Michael So, VP of Business Development of Cook Finance, discusses with David Lin, anchor for Kitco News, the newest developments in decentralized finance (DeFi).
Kitco news special coverage at the de-central Miami conference is brought to you by cook finance, a revolution in defy asset management.
We're back with Michael of cook finance. Welcome back to shell. Kick-out great to be back. Good to see you here in Miami. We're here to talk about a trending topic. . It's not often discussed in media, but it's important. So let's talk about it. But before we talk about 2.0, let's talk about defy 1.0. Um, conceptually, what is.
Absolutely, uh, P P B by 1.0 can be defined by three distinguished features. One being the organization, Dao, which stands for decentralized autonomous organization, meaning, you know, everything decisions wise, uh, driven by the organization by the community rather than by eight, rather than by a top-down structure.
Uh, second being the pillar off, uh, how the value of being transferred, not in a centralized waste, but rather on a network such as Ethereum, the network of a launch and then network. And third being, you know, the Depot actually means a non-custodial ownerships, meaning if it doesn't, you know, stands what they centralized custodian custody, but every one with a matter mass wallet, for example, you know, can own the assets in that, on their own, basically.
Can you give me some examples of ? Absolutely. So for example, you need to swap, you know, with the network, you know, with a uni token, uh, of a, the network, you know, also with the token, you know, confidence, token, you know, a lot of folks, you know, can own the governance token in their own wallet at the same time, you know, they can use it in a network.
You know, those are the two prime rates and. Briefly on our last conversation in Dubai about D five versus CFI, while you described care, the major differences between this structure and let's say traditional financial structure. That's correct. Yeah. I mean, traditional finance, you know, as we know, you know, they're extremely centralized, you know, uh, and a lot of the times, you know, what it means is that, you know, we are subjected to the rules, you know, uh, basically decided by a organization.
From the top down structure, you know, uh, and diva, you know, completely, uh, uh, basically changed the game, you know, in a way such that, you know, uh, anyone who has a stake, uh, able to have a say in how everything can be decided. Okay. Uh, DFI 2.0. I was at different from defy 1.0, right. It's a deep topic, you know, uh, I guess, you know, one way to put it this, that, you know, the, and DVD 1.0, a lot of the tokens, a lot of the protocols, you know, look for ways, you know, to attract community users, you know, to find, use cases on the network.
You know, uh, one of the things that they do is fight. Staking, you know, and, uh, if I were to water it down a little bit, you can think of it as, uh, in the existing financial systems, uh, how, uh, you know, in the monetary systems, you know, a lot of currencies, you know, with, uh, print money for similar to U S dollars.
Let's say bank of Japan, bank of China, bank of England, you know, they will continue to print money to increase the circulating supply. Uh, and at the same time, you know, uh, think of it at another angle, it actually creates inflation at the same time. If you want to think of it, another perspective, it also means that the money in.
Uh, it remains the same. Why are they circling? The supply keeps on increasing, meaning the share that you own from a supply perspective, you know, uh, reducing, uh, and if you want to think of it that way, a lot of the protocols are trying to mimic the exact same dynamics at the same time, trying to give people an idea that, you know, you're not losing your share.
You're basically being rewarded by staking, you know, the tokens onto the next. Uh, at the same time, you know, uh, this is how we define you. This is how we define, you know, that the fact that, you know, you have the reward, you know, from using the network itself, you know, and that's how I think of it as, you know, if you buy 1.0.
Okay. Um, you mentioned to me offline that the core concept of defy 2.0 are similar to our current monetary. Can you explain that? Yeah. So I came from Hong Kong, myself, you know, Hong Kong dollar is actually one of the stable coin, if you will, you know, which is a one that USD. Yeah, exactly, exactly. However, at the same time, you know, uh, the treasury backing the Hong Kong dollar, uh, it's not just one-to-one as another fact, you know, it's every single Hong Kong.
Back by one single us dollars within current exchange rates of one to about 7.78. You know, that means that it is over collateralized, you know, however, in the tree, in the open market and the FX market, they are being traded at a price of actually only one Hong Kong dog, meaning the value, even though it is being realized at one Hong Kong.
It is over Cola. I seven times, you know, now see by 2.0, actually, it's using that concept as well. So one of the most famous network on Dubai, 55, 200 0 is Olympic style with a token called home. They borrow the same concept. They have a full price of one. However, because they are over collateralized in such a way, uh, that is, uh, basically, you know, allowing people to value it differently than the intrinsic value.
Now they're able to basically allow the secondary market to trade the own token many times more than, you know, the original intrinsic value. And that's exactly you wouldn't want to. The divide 200 zero is about, they're looking for ways to find, to convict people, attract to the protocol, such that, you know, we can convert into what we call it total.
Uh, at the same time, you know, once people realize the fact that, you know, cause it's something that everybody is using, there was not using the network. Okay. But what's, what's the, what's the comparison to a stable coin, then a stable coin, for example, that like, so, you know, USB-C facts, every single dollar.
If I ended the dollar, the tether backed by cash equivalent, commercial papers, they have a one-to-one backing, not over collateralized, every single dollar was. By a issuance of one tether, one USB-C. And that's the difference, you know, between a protocol such as own and the token first instead of a stable coin, uh, it is namely, you know, that there's a floor price to own at the same time, you know, there's also over collateralized value that can be realized by the secondary market.
