Debate{X}: The Most Important and Non-Obvious Trends in DeFi

By Natalie Robichaud on November 10, 2020

We recently hosted our fifth Debate{X}, a Churchill Club-style debate where we invite a number of leading experts from around the tech community for a discussion on a specific trend or theme. It’s a unique (and fun) format, where we ask each panelist to present a prepared thesis answering a prompt, and then have the rest of the group agree or disagree and offer their commentary. Throughout the discussion, we also have a live audience vote for the most compelling thesis.

In this go-around, Two Sigma Ventures’ Dan Abelon moderated a debate with Alex Batlin from Trustology, Jill Carlson from Slow Ventures, Mona El Isa from Melon Protocol, Hugh Karp from Nexus Mutual, and Haseeb Qureshi from Dragonfly Capital. Each of the panelists had the chance to present and debate their answers to the question, “When we look back five years from now, what will the most non-obvious and important trend in DeFi have been?” Here were the five theses offered up for debate (with a full video of the conversation and winner below):

1. DeFi Will Overtake CeFi Within a Decade – Alex Batlin, Trustology 
DeFi will take over CeFi by volume traded and borrowed within a decade. That’s because DeFi, unlike CeFi, avoids jurisdictional liquidity fragmentation by not having a single point of failure. In a post-internet world, this means global sized pools that dwarf regional CeFi ones.

2. The Investable Universe Will Be Expanded Globally – Jill Carlson, Slow Ventures
Today, over 80% of stocks held by U.S. households are owned by the wealthiest 10% of Americans. And the U.S. has it better than most countries, where stock and bond markets may be much smaller, restricted, or even non-existent for retail investors to access. For the majority of the world, the ability to earn by investing has always been out of reach. This is starting to shift, as demonstrated by the “Robinhood Rally” phenomenon that has played out over the last 6 months in the US. 10 years from now, we might manifest an enormous, globally accessible universe of investment opportunities thanks to the open and decentralized nature of DeFi.

3. Legacy Banks Will Claim Avid Support of DeFi and Launch Their Own Coins With Yield Farming & Rewards – Mona El Isa, Melon Protocol 
The banks are notoriously slow to do anything innovative, especially when their entire business model depends on the very inefficiencies that underpin the industry today. The recent jump of AUM in DeFi from $1bn to > $10bn has got their attention. The SEC recently saying that “all stocks could eventually be tokenized” has taken many by surprise. Mona’s prediction is that 10 years from now the same guys that called bitcoin a fraud will be issuing and distributing me-too DeFi products to their clients and claiming they loved it all along.

4. Compossible capital will create a DeFi liquidity vortex – Hugh Karp, Nexus Mutual
In traditional finance there are trillions of assets with long term goals sitting in pension funds, index funds and insurance companies. Tokenizing these assets will allow them to earn additional yield while still holding the underlying asset. Stacked yields will become necessary with the active capital of today being considered idle tomorrow.

5. Synthetic Cryptodollars Become Crypto’s “Killer App” – Haseeb Qureshi, Dragonfly Capital
Eventually, USDC, Tether, and all the regulated stablecoins will either get shut down or become whitelist-only. This leaves only synthetic crypto-backed stablecoins to serve the global demand for permissionless digital dollars. This way, other countries can have their cake and eat it too: transact via US financial assets, but decoupled from US foreign policy.

At the end of the debate, Mona El Isa’s thesis that legacy banks will launch DeFi products received the largest share of audience votes, with 32%. Over the next five years, it will definitely be interesting to see which (if any) of these theses come to fruition. Make sure to see the full video below, and we’d love to have you join us for our next Debate{X}. If there are any topics you’d like to see discussed or any experts you want to see verbally battle it out, let us know!

The views expressed herein are solely the views of the author(s), are as of the date they were originally posted, and are not necessarily the views of Two Sigma Ventures, LP or any of its affiliates. They are not intended to provide, and should not be relied upon for, investment advice. Neither this document nor the video shown above constitute an offer to sell or the solicitation of any offer to buy any security or other interest in any investment product managed or sponsored by Two Sigma Ventures or any of its affiliates.