DeFi, CeFi, TradFi and the Revolution of Web3 | Ep 14

Let's venture beyond traditional finance and get a glimpse into the future.

📚 DeFi 101
🤔 DeFi vs. CeFi vs. TradFi
🛠️ The Technical Side
🌾 Yield Farming & Liquidity Mining
🌐 Web 1.0 to Web 3.0
🚀 Smart Contract Wallets

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Disclaimer: 🚨 The information provided across all of Sugarcane's communication channels is for informational and entertainment purposes only. It should not be construed as financial or investment advice. Consult with a financial professional before making any investment decisions.

Transcript

Sheldon: 0:00

You're listening to the Sugar Cane podcast, where you get all of crypto's tastiest tidbits. Here's your hosts.

Rudy: 0:08

Sheldon Trotman and Rudy Dogum, Welcome back to another week of the Sugar Cane podcast, where we have your tastiest tidbits. Today is DeFi. Defi, which is our favorite thing in the world decentralized finance. It is rising popularity. It is the topic of discussion because people love to have sovereignty over their own finances. It's not that difficult of a concept. What is involved in DeFi is a lot. Sheldon, give us a little bit about DeFi. We'll start with the basics of what's DeFi versus C-Fi versus Trad-Fi?

Sheldon: 0:59

I'll go back to the first part of the question. Just a general definition. Defi is what's called decentralized finance. It's essentially what we're all doing here in the blockchain cryptocurrency space. Essentially it's finance that's backed by systems that can't be tampered by any one individual person. They essentially live as their own autonomous pieces of code, essentially out in the cloud, that can do whatever you program them to do. Once they're live, they can't be tampered or altered. That's the definition of, generally speaking, DeFi. It's a kind of stepping into comparison between DeFi versus C-Fi versus Trad-Fi. Specifically, DeFi again decentralized finance.

Sheldon: 1:40

C-fi is kind of a play on that decentralized finance. It's more like the exchanges in the crypto space, so that if you think about Coinbase, Crackin, Binance, these are people who are in the crypto space, organizations in the crypto space that still provide financial services or financial platforms or allow you to do things with your money in some sense, but they're still an entity at the end of the day. While they interact with the cryptocurrency space and blockchain networks, they still, in a sense, are still organizations that are centralized. They're controlled by a central group of people who are fried in that service. Then, taking a step outside of crypto, you kind of think of like Trad-Fi Traditional finance. These are like the large organizations like the Bank of America, the Wells Fargo, the Robin Hood some degree, who provide traditional financial services that don't have anything to do with blockchain technology, that just provides you access to your money. When they're decentralized, they provide services that if a central government doesn't like it, they can actually cut you off from the banking system. Kind of depressing between DeFi, C-Fi and Trad-Fi.

Rudy: 2:51

How do I do. That makes sense because that's the way I think of it. Trad-fi does not deal with blockchain at all. C-fi is your gateway from Trad-Fi to DeFi and DeFi is totally just away from the any type of centralization owning the system.

Sheldon: 3:17

So it's for the. You said like what I said, like I said like 10,000 words, you said like 10 and those farmers to sink.

Rudy: 3:26

I mean, I just heard 10 words from you and I picked them up, that's all. I can't keep all those words on my head shelling out the one that's my best sounding ones. Like I asked, it's from us thick with nailed it it's the tastiest tidbits, not yeah information bits, it's not bites yeah yeah so for then we always hear like defy is a future as a future of finance and it's getting all its attention.

Rudy: 4:09

But like, tell me in more deeper technical content, content of you know what sets it apart from traditional finance so a lot of the other episodes we're talking about.

Sheldon: 4:21

We talked a lot about smart contracts and how those work, that they're living on a blockchain and those blockchains have nodes, that kind of talk to each other to get something like done or something like degree of some state of the world.

Sheldon: 4:35

And so, in terms of defy, you can think of defy as like a layer above the smart contracts. They're like a bunch of different smart contracts that talked to each other to do something right. So a pretty popular example like to talk about is like if you want to get yield on that's a US dollars, so let's say you have five US dollars and you want to get some like return on that. In the traditional context to try defy, you basically buy a stock or you buy a bond, but in the crypto context, what you can do is they can take that five dollars, send it to a smart contract that can lend the money out on your behalf, right? So you can't think of it as like this whole, like a time, the system that's working on your behalf to get you money and get you yield, right. So the smart contract itself is having other people who want to take that money and do something with it, but they charge some return, charge some like a rate on that, and then you keep that rate.

Rudy: 5:28

So can you give me a brief overview of what those concepts of like yield farming means for crypto and? Yeah liquidity mining and these market makers was that. I always see this happening in crypto. I put your money here and get a return, but sometimes it's too good to be true and it is, and sometimes it makes sense, but I can't tell the differences, so give me a quick rundown on that yeah now.

