DeFi, Fantom, Regulations, and the Challenges Of Being a Crypto Celebrity with Andre Cronje

Andre is certainly a polarizing figure in the DeFi space who, at times, has been seen as a rockstar, and has also been criticized for his controversial takes.

We start by talking about Andre’s backstory: How did he get into crypto in the first place, and why did he decide to build in DeFi?

Listen to the interview in this week’s podcast episode here:

Watch the video here:

Thanking our podcast sponsors:

• MetaMask Learn is an educational and entertaining platform designed to immerse you in the world of web3: what it is, why it matters, and how to get started. You will learn core concepts in visually engaging lessons from the world’s leading self-custodial wallet.
• Store your tokens safely. Go self-custodial with 1inch Wallet.

Background

What prompted you to start Yearn Finance, and why did you want to start a separate blockchain?

I originally got into the space because I thought it was mostly scams.

When I first became interested in the blockchain industry in 2017, during the ICO phase, many young teams were launching projects that claimed to have solved significant problems in big data and distributed technology. However, as someone who was skeptical of the industry, I found that these teams often lacked formal training, and their claims were highly unlikely.

To learn more about the technology and to evaluate these projects objectively, I started to write my Code Review blog, where I could document my research as I reviewed their GitHub. I focused on the actual code being produced, rather than the marketing fluff surrounding it, and found that 99% of the projects were not legitimate.

Despite my initial skepticism, I have been in the industry for almost five years because of the many benefits that it offers. Compared to traditional systems like banking, regulation, and tax, blockchain technology offers more freedoms and luxuries, such as having custody over our own assets and being able to make simple payments to others.

Although there is a disconnect between the speed at which the market expects the industry to move versus the speed at which the technology actually progresses, I am excited about the potential that the blockchain industry holds for the future. Overall, my initial motivation for getting involved in the industry was to call out scams, but I have stayed because of the real potential that exists within the blockchain industry.

Before becoming involved in the crypto space, I worked as the CTO of a DG Bank where we developed insurance, banking loan products, and worked with credit scoring models. I specialized in building big data pipelines and had some experience in basic machine learning and neural nets. However, my background was in traditional finance, and I did not have experience trading or understanding concepts like futures or options.

I was approached by companies to audit or help them with their tech, and I eventually worked with Fantom after they had raised $40 million through an ICO with technical claims that they couldn’t back up. I provided them with my technical expertise, and we began building a framework and structure.

Layer one development is slow, and we focused on getting lean and cutting out anything extra to stretch our runway from two years to about four to five years. I started looking into DeFi and deploying our capital into lending markets, but after realizing that the supply side was small and interest rates were volatile, I began to focus more on creating a solution to this problem.

That’s when I started teaching myself Solidity and started getting into smart contracts. And that’s when I built the first building blocks for Yearn, and Yearn was developed with the need of being able to manage that. Yearn obviously had its own story. Yearn’s token launch actually ended up being, it started as a very tongue-in-cheek thing. I just wanted to do it to show people that you don’t need to raise money to build things like this. You can do it yourself.

It turned into something much bigger than I had envisioned and too large for me to control, and I’m very glad.

Do you mean Yearn became too large?

Too many people were involved. There were too many voices from developers, too many systems, and too many ways to connect everything.

But I left right after I put out the token, which turned out to be a good thing because the team that is there now is much smarter than I am.

Market-Driven Token Launch Model

The way in which the token launch was conducted has become a standard for many other token launches. The approach of launching a token without a predetermined price and allowing the market to determine its value has become a common practice in the world of DeFi.

In retrospect, the model saw significant usage, with many individuals implementing similar or slightly altered versions. However, I regret the pool 2 mechanism, which incentivized people to provide liquidity. At the time, it was useful because there were no active markets or exchange listings, and I didn’t want to go through the difficult process of brokering listings again. I was familiar with platforms like Uniswap and Balancer because I had investigated them for yielded opportunities, so launching there made sense.

People eventually began using high APYs to lure uninformed retail investors, resulting in them becoming exit liquidity. The original intent and eventual outcome of the model were quite different, and while I believe it’s still a viable method for building communities, it can’t be done the way it was two years ago. I think it’s good that the frenzy has died down.

Prioritizing Product over Token

How would you do it today?

I believe that there are a few protocols that have executed well, such as Gearbox, Inverse, and another one that I’m struggling to recall. The important lesson here is twofold. Firstly, I suggest not making your token transferable at the start.

