Steven Boykey Sidley on decentralized finance and the end of banks

0:00i'm ashton addison from block west capital for investment pitch media in the crypto coin show and today on blockchain interviews we have stephen boykie sidley author of beyond bitcoin decentralized finance and the end of banks stephen welcome to the show and thank you so much for taking the time to come on today thank you and thank you for having me

0:20you're very welcome a lot's going on with the banking world right now and the rise of cryptocurrencies and you have a lot of knowledge uh in the book and there's a lot to talk about but i'd love to just start by getting a high level overview of what is beyond bitcoin the book and why did you write it okay so to sort of with the tagline of the book is decentralized finance and

0:45the end of banks and clearly what i'm not trying to imply me and my co-author simon dingle is that banks are going to disappear entirely it's metaphorical it means banks are going to have to change and they're going to have to change in a fairly painful shutter of reinvention and that is because the technologies that were built specifically starting with with

1:07ethereum and and the ability to write smart contracts the people who took those smart contracts in hand and sought application for them saw targets on the backs of financial institutions banks stock and bond exchanges insurance companies um uh yield farming there were all these major targets that were out there in which those people said we can apply all

1:32the wonderfulness of blockchain technology stemming from satoshi's paper and the smart contract capability of the ethereum and we can do a better job of these traditional products and services offered by an industry which has become ossified black box and also the home of the financially powerful so what what i need to say with that your experience is when we go to bank

2:00it's so built into the dna banking we don't have any questions i'll give you a good example if you have a hundred dollars to open a current current account checking accounts at your bank versus if you have a hundred million dollars to open an account at the bank those two people will get treated differently one of them gets their phone calls returned one gets taken to dinner

2:20probably gets taken out of the yacht the other one has a hard time finding customer service we don't even question that so the playing field of the customer in the financial industry is those customers who bring the most profit to the institution get treated better than the other ones that's just one of the examples as to why those people who grab the smart contract

2:41sought to build a better fairer cheaper and more trustworthy system in answer to your question is why did we write the book when we took a look at this i've been involved in crypto for a very long time since 2017 right around the time that make a dar and and dive um ken came into existence my partner simon has been in through into it since 2011 and the reason we sought to write this

3:06book is firstly because it was locked down pandemic and we were both going crazy and so called him up i said you want to write a book and he said yes but but secondly because it was evident that there was a gap and the gap was on one side you had a a bunch of incredibly smart people you know starting off with the vitalik and then all the way to hayden

3:27adams and hugh copp and andre cronier and all these guys very very smart people doing very complicated systems on the other side of the world those people who read newspapers and magazine articles you had intellectually curious people and there was a gap in between it was too difficult to understand how these d5 projects are operated they are complex they are plain

3:49the user interfaces are sometimes not as good as they could be and we wanted to go through each one of the major projects and that means stable coins and that means the the land london borough products like compounds and are they it means the the dexes it means the oracles it means uh the decentralized insurance one will take each one of those projects and look deep

4:10under the hood and explain it in terms that an intellectually curious person could understand without having to have them go into white papers which nobody reads except people who are technologically proficient and we're addressing that gap and by the end of reading the book which is very as i said very accessibly and easily written there should be a full and complete

4:32understanding of the default landscape wow incredible stephen uh thank you for that intro and yeah you're right about all of these great innovators uh you know that i'm that are pretty active on tw on crypto twitter posting about their projects coding and developing the new financial system um it's almost like a foreign language to people that are you

4:52know even people that are holding bitcoin and they understand you know this is probably better than the banks but what are these coders programming smart contracts with automation of the new financial system it can get very complex and you talked about the the difference between you know somebody with a little amount of money and somebody with a large amount of money um

5:13you know getting treated completely different and with defy i find smart contracts don't you know they're not prejudice you know if you have a smart contract you put funds into it it's going to do what the contract says um so how in depth is the d5 because d5 is super important and you know bitcoin's been around for over 10 years and d5 didn't really

5:39emerge until uh less than half of that and i feel like we're still so early as well um and it will probably be reiterating as we continue to go on so how in depth do you need to get right now in terms of like a high level understanding of what these geniuses are creating and how it works or do you really just need to understand that it works as as you would driving a

6:03car you don't really need to understand the engine and how that works to be able to drive yeah that's an interesting question look first of all most of the d5 products are a reimagining of what is presented to you by traditional finance world so one does understand the concept of you know deposits and loans or london borrow or the concept of using exchange to find

6:24buyers and sellers of an asset on the other hand the the engine that has been built by these d5 pioneers are complex to manage that complex to wrestle to the ground i've been around this for since 2017 and about 2021 i went into undercover's wire in order to invest some money and and i was flat terrified that i was going to lose do something wrong along the way

6:51you know my ether would be gone they are not ready for prime time in the way that you can call your person at the bank and say please open your savings deposit it's not that simple now the that's there are other headwinds which i'll talk about in d5 but that simple issue of difficulty of use is because this industry is like one second old compared to the thousands of