Sheldon: 5:52

So this, this harkens back to like 2020, so was kind of quaintly return, quickly returned, referred to as like defy summer, and so this is when, like, a lot of the big defy products first came out right and this concept of yield farming came out where, like, people were actually trying to get the best return for their money right. So they're basically jumping from smart contract product to smart contract product to smart contract product, searching for the best like yield and return, and at that time there's some like crazy rates like 10,000% APY and you could automatically tell is either a Ponzi scheme or a complete scam. Like, yeah, definitely a lot of the the craziness that came out then is completely better for good. They washed out. But, like, this whole concept of like yield farming and liquidity farming just harkens back to that concept of like where you can find the best value for when you might have value have.

Rudy: 6:51

And then if for liquidity mining, then so I guess that's more liquid staking. That's the term I've heard. How does that work?

Sheldon: 7:01

Yeah, so we didn't talk about it much in this kind of batch of this first, like 15 or 10 or 14 episodes that we did. But liquid staking is this concept of like using your assets. So let's see if ether and Ethereum itself, the Ethereum blockchain, is a proof of stake network. So you basically take your Ethereum or ether and you stake it to Ethereum to secure the network, and so we talked about it a bit in the proof of stake episode. But the network will pay a certain amount of return for providing your assets as like security to the network Right. So like right now, for example, the current APYs, roughly speaking and not financial advice liquid staking rates somewhere around like 3.5 to 4% return in each terms. So like, if you put, let's say, one ether in a staking contract with, let's say, rocket Pool, for example, you can get back 4% on that. So any year from now you'd have 1.04 Ethereum or ether for the money you staked.

Rudy: 8:04

Yeah, and that's pretty well to think about, how, at one point, idea of kind of using your mind to make more money is, yeah, I wasn't really thought about too much. So I want to know more the history of, like how do we start in like Web one and how do we get to Web two just what we kind of refer to today and then, in the crypto sense, it evolved into Web three. Now you can do do always pretty amazing financial integrations with this digital age of finance. Like, how do we get from web one to Web three? How does that all happen?

Sheldon: 8:49

Yeah, it's really a story of kind of two things. One is like the journey to user control, and then also this concept of decentralization, right, so like in the web one context. This is back when a well was a thing, and that's what we typically refer to as like the read error, so we're actually just reading information. And the first concept of being able to professors can publish papers for whatever research they're doing and people were just able to assume that they're able to read that off the internet. It was pretty big because that's the first time in history, all of human knowledge was able to be aggregated in one place, which is called the internet Right, and then taking a step further towards Web two, which is, like commonly referred to as like the read right era, so like you actually go from, like now you can read information, you can actually push it back, and so that's kind of thing about between like the 1990s and like 2010s where, like you really saw, like the internet take its kind of real modern form, like websites start to come out, blogging on, like WordPress started to come out, where you can actually put content up. Also, social media to some degree also started coming out around like the 2008 timeframe 2009 timeframe. So you actually now have people who can produce their own content and put up on the net for anyone to see. So first was like the read era you have all of human knowledge. The second was like read write Now you have human knowledge plus additional content being produced. And then now, in this concept of like Web three, we kind of call it the read write own era, so like where you can now take this concept of reading information, you could publish it back, but then you also own assets or own like digital value.

Sheldon: 10:28

Kind of previous, in context of that is like the internet didn't really allow you to have a way to own assets or be able to actually control any kind of unique asset on chain or online.

Sheldon: 10:39

And so that's why you have the emergence of like the kind of the ads, like being able to find it like financialized, the kind of financialized applications using ads, so you can actually sell content and actually sell people on products and people are paying for that Right. And now, with this new emergence of disability to create finance online for anyone to interact with, kind of like a decentralized, kind of distributed financial layer for the internet, you can now have people be able to own digital assets. You kind of see that early emerging like tokens that came out in 2016, 2017 evolved into like DeFi products, like lending products or staking products. In 2021, you saw like NFTs come out and that was this concept of like owning a unique asset. A lot of scams came out then, but like reality is that like a lot of the next emergence of like products are going to come from that NFT era.

Rudy: 11:32

So again, kind of take a summarization like Web one read, read to read, read, write, and Web three read, write, own and you know to now have the ability to own assets and own like your own money value makes sense because, yeah, and those phases, you might have published something online but you don't actually own it because the entity that's holding it owns it and just because you can edit it and download it and you have legal rights over it doesn't actually mean you own it. And then now, today, finally, there's a way to read, write, publish and, like you said, own your work, your assets and whatever you purchase, because now it's under your custody and no one can take that away from you.

Sheldon: 12:23

And also gives like, more power to like the creators too, because, like, if you think about like YouTube or you think about like bloggers on Twitter, or now X, as they call it, they don't really have control over how they monetize their content. And so, like in kind of the Web3 context, you can now have someone who can produce high quality videos in charge, like whatever amount they want for their content, and assure that their consumers who are consuming it pay directly to them, rather than some platform in middleman. That's kind of the interesting new emergence of this kind of Web3 technology, yeah like.