Instead, create a DAO and offer a small subset of contributors multi-sigs. This will enable them to decide who receives tokens, thus fostering initial engagement. It’s crucial to build up your core community and reward your developers and contributors rather than welcoming mercenaries and traders, who don’t bring value to your project.

Secondly, if you want to have a liquid market, consider allowing people to put in bids and asks on a time delay. This means they can’t immediately buy tokens with ETH; instead, they must register their interest and wait for a configurable amount of time, say a week, before their ETH is converted into tokens at the current ratio.

This method avoids the narrative chasers, pump-and-dump groups, and mercenary traders who could cause damage to your project, shift the focus from the product to the token price, and create unnecessary stress and distress for everyone involved.

I draw a comparison between the token game and the product game. Many projects in this space are playing the token game, focusing on the share price and shareholder payouts rather than reinvesting the money to create the best product. This shift in focus happens in traditional finance too, and it’s not a sustainable approach. It’s essential to prioritize the product, reward the contributors who bring value to your project, and build a supportive community.

Is this token versus product tension that has driven you out of DeFi at times?

Less of that and more to do with the public nature of DeFi than the underlying technology.

I am a strong proponent of the technology, and even when I took public breaks, I continued coding in the background and working on primitives. I make a point to communicate with my teams that I am still committed, but sometimes the public noise can be overwhelming. I have learned to separate public and private interactions, and I no longer read Twitter or let the information cycle consume me.

There’s just too many people and there’s too much noise, and there’s too much criticism that you stop being able to filter out, what’s real discourse with the intent of improving versus what is just someone trying to bait you into some kind of discussion for their own whatever reason they do it.

When I started using social media, it was great to interact with core supporters and get constructive feedback. There comes a tipping point where too much noise and criticism can be overwhelming, and it can be hard to filter out genuine discourse from those trying to bait you. It took me a while to realize this, but I am now good with shutting it down and not caring about others’ opinions, which unfortunately means I have more of an echo chamber. I believe this is the current best option I have to continue providing and delivering my vision.

So it was more being a public figure that you disliked and what drove you to quit.

As a public figure in the blockchain industry, I’ve learned that the public nature of the space can be both a blessing and a curse. In traditional finance, issues can be dealt with privately, but in blockchain, everything happens on-chain and is immediately publicized on social media. This creates a sense of urgency and requires a quick reaction to false claims or rumors.

Financial incentives also play a role, as people with short positions can create false narratives to manipulate token prices. Despite my best efforts to handle PR incidents, I’ve come to accept that minimizing loss is the best strategy. However, I do regret not writing a blog post explaining my departure from the industry, as I feared getting attacked no matter what I did.

There’s just too many people and there’s too much noise, and there’s too much criticism that you stop being able to filter out, what’s real discourse with the intent of improving versus what is just someone trying to bait you into some kind of discussion for their own whatever reason they do it.

Moving forward, I’ve learned to communicate one way and create other avenues for feedback. Overall, it’s a combination of the public nature of blockchain, financial incentives, and managing public relations that can make things challenging in this space.

Rage Quitting

I find it difficult to speak in absolutes, but one thing that every rage quit has helped me with is gaining perspective. It allows me to ease back a little because when I rage quit, it’s usually during a bull market. It’s hard to take a step back and breathe because of the high frequency and fighting narratives. It’s like in sports, if you don’t pause to breathe, you end up strangling yourself.

If I were a saner person, I would’ve definitely stuck with traditional finance. But I’m just broken enough that I want to keep being here. But you have to be broken to be in this space. There’s no doubt about it.

I can’t say for certain that I won’t step back again, but I have recognized when it’s best for other people to handle things from a PR perspective. Going forward, I will have Fantom’s PR agency handle it. Our industry is a horrible Petri dish of online anonymity, financial incentives, and competition. It attracts the worst people, and it will always be difficult to preserve sanity. I think the same people who survive in this space are just broken enough to want to stay.

Fantom

• Fantom’s mainnet was launched in 2018, making it older than most fast-layer networks.

• The platform’s strengths lie in being the first blockchain with true finality, eliminating the need for confirmations, and being faster on the PTP protocol.

• By refining the developer and user experience, Fantom can improve the entire Dapp ecosystem, which includes gas monetization, gas subsidies, and native integration of account abstraction.

• Fantom aims to build a strong system that is high throughput to provide a sustainable revenue stream in the long run, instead of a lump sum upfront that causes stress and pain.

We launched the Fantom mainnet back in 2018, which is older than any of the fast-layer ones available today. At that time, we had already achieved high speed, but we lacked marketing and a big war chest. This limited our resources, and we spent too much time chasing the wrong verticals.

