This document discusses TradFi (traditional finance) versus DeFi (decentralized finance) and blockchain technology. It provides an overview of TradFi systems and their limitations. Blockchain and cryptocurrencies like Bitcoin addressed some of these issues through decentralization, transparency, and self-custody of funds. It describes the evolution of DeFi from Bitcoin and Ethereum, including decentralized exchanges, lending protocols, and stablecoins. Current DeFi growth and challenges around scalability, adoption, development, and privacy are also covered. The document is presented by Wintermute, an algorithmic market maker and trading firm active in both centralized and decentralized exchanges and cryptocurrency markets.
2. Speakers
Algorithmic DeFi Trader
Previously:
• Dual masters in
management & finance
• Equity derivatives sales in
Natixis
• Trader across assets
classes and financial
products for own book
Algorithmic DeFi Trader
Previously:
• King’s College,
Theoretical Physics
• Trader in traditional
financial markets
SANTIAGO D’ORNELLAS HAASHIR ASHRAF
3. TradFi
Banking & Payment
Service Providers
• Deposits
• Mortgages/lending
• Investment banking
• Digital payments
• International transfers
• Clearing houses
• Custodians
• Prime brokers
• Data/news providers
Money Managers
Trading & Investments
• Active/Passive Managers
• Wealth Managers
• Venture capital / Private Equity
• Stock exchanges
• Dealers/brokers
• Trading firms
What is it?
4. TradFi What’s wrong with it?
Rent seeking intermediaries due to legacy roles
Misaligned incentives between financial service providers and users of services
Excessive regulation
Lack of innovation and reliance on legacy technology and processes
Limited democratization and resulting inequality
Opacity over overall financial market structure
5. Blockchain What does it solve?
Real-time settlements Transparency
Open source No centralized control
Self-custody of funds Strict enforcement of rules by
innovative consensus mechanisms
built in code
6. Blockchain What has been built on it?
BTC as a new asset class increasingly adopted by traditional financial institutions.
Centralized exchanges or CEXes
(e.g., Binance, Coinbase, & Kraken)
Trading firms
Stablecoins
Interbank messaging protocols
Digital sovereign currencies
Centralized finance (cefi) Decentralized finance (defi)
Decentralized exchanges or DEXes (e.g.,
Uniswap, Sushiswap, & Curve Finance)
Borrowing /lending protocols
Decentralized trading
Prediction market
Tokenization of assets
AMMs: Automated liquidity provision
Non-fungible tokens (NFTs)
8. Defi created new yield opportunities
attracting $90B+
Real-time settlements.
Low interest rates resulted in few yield
opportunities.
DeFi lending protocols offer interest rates at
significantly higher rates (1000%+).
Yield farming: high-risk option offering
higher prospective returns .
$96.69B
As of Oct 19, 2021
Not investment advise; lending protocols
represent high risk for users.
9. Defi How did defi evolve from BTC?
2009
Allowing users to
easily send
payments all over
the world!
2015
Making it possible
for lending,
borrowing,
trading, funding,
& derivatives.
Bitcoin
Ethereum
2017
Building DEXs;
projects starting
to ICO on
Ethereum.
EtherDelta & ICOs
2018
Bringing liquidity
pools and AMM
to defi.
Uniswap
2020
12th March 2020
- price of ETH
dropped 30%+ in
less than 24
hours.
Black Thursday
2020 Defi Sumer
New ecosystems
and opportunities,
many projects
being launched,
major growth
overall.
10. Defi Current state
Source: Finematics
• During defi summer, we saw massive improvement in
metrics
• Things started to change in September 2020, leading
into defi winter
Layer 2 scaling solution
Re-building stablecoins
Ethereum 2.0
‘London Hard Fork’ in Aug 2021
BTC legal tender in El Salvador Sept
BTC ETF & regulatory implications
11. Defi Challenges & potential issues
Scalability
Enhancing
throughput, using
layer 2s, sharding,
/zkrollups, cross-
chain
interoperability.
Global Adoption
Complexity to
interact with
protocols, high risk
of user error; must
be easier to
understand for
global adoption.
Development
Still much
innovation &
improvement
needed; stablecoins
in defi, partially
collateralized
lending applications.
Privacy
Privacy vs total
anonymity; want
make transactions
public but not give
full transparency to
users’ intentions.
12. About us
MM is core to our business.
We support all major
exchanges and pairs, covering
centralized and decentralized
exchanges and trading
platforms
We are a principal desk
offering zero-fee
execution for funds,
family offices, OTC desks,
brokers and qualified
individuals
We support high profile
blockchain projects &
traditional financial
institutions in moving
into the digital assets
market
Market Making OTC Blockchain