7:13years or at least since the medicis in the 1300s the first modern banks that's a thousand years until now and this this little energy has been around d5 for about probably about you know six or seven years you can argue what the start date was my start date is make a dar and those things which people consider to be barriers to entry for everybody are fast

7:39disappearing as user interfaces improve as security improves you then the only thing you read in the newspaper these days is that there was so much stolen from such and such a project that makes for sexy media let me talk about that for a while that's one of the headwinds there's the 681 polyheck at the end of last year there was a 300 million one i think it

7:59was anchor a couple of weeks ago if you take comparison of how much money has been um stolen or grifted or hacked in the world of decentralized finance it's about 15 billion this year there is an estimate that in the traditional world of finance there are trillions that are stolen and never seen i'll give you one example beginning of last year a danish bank got

8:23together with an estonian bank and a bunch of russian oligarchs who had a whole lot of money that wanted to move out of russia and they laundered 300 million billion dollars in one day that doesn't even make headlines because everybody assumes that that sort of stuff has been gone the panama papers get opened and there's this bank in panama and they find about all of these

8:41rich people who have been able to avoid paying taxes that gets very little press but somebody steals a couple of hundred million in d fire and all of a sudden it's headlines all over the world moreover the security holes because the software gets better and better are beginning to close down blockchains have never been hacked at least not ethereum and and bitcoin

9:02wallets get hacked social engineering finds passwords front end of html interfaces into these systems get hacked but the blockchains themselves are the hardest and most secure things around and the smartest crypts in the world have obviously tried to hack bitcoin and ethereum and and nobody's been able there are to other headlamps so i've talked about the difficulty of use

9:26element of it and there is there are other elements of headwinds by far the most important one being the regulatory headlines so what happens if you get this birth of an industry first bitcoin so now you've got a parallel currency and all of a sudden there's trillion dollars there secondly we've got d5 which is now taking on not only the products that have been

9:47offered to us for a thousand years by traditional finance industries but also taking on central banks and saying we've got a better way to create money we've got a better way to keep that money unsurveilled we've got a better way to handle inflation through you know through the 21 million bitcoins or whatever and all of a sudden governments feel a threat coming

10:08their reaction to that regulation is probably the most interesting thing happening over the six months because there is a wide spectrum of governmental reactions to this the phenomenon you get all the way from those countries which are trying to ban it completely you go to jail we're throwing you in a dark home if you ever mention the word bitcoin or ethereum you're gone you go

10:29to jail and there are plenty of those countries all the way to the other extreme we get a country like el salvador says i smell an opportunity here i don't want to be under the boot of the american dollar i'm going to make this a parallel currency and we think this is a good thing and in the center you've got a whole bunch of different approaches to the regulation tax

10:46regulations or monitoring regulations you've got china trying to do a central bank digital currency which has got nothing to do with but basically the sort of things that excited us about the blockchain it's got everything to do with surveilling their citizens that regulation portion is incredibly important because the institutions will not allow the institutional money

11:07to flow into di-fi defy until there is certainty about regulation so somebody like me welcomes regulation rational regulations so that more money can flow into these better products definitely great and you spoke there about how the hacks that have happened are in the media uh you know the banks they want to show that because they're like you know don't look over here look look over

11:34there um until it gets to a point where uh with regulation comes more control and more surveillance as you spoke of and yeah and then the banks can get in at how quickly do you see this timeline moving where regular people that don't use cryptocurrency that use traditional banking services are all of a sudden going to start seeing you know hints of defy or

12:00um like how exactly do you see traditional banks merging in um to be the end of banks to be neobank's new banks right so so let me let me give you a little uh picture of the landscape what's happening beginning as we started this book january 2 2021 i did a little scientific poll of all the bankers i knew and i know quite a lot of them and it turned out that almost nobody had

12:24ever heard of d5 i said only a year ago e5 what what's that okay by the middle of last year they had all heard of d5 but completely dismissed and these are just a bunch of kids playing around by the beginning of this year most of the banks big global banks have defy or blockchain initiatives in some area either they're giving their clients exposure to cryptocurrency like bank of

12:46america jp morgan morgan stanley parabus ing all of them are offering some allocated portion of their funds to go into those investments either for their high net worth in investors but sometimes through the retail investors are they spots this opportunity so are they is is a land borrow initiative it's not the biggest compound being very close behind it is a product that allows

13:11you to lend and borrow different currencies uh with an automated market maker underneath ensuring that these trades are liquid they develop a white label version of are they an institutional version of a forgotten what it's called it's called pro ave or something and all of a sudden you find banks all over the world snapping this thing up learning how to use it and offering it

13:34to their client basis because the truth is we know is that the average man in the street does not want to wrestle a big complex software machine uh to the ground you know they have a hard enough time with their cell phones which took years and years and years to do to sit there and try and wrangle a definition once those d5 initiatives are in the hands of banks

