereum just stopped working because of a cat game, and of course serious questions were being asked and so that’s kind of how our story started. And again what we’ve built in a few words would be, a very fast blockchain with a 2 second block time or something which is EVM compatible and uses the same sort of assets as Ethereum. So the same ERC style assets which developers are used to and users as well. The transaction costs are super low, so we build a blockchain where for about $10 you can do over 1,000,000 transactions and of course we also check point all the transactions periodically onto Ethereum so we Merkle root transactions every few every, let’s say 256 blocks and put that transaction on Ethereum so you get security on our network as well, which is a proof of stake network with over 100 validators, very decentralized. But then you also get security on Ethereum because all your assets are discoverable on Ethereum and when you have something which is fast and inexpensive, that’s when you can start building for user experience, right? So the UX has to be really good for users because most of the users in the world are used to using, mobile phone or accessing the internet and are used to a certain kind of digital experience and and whatever blockchain technology or whatever DeFi or gaming or NFT you build, it has to provide the same if not better user experience, otherwise, you’re not going to get mass adoption and of course we’ve got a large community, over 700 DApps onboarded close to 1000 now, doing over 6 million transactions on a daily basis. We’ve got a large amount of TVL and then I would dare say we built a very compelling technology which has seen unprecedented adoptions as well. Also, on the adoption side, there’s so much more when it comes to DeFi, so every major DeFi protocol you heard of, whether it is Aave, Balancer, Sushiswap, or Curve, are live on Polygon. We’ve got a huge ecosystem in DeFi and in NFT, in gaming and what that does is that it allows some degree of composability, allows this interesting mix of using GameFi and then several things which we’ve seen have become very popular with NFT and DeFi, and all of these things combined into Metaverse concepts and that also creates entirely new types of economies. So we’ve got a very large ecosystem. I encourage you guys to take a look, but of course you know this conversation is about DeFi. So what I want to do is I wanted to talk about DeFi, but in a slightly different manner and I wanted to talk about how you need to think about DeFi. Generally, when you come from a centralized finance world, you will be asking what is DeFi and essentially, what you really need to discuss in this conversation is DeFi composability, so what is DeFi composability like decentralized finance composability?
The composability is that when you’re able to build a DeFi ecosystem, where you have apps like we discussed earlier, like Legos, where you have lending and borrowing and then you can add maybe leverage on top of that and then that allows you to build other kinds of synthetic assets or derivatives or options. This is kind of what DeFi composability means, so by using these certain Legos, just like in centralized finance, where you have a bank which does basic lending and borrowing, and then you can build an entire stock market on top of it and all these different financial instruments, the decentralized finance works in quite the same way, so you need these Legos. The biggest advantage here is that there is no middle man, so as a result all the profits and optimization in terms of resources are basically given to the user.
So the user basically benefits from that entire margin, which is typically eaten up by middle men in a centralized finance world. Essentially, the functionality of one protocol can be utilized in another protocol and this is kind of what makes decentralized finance very interesting. That all of these different financial instruments are kind of linked together, so it’s very different from a centralized finance kind of concept where you have a stock and the stock is fundamentally different, from a mutual fund or a different kind of financial instrument, but in DeFi, everything is kind of interlinked and and this makes it super interesting and why is composability important? Because you can basically do things like you can have high utilization of capital, it makes capital sticky as well, since all this capital is being reused in different places. It gives lots of different opportunities for developers to build, like different kinds of things because already the codebase exists and some Legos exist and now you can build on top of them so you don’t have to reinvent finance and of course. Also,composability encourages more users and more liquidity and thereby more dapps and without taking too much time, I wanted to give you guys a DeFi ecosystem breakdown. So if you were to look at it from a layers perspective, like on layers 0, it is basically where you have all the different bridges and fiat on-ramps. So this is kind of a layer 0 is how you get liquidity or all funds into a system, the first step you need to do is get the funds into the system. So as a protocol you need to solve bridging, you need to be able to solve fiat on-ramps.
Once you have that, that’s where the money markets come into play, so this is where you have your basic lending and borrowing, so think of all of this like a bank where you have basic lending and borrowing like people can lend assets and people can borrow assets. Once you have that, you can then build other interesting things. So let’s say you have many different assets, you can then build Dexes right which allow you to swap these assets, you can have fixed yield instruments like fixed deposits, and you can also build interesting things like margin trading, where basically you are now talking about leverage. And then you go one layer above, and you go from layer one to layer two and then you go to layer three.