Our strengths started becoming obvious when DeFi hit. Fantom was the first blockchain to have true finality, meaning that once all the network is aware of the transaction, it is final and can’t be rolled back. Therefore, there’s no need to build extra UX and complexity around waiting for confirmations. Also, this happens on the PTP protocol, so it is faster. At that time, there were strong competitors, including the BSC chain, which was not decentralized and was controlled by a limited set of validators.

What’s important now is for me to focus on getting that perfect Dapp developer experience because that’ll allow for a better user experience. To touch on a few points quickly, gas monetization, for example, allows me to be rewarded for the gas that’s spent on my contracts, providing me with a more sustainable revenue stream. While I may not receive as much upfront capital, building a strong system that is high throughput will end up making me a lot more in the long run as my financials grow, instead of just a lump sum upfront that causes a lot of stress and pain.

Another thing to consider is gas subsidies. As the Dapp developer, I can subsidize my contract with my gas monetization, meaning anyone that interacts with my contract doesn’t need Fantom or the native token. This is a small change but important because it removes a big prohibitive factor for onboarding new users, especially those who are not crypto natives. Now, all they need to do is install the wallet and start using my Dapp, which is already a big improvement.

Our implementation of account abstraction is also native and integrated, meaning users don’t need mnemonics or to store private keys. They can just use their standard username and password, or they can log in with Google, fingerprint, face ID, or any other mechanism they prefer. This not only simplifies the user experience but also provides standard social recovery mechanisms to be able to get their wallets back if something happens.

By focusing on refining the developer’s overall experience and the end user’s experience, we can improve the entire Dapp ecosystem.

So you’re focused on Dapp development experience so that they can build better UX, better more accessible applications. Where do you foresee those applications will be? Do you have a vertical? Do you want Fantom to be a DeFi chain, or is it just agnostic?

So historically, we focused, I think, a little bit too much on the verticals.

Even though Fantom is currently associated with DeFi, I don’t like that. It makes sense because that’s the current focus, but the chains themselves are agnostic. It’s important to note that we’re in a similar place as the early internet, where the only thing that made sense to build were financial primitives. This was because interacting with it was expensive, and data was costly.

As the internet became more accessible and affordable, new verticals emerged. The same will happen with blockchains. We’re not there yet, but hopefully, in the next year or two, we’ll see gaming, social systems, and new decentralized primitives. It’s important to note that everything on the internet today is replicable in a decentralized world, but with different business models. Unfortunately, I think most blockchains just flip the business model and don’t live up to their full potential.

Can you expand on how the business models in blockchain-based applications are different from web2?

Web 2:

• Business models are primarily motivated by selling users’ attention to ad agencies.

• Traditional news sites attract readers and sell their attention for profit.

• Platforms like Twitch, YouTube, and Twitter have realized that content creators attract users and share revenue with them.

• The business model still revolves around selling content for advertising revenue.

• Intermediaries (e.g. banks, insurers, lenders, advertisers) play a significant role in facilitating the exchange

Web 3:

• Blockchain technology removes intermediaries from the equation.

• Users can talk directly to the agency, without the need for intermediaries.

• The big business model shift is that the Dapp (decentralized app) takes a smaller piece of the revenue pie because it does less work.

• The user takes the biggest piece of the pie because they talk directly to the agency.

• The technology is not yet at a smooth, scalable point, but this business model shift will become stronger over time.

On Regulation

Do you think that’s the right direction for the space, given your previous thoughts on it?

So let me clarify my point. First, I want to stress that there are two types of regulation that we will see, which are currently mixed. The first one is crypto regulation. For example, a body like the SEC may come in and declare that Bitcoin cannot transfer transactions above $5,000.

However, there is no single entity in the Bitcoin network that can enforce this rule. Instead, the SEC will have to find the Bitcoin core developers and send them subpoenas and requests to apply these rules or face fines or potential imprisonment. This creates a lot of stress for the developers, who are unable to do anything about it.

I think a great example of the negative effects of regulating crypto can be seen with Uniswap. Let’s say the SEC decides to regulate Uniswap V1 as an exchange and enforce all the rules on it. Hayden and Moody, the creators, won’t have any way to modify anything or comply with the regulations. If they continue to say there’s nothing they can do, the regulatory body will think they’re just messing with them, and they’ll likely end up in jail. This kind of friction will only push away developers in the region, and it’ll set the industry back a long time.

So that’s regulating crypto, which I don’t think can happen and which I don’t think should happen. The other part is regulated crypto. By “regulated crypto,” I mean Kraken.

