Blockchain Capital’s Aleks Larsen: The Tsunami Of DeFi Innovation

Host Tom Shaughnessy talks to Aleks Larsen, part of the Investment team at Blockchain Capital. Aleks discusses issues with decentralization, DeFi growth and opportunities, what place security tokens hold in the DeFi space, and more. This episode builds on a recent episode we hosted with Blockchain Capital's Spencer Bogart.

Key Points

1. Nothing is entirely decentralized yet because we’re still learning best practices for blockchain and DeFi tech.
2. The user experience on DeFi is generally lacking, and to grow the user base that will have to change.
3. There are a lot of opportunities with blockchain and DeFi in financial services to address global disparities in access to banking.

Tweetable Quotes

• “If your token doesn’t accrue value, it’s going to be really hard long-term to align incentives within your ecosystem. No one’s gonna want to hold it. So the most attractive tokens are going to attract people to use it for reasons other than the service itself.” –Aleks Larsen

• “Over time, we’re going to figure out some things that work, and over time, the points of failure that exist today, or the points of centralization, will hopefully become less of an issue.” –Aleks Larsen

Episode Highlights

• Aleks was working in traditional investments, but became interested in DeFi as he casually researched Bitcoin and Ethereum on his own.
• Choosing new projects to invest in comes down to intangibles; Aleks doesn’t have a strict framework or methodology around choosing.
• Right now, there’s a lot of experimentation and testing in DeFi tech, trying to find a model that will work more broadly.
• Most DeFi platforms aren’t entirely decentralized yet.
• In the early days of a chain, it’s safest to have a point of centralization so that there’s a failsafe as the tech develops and loopholes or bugs are discovered.
• Aleks doesn’t see faster transaction speeds as a significant enough advantage over secure transaction settlement, so if you have to wait a few minutes for space on a chain, that should be okay.
• Some of the most interesting new tokens from Aleks’s perspective are ones that give you voting rights, feel like equity, or outright gives dividends.
• Tokens now often have use cases beyond just raising money, including as collateral for other tokens.
• The amount of assets you have locked in DeFi is not the best metric to use for value because it really comes down to volume of transactions.
• Aleks believes the DeFi space is ambitious and optimistic, but launching new products usually takes 2-3x longer than predicted.
• New applications either need to address a market that has been experiencing significant pain, or it needs to create a big market that hasn’t existed before.
• Adding open source applications to your stack, like a savings account that you can access anywhere, is of huge value for use cases like developing countries where millions of people do not have access to basic banking.
• Facebook’s move into crypto with Libra is an interesting way to make financial services available to people who don’t otherwise have access to banking.
• Security tokens have unexplored potential to redefine what it means to own something in the digital age.
• Security tokens simply aren’t a good way to raise money.
• Aleks thinks at least for the for