13:53you have a bank with a value proposition that it never had before the example that i like to use and i'm not sure if it's available in to united states citizens but it may be is most current accounts checking cuts will offer you less than one percent on your money in your checking account on your back if you open up your computing you type nexo.com or abra.com or one a bunch of

14:19others you've got 13 right there with no exposure to bitcoin volatility or eth volatility it's 13 on a stable it is a zero volatility zero risk way to earn 13 percent now the banks may say well it's not insured by the federal deposit insurance company but that's not the issue the issue is that it's incredibly low risk and you've got orders of magnitude greater return on

14:43your money and i can't compete with that yeah yeah it's crazy um and you know i've spoken with you know celsius and some of these major uh interest bearing platforms that have billions of dollars now in in stable coins and bitcoin being staked and lending out inside of the platforms and yeah they just say that the banks can't compete in part because you know the

15:07difference in percentage they're using that to lend the money out to other people to make the money so they can make it instead of the everyday person yeah there's a bunch of reason other reasons why the banks can't compete so i'll give you just two of them if you get pissed off with your bank as we all do all the time our regular old style traditional bank

15:27um there is a lot of friction in saying well i'm taking my money out and giving it to some other bank because you've got to close accounts and they've got your credit card and they've got your mortgage and they've got your sale your savings and checking support it's you just give up big and the problem is if you move it to another major traditional bank you get more or less the same stuff

15:45in the world of t5 that doesn't exist you pull your money out of that project and put your money in that project that was the catalyst behind under crimea's he looked at all these projects this one was offering this percentage for six days and then suddenly this one was offering a greater yield for so many days you have a little program at the top that sniffed the horizon okay

16:06and it looked to see he was offering the highest yields for whatever project they were doing pulled them pulled the cryptocurrency and they dropped it there as soon as that crypto started to drop its yields it moved it somewhere else he called it the world's smallest savings account that product has no equivalence in the traditional world it can't be

16:23built another reason is why the bank can't compete if you get a letter from your bank that says wow you're raising your transaction fees on your checking account from you know 2.3 percent to 2.8 percent new phone up and you say listen i don't agree with this you know that transaction fees too high could you show me the algorithm and how you got this number how do i know you're

16:43not lifting uh ripping me off or you say the interest rates you're offering me are not high enough and the loan amounts that you're getting on the other side are too high i think that gap is too big please can i see how you work your algorithms i want to see you actuarial mathematics that tells you to go take a hike because that's an ip yeah in the world of d5 that completely

17:04collapses because obviously the smart contracts are open source so anybody can look at them and see if they're fair there's a whole bunch of issues within d5 that make it incredibly difficult for a bank to say we offer a better fairer and cheaper service yeah great point stephen and yeah about andre's uh yfi platform you're right you can move money so quickly between

17:29different interest bearing platforms and if the interest rate changes there you know there's no obligation to stay there you can you can move and it's your capital you can move it really easily and quickly so all right by the way uh andre is is is is a co-countryman of mine he's he's south african and he builds uh wi-fi as a single programmer over a period of

17:52months and i contacted him in the writing of this book and i sent him my chapter on on why and just the last person i wanted to make a mistake with was andre and he was kind enough to read the wrong chapter and help me out and getting it right amazing great to hear and uh we don't have a lot of time left stephen but for people that are interested in learning

18:12more maybe give them one last reason why they really need to understand the information inside of this book okay so there is you know and i know it's a bit of a cliche there is a great sucking sound and great sucking sound is money flowing out of banks and traditional exchanges and traditional insurance companies into these new products they are better for you and i

18:35and they are worse for the people who have the financial power the people the shareholders of the bank and and the people who sit with large executive salaries at the top in order to fully understand that so that you can give your money the best chance to grow it is necessary to have sort of a broad level understanding of all these projects what we have tried to do in the book is do

18:54exactly that you don't have to know how the smart contracts are written but you've got to know why you know make a dio or or nexus mutual or why urn or uniswap is better than the services that you are using now and be able to rationalize that to anybody that you like including your bank and be able to understand how to move that money and that's the level

19:17we've tried to pitch the book at definitely well said and for people around the world that are interested in picking up a copy where's the best place to be able to get it okay so in most of the world as of next week it will be on bookshelves it'll be united states and the united kingdom and india and singapore australia south africa canada the english-speaking part

19:37of the world it will be in other languages in a couple of months it is on amazon you can type in my name i have a bunch of novels in there but this is my first non-fiction book or simon dingle my co-writer or beyond bitcoin it'll almost immediately come up and it's on waterstones in london it's just about everywhere you'll find a major global release

19:57amazing thank you so much stephen for coming on the show i will leave those amazon links uh in the description box below for the viewers as well i appreciate you taking the time to explain this and it is really exciting stuff the industry is moving so quickly and there's so much to learn so i appreciate you sharing your knowledge here thank you so much and and let's

20:15follow up in the near future likewise and thank you for letting me use your platform