As a teenager, I was mostly concerned with getting decent grades, obtaining terrible liquor, and attracting girls with a rock band despite only playing the saxophone. Today, teenagers are running multi-million dollar DeFi protocols.
Jai Bhavnani, 19, David Lucid, 20, and Jack Lipstone, who just turned 20, founded Rari Capital in April 2020, less than a month after the founders’ home state of California went into COVID lockdown. That was also shortly after Bhavnani graduated from the college preparatory school which ties together six of the seven members of the Rari team.
Today, Rari Capital holds $112M in its smart contracts.
No Diplomas Needed
Rari is a striking example of the open nature of decentralized finance. Anyone can access financial services being offered in this ecosystem, and anyone can build on these open networks, too. Blockchains don’t ask for college diplomas or past experience, which means developers who aren’t of legal age to buy a beer in the US, can already start building applications that handle millions of dollars.
Two of the team’s employees, Jet, then 14, and Ben, who didn’t want to disclose his age, joined later in 2020 once COVID forced their school to go remote. Justin Yu and Will Gallon, both 18, round out the Rari team. The flexible online school schedule, combined both with DeFi’s permissionlessness, and the team’s drive, led to Rari Capital, a protocol that’s closest analogue is a bank, a fired-up Bhavnani told The Defiant in an interview.
“Before, we were probably closer to a hedge fund,” he said, “but now we’re a fucking bank and that’s so fucking cool.”
Rari aims to become a full-stack financial services organization. If they succeed, users will be able to buy crypto on Rari and earn yield by depositing into the protocol’s yield aggregators. The aggregators will lend out borrowers, including Rari’s own Fuse pools, which first received deposits from aggregators on May 4.
If they had been anonymous, it’s likely no one would suspect the oldest team members are only 20 years old.
Not everyone will be comfortable knowing that their funds are in the hands of teenagers. Researcher Chris Blec raised the issue and asked whether Jet, the 15-year-old in the team, was controlling the smart contracts. Rari said there was never a minor on the multi-sig which controls the contracts.
“You have two sets of people right, you have the people who are like, okay what they’re doing is really cool and they’re, like, pushing and then the second set are like who the fuck is letting these kids do this and where are their parents,” said Bhavnani.
Catcher in the Rye
They’re bound to run into skepticism. After all, most 15-year-olds are focused on getting through their homework, not pushing out code for a financial application. And, in fact, the Rari team is trying to do both.
“Some days it’s, like, you got a bunch of schoolwork and you’re, like, this is ridiculous. The Catcher in the Rye? We’re out here building a $50M protocol. I’d much rather be working on this,” said Mayer, who works on Rari’s frontend and Layer 2 strategy. A poster for the TV show Silicon Valley, hangs on his wall.
Jet said that while adults might see building smart contracts as work, to him “it’s just fun.” He coded daily during his spring break, he said.
The programmer watched a Bitcoin documentary as a kid but “wasn’t hooked into it, being like seven.”
The contrast for what kids are able to accomplish compared to past generations is stark. Jet notes that his dad worked at a fast food joint for his first job. Meanwhile the young programmer is working on a financial protocol aiming to onboard institution-sized clients.
“We don’t really take breaks off,” said Jet, mentioning that the team pulled an all-nighter last Christmas. The programmer laughed when I said I hoped he had time to go on dates and do other things typical of high schoolers.
Tetranode, a DeFi whale, recently called Rari Capital “a place where you put your money and some kids play around with it,” on an UpOnly livestream. It’s slightly more complicated.
Beyond the Middle Stack
Rari began as a yield aggregator, a protocol which found the best yields across the DeFi ecosystem based on risk preference. After a liquidity mining program last fall, which drew $95M to the protocol via token rewards, the value locked dropped off, hitting levels as low as $3M earlier this year according to Defi Llama. At that point, Bhavnani realized that a yield aggregator alone couldn’t win.
Bhavnani sees the yield aggregator as the middle piece in a three part stack, with capital onboarding like Coinbase or MetaMask on top, and the protocols into which the aggregator deploys on the bottom.
“We don’t want to just be this middle stack,” Bhavnani said. “You’re never going to get value in this middle stack and you’re never going to be able to stay competitive besides just competing for fees over and over again.”
As such, he thinks Yearn Finance will fall victim to competitors copying their strategies with lower fees, creating a race to the bottom.
“We want to control this entire stack: capital onboarding, capital formation, and capital deployment,” the co-founder said.
A new product, Fuse, which allows users to create their own borrowing and lending pools, constitutes the bottom of the stack. Rari’s yield aggregator can deposit into its own Fuse pools, generating yield without money leaving the protocol. In the short term, this means that users will be able to take out leverage on any token in Fuse pools instead of needing to lobby protocols like Compound and Aave’s governance forums to get an asset accepted as collateral. Right now the team is restricting pool creation because of pending security audits.
Fuse may allow anyone to create a pool with any tokenized asset, even art and real estate, and borrow against it. Rari is even considering borrowing against their own RGT token to sidestep venture capital.
The top layer of the stack, capital onboarding, is “probably the hardest piece to crack,” Bhavnani said, saying the biggest holdup is gas fees, which has the team going deep into Layer 2 solutions like Optimism and Arbitrum. The co-founder says the team would even buy a fiat on-ramp if that’s necessary to acquire users.
Playing a Long Game
Lipstone and Bhavnani have already sold a crypto wallet they built in high school. The buyer, MyCrypto, was very security focused, according to Bhavnani, and in light of what they learned there, the team did a guarded launch at Rari, only allowing users to deposit $350 to the protocol to prevent any losses due to bugs from being catastrophic.
“One thing that we wanted to emphasize with things like our guarded launch is that we are here for the long game, despite our age, despite everything,” Bhavnani said. “We’re here for the long game and we’re here to win, we’re not here to just play around.”