This is kind of where you can get aggregators which sort of aggregate all of these like fixed yield or Dex sort of yield aggregating instruments and then sort of aggregate them and these are typically your yield aggregators. This is kind of also where insurance comes into play, when you’re building these kinds of things and then on top of that further you have auto compounding, you have derivatives, then you have synthetic assets, right on the top of all of this, this entire money making ecosystem, you need to have analytics and then you need to have user facing tools like Zapper etc. Where you can do other interesting things and make things easy for users to access DeFi to monitor what they use and do those kinds of things.
So in general DeFi lego pieces can be organized across these five layers, and also it’s interesting how capital risk and reward also increases as we move up the layers, so just like in a bank, you have fixed deposits where you may get less yield and then you go to stock markers and then you go to derivatives and and then you go to like options. It’s the same in decentralized finance. There are a lot of similarities here, so if you are into centralized finance, you’ve done some stock trading, you’ve made some investments, It’ll be very easy for you to pick this up because a lot of the layers remain the same.
I also want to talk about going one level deeper, so like I said, layer one is your low risk DeFi protocols, then you have medium risk, layer three is more complex DeFi protocols. So layer three is kind of when you start getting into all of this, auto compounding and derivatives, and again requiring quality human capital to generate superior risk and adjusted returns. This is very interesting because all of these kinds of auto compounders and aggregators need people to come up with these strategies where what are the different Dexes and protocols you can use to increase the yield on your capital and this is so interesting, because this is currently mostly a human job, like there are people who are experts at designing strategies and they look at all of these different protocols and figure out which is the best strategy to use, so suppose you get to put some money in there, you put some crypto in there, how do you get the best return and then this is what really makes it so interesting for me that you have all of this automation and you have all of these smart contracts, but yet there is this very, very important human capital injection in here, without which you cannot get the best yields, which is so super interesting and of course you need all of these analytic platforms, so this is kind of where you can do these onchain analytics and try and figure out what’s happening, and ofcourse, do other things and figure out where the yield are. Again from polygon’s perspective, when we talk about building DeFi and CeFi, when you try to build that bridge like what are some of the things you need to do? I want to break it down Into four different things.
Number one is you need to ease the entry into blockchain, so you need to make it easy, if I want to just go back to the bottom layer right of bridges of fiat on-ramps, you need to make this super easy for users to enter decentralized finance, and this is what we’ve done by integrating with a large number of popular wallets and a large number of centralized exchanges as well so that users and assets can easily access onchain DeFi vehicles, so you can go from a centralized exchange to onchain decentralized finance and this is not just for users but for liquidity as well. What we’re also doing is building high performance infrastructure. So we have a very high performance chain, but we are already building for the future. We are actively researching ZK rollup technology, and of other concepts like light clients to sort of build a next generation sort of level of scalability. Also, of course you need all the DeFi tooling. So you need easy audits and you need access to liquidity, you also need some sort of privacy built in there, so this is kind of again where we’re using zero knowledge technology which can be used not just for privacy, but also for our scalability and of course you know very important for us at Polygon is also decentralization and community. So we’ve set up like a DeFi DAOs and we want to set up more DAOs so that the community has greater say in ecosystem building on what should be done, what kind of DeFi plus CeFi, what kind of things do we need to do within the ecosystem to engage more users and enable a decentralized decision making.
Just to jump into the next slide, I also wanted to just take a couple minutes to talk about zero knowledge rollups, so we’ve recently acquired a company for about $250M. This is Hermez blockchain, which is an optimized payment platform, and what we’re looking to do is bring a big degree of focus to ZK EVM technology. So we want to be able to build zero knowledge EVM technology so that your current code based on Ethereum is reusable and and you can inject zero knowledge features in there, not just for roll-ups to increase scalability but also for privacy and then furthermore you know as a part of this acquisition, we’ve committed a billion dollars from our treasury towards building this zero knowledge privacy plus scalability feature so that you can supercharged DeFi.
This kind of just brings me to the end of my presentation and you know, I hope I was able to give you guys a different kind of view into how to think about DeFi, so that’s that’s it from my side, thank you!