Rudy: 12:57

So some of like some new technologies are coming out with DeFi too, and I definitely want to know some of like your favorite features of things like smart contract wallets and like externally owned accounts, eoas. What are your, some of your favorite things that are coming out of this ramp up with DeFi?

Sheldon: 13:14

Back to our kind of our wallet episode.

Sheldon: 13:16

We talked about a lot of like wallets and stuff like how you can control your assets. Previously, in order to control your account, you had to have like a metamask in your browser and that was like tied to that one specific browser or computer, right. But now with like smart contract wallets you know how this ability to like abstract the person who's signing a transaction to the actual account that's storing the value. So what I mean by that is like now you can actually have these autonomous systems that can work on your behalf, that do things and maybe even get you yield, or they can collect the best content that you'd like on your behalf and still store and own it in an account that you can then control. So it's kind of a cool, like a futuristic concept that I think about recently, like this whole world of like, even like AI bots that can work on your behalf, that can still accrue value, that you can still control, like because, as they live on the blockchain. So it's a kind of cool way to marry two worlds, yeah.

Sheldon: 14:12

So, I'm interested in that. Yeah, watch you.

Rudy: 14:15

I mean for me, it's just I love this idea of self sovereignty so much. Yeah, I love the idea of, like people being able to own their own assets, and it's always interesting to find ways people are using this tech to make money or to either either to like, just innovate typical ways Of sharing a protocol like the staking an Ethereum yeah, if it was so sent like, the idea was like so centralized, where only rocket pool or only one company can decide how it's supposed to work, it would limit the creativity involved in how you can stake.

Rudy: 15:02

And I think, I think that's what's exciting for me is like not limiting the way people can use their money and to get big bonds, yields, cds, all those traditional stock market investments, you're limited. This is how you buy a stock. It's been established by these entities and protocols and sometimes when you think about, well, it would have been better if I can do this, or it would have been better if I can trade past 5pm Eastern. It would have been better if I can trade at a different time, like I'm free to work on my money. However, I want to work on it 24 seven without anyone telling me what to do, and sometimes it's just allowing the person to do what they want and educating people, which is like possibly can, like Maybe it's not safe to invest in, like scammy looking projects or have us stay away from that. Yeah, in the end it's like yeah, it's 24 seven access to what is rightfully earned by you.

Sheldon: 16:03

I should actually have a funny story about that. Um, yeah, a while ago I was working with a team that was based out of Australia and so we're um, they were paying me for like this work that I was doing. And like it was nuts because, like um, I received, like ether in the address, like it's seen right after the conversation we had. It was kind of mind blowing because, like, if that were to be regularly the case, I didn't have to know my bank account wiring information. It'll take like three days to get to me, it would cost me a bunch of money to get the money and like it was just nuts. So like it literally instantaneous. I saw it on chain, it happened and it showed up in my meta mass account. I was just like that was when I really like got um rug pull to the fact that, like this is this nuts.

Rudy: 16:42

Well, that's a thing to do is because it's funny how we say there's a lot of scams and crypto, but there's scams in the web to world too. So in traditional finance I could have been like no, finish the work, the money is coming, I'll be there in three days, I promise. Three days later You're working for me still. And then I was like oh, no, no, trust me, like it was a bank error, like I sent it to read there next week. You still work for me and I keep pulling your strings along until I never actually send you money. So at this instance, not not. It's like oh, I sent you the money, okay, have it. The trust is there, it's done, yeah, it's. You know, have to like worry about that. So the scams aren't limited to crypto, they're unlimited to any situation anywhere. Great to have a lead figure it out. So always be careful anywhere. And the other thing, too is like defy is still technically a bit of a challenge to use. Do you think it'll ever be as easy to use as current traditional banking gaps?

Sheldon: 17:42

Yeah, I'm happy when for's that there's a product called sugar cane? No, no, but no. In more serious context, like the sugar cane product itself is built around just simplifying the whole experience. Right At the end of the day, our kind of saying is that we don't want you to have to think about bridges, chains, gas, interoperability, like all these kind of complex subjects, technical subjects we want to abstract away. So you just get a clean mobile experience and also access to your money and actually control your money, check it out, what you want and what you want to do with it. So that's kind of the sugar cane product is all about and we're going to really simplify the whole experience of it all. So excited for you guys, I'll try it out as well.

Rudy: 18:21

I'm excited, too, because that's what it's needed, because, like you said, other episodes too is like having to worry about different tokens to pay for different transactions in different times. It's just yeah, it doesn't matter how experienced you are, it's just not a fun experience. The only leverage you have is the willingness to go through that experience over others and to really bring it to the mainstream is making it easy, making it simple. So I'm excited for the future of crypto. It's going to be sweet, thank you again.

Sheldon: 18:49

I'm excited for the future of sugar cane.

Rudy: 18:52

That's going to be super sweet, super sweet. Thanks again. I'll see you next time for more episodes. Sounds good With the tastiest of tidbits.