So what is. Projects of TFI 2.0 that maybe you're following right now. Yeah, almost one of them. That's another one. Uh, there's called a token neck. Uh, and, uh, actually it's very new. It's only been four months, you know, but the market has already been receiving it very positively. Uh, so, but at the same time, you know, uh, it is new, new to the point where everyone is testing the use case, trying to see, you know, if.
You know, can continue to grow and survive. You know, this kind of up and down was, you know, that we typically see in the crypto market, what is this divide? 2.0, what does this development mean for investors or traders? Yeah, so one, uh, one thing that in the crypto side, a lot of folks look for is the yield.
Uh, so what's happening is that by two months, zero, not only do they basically print extra tokens to reward the original stakers, such that they don't get diluted from a market share perspective on the circling, the supply, but at the same time, Something called a ponding funding. What it means is that they will actually lend some of the liquidity pool tokens back to the protocols.
So, and they will actually earn extra you in the form of a token. Again, you know, I know it was a lot of, you know, concept to unpack, you know, and surf a lot leads, you know, they can actually use some of the treasury lock up by the phone. The tokens on the open market, such that before pies can be supportive.
So interestingly, you know, they kind of tie back to how they exist. The economy works, you know, uh, epics markets, monetary systems, you know, things like that. So it was mostly for yield generation, I guess. Absolutely. And that's one thing that's driving the market, you know, because as we know, you know, I mean, let me ask you if this is a good idea.
Okay. I've heard and I asked this. I've heard that some engineers in the states where Canada Canada's while there they're actually asking for their salaries to be paid a USB-C or USD T because they can stake it at higher yield in their Fiat currency. I don't know if you think that's a good idea. Well, it's all about.
You know, at the end of the day, risk and reward, you know, if they're looking for a yield, which is very attractive, you know, they'd probably have to gauge, you know, whether or not the risk is justified, you know, such as the smart contract risk or any other counter party recipe where, you know, from a protocol perspective, you know, meaning if this project is going to survive, you know, why would they be counted?
Oh, because you know, the project and the sub, you know, sometimes, you know, may not be able to survive, you know, from a funding perspective, you know, we're just very real, you know, Indy and decrypted work, you know? So, I mean, what happens to the protocol after let's say for Penn, for example, a peanut is gone, you know, it can be very interesting as well.
And if that was structure, let's say I stay. And then the project is more tokens. What happens to my share? Oh, actually, I mean, I'll just share will remain, right? I mean, if you, if you continue to get rewarded, you know, uh, but at the same time, you know what I said before, you know, without in the south who continued to run, uh, but, uh, whether or not, you know, it is being maintained.
There's another question altogether. Okay. So my share wouldn't get diluted by more. Uh, no. As long as, you know, you get rewarded for the staking part, but however, if you have decide to not participate in a staking site, then it will be very similar to our current economy. But if I stick it, I can't withdraw my cash in a certain time period.
That's right. So, I mean, that's the another concept here, right? Once you stake it, you don't lose control of it. You simply cannot use it anymore. Whereas, you know, you've been to think of it a fine, you know, you actually lose title. They will be able to re rehypothecate, you know, the, uh, the assets and our next review.
How do I know I'm not going to get book poles? That's a tough question, you know, as always, you know, uh, but oftentimes it is actually showing that. Right. So, you know, I've token where you rely on the, basically the, uh, the community knowledge, if you will, you know, the proud knowledge of you. Well, you know, such that, you know, a lot of times you have to receive information that way, but however, it's, my country is extremely transparent.
I think there's also another way, you know, for people who, uh, a little bit more technical to find out whether or not, you know, something's legit. Did you buy squid game point? I did not. You know, I mean, I think that's the key part, you know, you did not buy or sell at the right time. You just didn't touch it at all.
I did not cut to the law, you know, but if, I mean on my team, you know, we got guys, you know, analyzing the contract we were going to send is a buy only, no sell token. I would just not the easiest thing to assault. That's important because. You look at some of the things, how do you evaluate if something is only by only, I mean, as a, as a protocol, as a Feifei Dow structure, you know, base, you know, protect ourselves, you know, we go through very rigid, you know, uh, you know, uh, protocol and procedures.
Right. Well, I think that people look for is the fact that, you know, it has to be audited. The, the smart contract has to be audited. The team has to be bad at, you know, I think that's very important. All right. Okay. Finally, objectives of D five, 2.0. Trying to accomplish besides providing better yield. Yeah.
Uh, from a crypto's perspective, you know, a lot of times are trying to prove the fact that, you know, they have a lot of token value locks, value, uh, so TBL as, as we call it, you know, and at the end of, at the end of the day, you know, we're all trying to find, uh, use cases for all the. Protocols, things like that, you know, and one day, you know, I'm sure, you know, uh, a lot of traditional economy will convert over in it.
That was structured in a way such that everyone can hit this update. Perfect. Thank you so much for your educational insights. I appreciate you coming on the show. Wonderful. Thank you. Have a good one. Thank you for watching Kitco news. I'm David Lynn Kitco news special coverage at the de-central Miami conference is brought to you by cook finance, a revolution in defy asset managers.