I think it’s important to differentiate between regulating decentralized crypto and regulating centralized crypto. Kraken, for example, is a registered entity that operates a normal business and happens to intersect with crypto. They have the option to apply for the necessary licenses to comply with regulations because they have centralized control. Other examples include 3Arrows and FTX, which are standard companies that happen to work at the intersection of crypto and should be regulated as such.

The recent SEC ruling regarding Kraken’s staking services is not a ban on staking in the US. The SEC is on the hunt for anyone involved in crypto and is trying to enforce rules, but their approach is pushing more people into an anonymous culture, which makes it easier for bad actors to infiltrate. I don’t think this is good, and it’s driving away builders and users from the US. They won’t be able to regulate crypto if they keep over-regulating and actively stopping innovation.

Other countries like Switzerland, the UAE, and South Korea are becoming more friendly to crypto companies, and the US is driving away its potential future in this industry by trying to have too much of a say. It’s important to find a balance in regulation that allows for innovation while still enforcing necessary rules.

The US’s regulatory policies regarding cryptocurrencies could limit the growth and adoption of crypto, and what the impact might be if a significant portion of the US population is unable to access crypto due to these regulations.

In my personal opinion, crypto is an unstoppable force. As the technology and accessibility improve, existing incumbents such as banks, clearing houses, social media companies, and streaming companies will find that doing things the legacy internet way is much more expensive than doing them the decentralized blockchain way. They will either be killed by new disruptors that use this technology or they will adopt it themselves. They are the ones who will push hard for regulations, and while I see what the US is currently doing as a temporary chase of all these people, eventually they will make friendly rules, release frameworks, and compliances that allow these builders.

By then, they will have lost so much say in how it works, how it looks, and how it operates, as they will have let the European Union, the UAE, and Asian countries have so much more say. But eventually, they will cave. It might take two years, five years, or ten years, but eventually, they will be defeated by this.

State of DeFi

What’s your sense of the state of development in DeFi?

• Linear growth in interest rates and TVL metrics over a year.

I recently released an article on my Medium about DeFi. Many people think it’s in a downtrend, but if you look at the interest rates and TVL metrics over a year, there is linear growth. Compared to the mania that caused over-leveraging and double stacking of assets, the market is much more stable now. Access to capital has slowed down, but it will likely increase as more real-world assets like mortgages, treasury bills, and stocks come into play.

• The regulatory side needs to catch up, and traditional auditors need to integrate on-chain data into their reports.

The regulatory side needs to catch up, and traditional auditors need to have the capability to integrate on-chain data into their reports. This technological issue is the easiest to solve, but the blocker is probably two to five years away.

• Lack of certain options on-chain such as futures and perps.

The other part of the financial primitives that I’m concerned about is the lack of certain options, such as futures and perps on-chain. I have proposed some primitives to address this issue, but unfortunately, they have not been adopted yet. There is still room for growth in stablecoins and more currencies to allow for cross-border settlements.

• Insurance is a significant industry that has not been adequately represented on-chain.

On the DeFi side, about 70% of the financial perimeter is covered, leaving a 30% gap that will hopefully be filled over the next year. One area that has not been adequately represented on-chain is insurance, which is a significant industry. Currently, the majority of users are gamblers, and we still need to attract more risk-averse individuals who appreciate insurance.

• Technological wall

We have also hit a technological wall, and blockchains need to catch up in terms of features to unlock the next iteration of apps. This is similar to the early days of the internet when technology was not good enough to support platforms like Facebook and YouTube. We need to invest in research and development, including L2 and ZK technology, to make progress in the next five to ten years.

And for you, the tech wall is a scalability issue and a developer access issue?

It’s a combination. I believe it’s definitely a scalability issue. The biggest bottleneck right now isn’t consensus anymore. There are plenty of BFT solutions available, such as Avalanche, Snowball, and Fantom, to address this issue. I’d say it’s two parts. It’s layer one scalability, which we’re solving in x ways, and then it’s Dapp developer accessibility, which we’re solving in x ways. And then it’s end-user ease of accessibility for that Dapp, which we’re solving in x ways.

Bear Market

When do you think the bear will be over?

I don’t know when this will be over, but I really hope it’s not anytime soon. It’s a much better environment for proper discourse and real development, as well as for new projects. One of the benefits is that it gets rid of a lot of the competitors who are very noisy and claim they’ve done a lot, but in reality, they don’t have anything.

It’s hard to say when it will end, but factors like interest rates, inflation, and supply chain stability in China play a role. If things go well, we can look toward the end of the year with more optimism.