Interview with research director of Spartan Group: Asia may become the home of DeFi development (www.blockcast.cc)

Cai Haoting, research director of the crypto hedge fund The Spartan Group, talked about the risks of liquidity mining and the development trend of DeFi.

Original title: “”Amber Deciphering the Secret” 02: Asia may become the home of DeFi’s future development
Interviewee: Cai Haoting, research director of crypto hedge fund The Spartan Group, founder of Blockrunch

“Amber Unstacked” Crypto Unstacked is a high-quality crypto financial interview podcast column, dedicated to continuously tracking the dynamics of the crypto financial field and establishing a bridge in the crypto world with the global crypto financial industry. “Amber Deciphering” is produced by Amber Group, the world’s leading crypto financial intelligence service provider, and hosted by Leslie Lamb, Amber Group’s overseas research director. Each issue invites a well-known practitioner, expert or opinion leader in the crypto industry to provide listeners with advice. From crypto-finance to the cutting-edge perspectives of global macroeconomics, mining more in-depth industry analysis of crypto assets.

Cai Haoting, Head of Research, The Spartan Group, a crypto hedge fund

Guest of this issue: Haoting Choi Jason Choi, research director of crypto hedge fund The Spartan Group, also founded the Blockrunch podcast. He is fascinated by digital privacy, stimulating economic design and cutting-edge technology. Prior to this, as a founding partner of Contrary Capital, he invested in early-stage startup companies; he had done consulting work at Deloitte, supporting the company’s blockchain laboratory and financial technology practice; in the world’s largest hedge fund Bridgewater Fund ( Bridgewater Associates) studied the Ray Dalio principle and became interested in macroeconomics.

A Tweet Interpreting DeFi

Leslie: The operation of the DeFi field is too complicated and changes too fast. If you start from the fundamentals and introduce DeFi with a tweet that does not exceed 280 characters, what do you think it is?

Jason Choi: DeFi allows us to manage personal finances without trusting any third parties. This is only a limited definition, because DeFi is a completely new paradigm. From the perspective of its basic modules (financial primitives), DeFi has completely created a new paradigm. For example, it allows us to trade, save, finance, borrow, and speculate in a completely trustless situation, and all these agreements can work together.

Trustlessness and composability are completely different from the independent operation of traditional FinTech companies. For example, Robinhood and Stripe are both traditional FinTech companies. Although they provide paid APIs (Application Programming Interface), in most cases, the companies are completely independent.

If we move them to the DeFi ecosystem, we may be able to see: Stripe, Robinhood and PayPal are completely open and grafted to each other, without permission to obtain each other’s liquidity and users. To some extent, this is what I think is the vision of DeFi.

Risk analysis of liquid mining

Leslie: What do you want to say to people who have just participated in the DeFi market and want to start liquid mining?

Jason Choi: I think we can go back to the concept of liquid mining first. Liquidity mining is nothing more than two points: First, to encourage users to use the platform through rewards; Second, to issue platform governance tokens to highly active users.

As you mentioned, some relatively new projects have higher risks, and there are higher risks in smart contracts. Some projects issued on Ethereum in the past two weeks have not even been audited. So I find that institutional investors are still seldom making big rational investments in this area. In fact, most of the people who mine liquidity are retail investors or “giant whales” of certain currencies, rather than a large number of currency holding institutions. I think this is an interesting and disruptive development in the DeFi field.

When it comes to risk factors, the first is price risk. What is the source of the so-called 1000% APY (annualized rate of return)? It depends on the price of governance tokens, and governance tokens are produced through liquidity mining and used as price support. Therefore, at the moment the token price drops, APY will also drop.

For those involved in liquidity mining, I believe that the fundamental consideration is the long-term. Of course, except for those who sold immediately. But even with this, the risk of smart contracts still exists. The composability of DeFi allows many projects to be connected with other projects to drive the use of other projects, but this also leads to multiple risks. Because even if you think that the security of project A is very high, if project A is connected with project B, project B is connected with project C, and project C is connected with project D, then project A and project BCD are actually connected together. Therefore, the collapse of any one of these projects will be a huge risk. So, although I know someone who stakes the entire investment portfolio on liquidity mining, I personally don’t do it.

Asia will become the home of DeFi

Leslie: Before ending our discussion on DeFi today, I would like to ask you two questions: What do you think of what is happening in the Asian market? Who do you think will participate in which agreements?

Jason Choi: Combined with the above, one of DeFi’s secret weapons is composability. You can connect with any project without permission.

Everyone seems to have the impression that many DeFi projects are being launched in Silicon Valley, because after all, the first batch of projects such as Maker, Compound, dYdX, and Dharma are all based in San Francisco. But in fact, this is no longer the case. We have Kyber with the base in Singapore and Ren with the same base in Singapore that allows cross-chain transactions. We also have AirSwap with the base in Hong Kong, the BAND agreement in Thailand, and Balancer. I remember that its CEO Fernando is also in Portugal. Therefore, in fact, DeFi projects have spread all over the world, which can be said to be a global phenomenon.

From the user point of view, although it is difficult to know their exact location because of their anonymity, I think that many liquidity mining improvers, many decentralized exchange traders — in short, active users of decentralized protocols, They are all located in Asia, especially those countries and regions that have no capital gains tax on cryptocurrencies. In contrast to the United States, if you are an American liquid miner who conducts decentralized transactions in Texas, you will definitely complain. This partly explains why the active users of the DeFi agreement are from Singapore, Hong Kong, and Malaysia.

From a cultural perspective, gambling is also a factor. Gambling is almost regarded as illegal in China, South Korea and other countries, and cryptocurrency can be used as an alternative to meet people’s needs for speculation and investment. Therefore, we see that China and South Korea have many very localized, very influential and very complete cryptocurrency communities. Especially in 2017, when regulation had not been introduced at that time, the transaction volume in South Korea skyrocketed, and the kimchi premium was as high as 10% or even 15%.

Therefore, based on the above reasons, I am sure that Asia will become the main driving force for the growth of DeFi demand. For any DeFi project, Asia is also a market they must target. For this reason, I think that our kind of company that has access to the Southeast Asian market and has been rooted in China and other Asian markets for many years or even more than ten years is a very important partner for DeFi projects (especially certain venture capital projects).

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