Dialogue with Stanford Scholar Atticus: The era of the layer 2 competition is coming and regulation is expected to push DeFi to a wider market

With the growth and accelerating maturity of the market, cryptocurrency and even the entire blockchain industry have gradually entered the public eye, and are no longer limited to the niche circle of crypto geeks. In this process, more and more experts and scholars in other fields have participated in this emerging market, bringing new perspectives and opinions to this once technology-led industry.

Recently, The Chainnews interviewed Atticus Francken, the co-founder of The Future of Currency Program at Stanford University. He has many years of experience in the fields of consumption, technology and energy, and he also worked in the financial regulatory agency of the United States. It is worth mentioning that Atticus Francken was also selected for the 2021 Tsinghua Schwarzman Scholars list and will come to Tsinghua Schwarzman College for exchange and study this year.

In this interview, Atticus Francken expressed many insightful personal opinions on topics such as DeFi, regulation, and Polkadot, which are the talk of the town in today’s cryptocurrency market.

He pointed out that the current competition for the layer 1 protocol is about to end, and a large number of layer 2 projects are coming. In addition, a series of competitors such as Polkadot who can truly pose a threat to Ethereum have appeared on the public chain racing track. The entire industry may usher in a new round of rapid development.

The Defi still has huge potential in the upcoming years. Under the huge wealth utility, although it will inevitably bring about the intervention of supervision, this kind of benign supervision is expected to promote DeFi to a wider market and bring considerable benefits and fresh blood to DeFi.

The following are the Interview questions by Chainnews and the answers from Atticus:

1. You have extensive experience in traditional financial institutions and have served in the US government. What do you think of the impact of the “new finance” represented by DeFi on the traditional financial market? And how to look at the relationship between the cryptocurrency market and regulation, are the two really incompatible?

Atticus: DeFi has enormous potential to dramatically reshape how capital markets would and put pressure on existing financial institutions to meet the demands of consumers. For a long time, existing financial institutions have had a track record of not being responsive to all borrowers and have even had internal biases against minorities and people of color. DeFi is a set of financial legos that can completely reshape how this space is developing.

As we go deeper into “new finance,” firms like Konomi represent a great effort to build up new infrastructure that will usher in substantive change that is cost effective and conducive to new financial models that are more inclusive and constructive. Regulation will definitely tame some of the crazy yields that we see in the market right now, but it will bring in more individuals. There is a trade off between mass adoption and regulation. In order for mass adoption and broader usages of these new financial tools, it will require a stricter regulatory environment to ensure safety for a larger number of people.

2. You initiated a project called “The Future of Currency Program” at Stanford University. What was the original intention of launching this project? Can you introduce this project?

Atticus: A few of my colleagues and I started the Stanford Future of Digital Currency Program in the middle of 2019. It was a long time to get the whole program setup because we worked with the Stanford School of Engineering and United States Statement to get approval. We had to get state department approval because of our partnership with the United Nations.

The core of our project is designed to help facilitate the adoption of Central Bank Digital Currency and other digital currencies. We do this by focusing on interoperability and building infrastructure to test CBDC models with our sandbox as a service.

Our goal is to ensure that global governments have a safe way to test these models and that industry has a seat at the table while designing the best services possible and best standards to promote this industry.

3. When did you start paying attention to the cryptocurrency market? In your opinion, from that point in time to the present, what changes have taken place in the entire cryptocurrency market, or the entire blockchain industry, and which areas have achieved significant growth?

Atticus: I started paying close attention to the digital currency market in 2018. I know, I was late to the original bull market in 2016, but I think this was a good thing as it flushed out a lot of bad actors. Over the course of the past few years we have seen the development of DeFi and a host of new projects focused on infrastructure and other necessary pieces of technology for true enterprise adoption. I would say that the race for layer one protocols is closing soon as there are a lot of great firms in the space. Companies like Polkadot, Hedera Hashgraph, and others show the diversity of technologies outside of the larger actors like Ethereum. Layer two projects like Konomi represent a positive step forward as the infrastructure for new protocols like Polkadot now need to be built out. I think apart from DeFI, you will see continued growth in stablecoins and new focus on NFTs.

4. This year you are about to study at Schwarzman College of Tsinghua University. Do you have any understanding of the current development of China’s blockchain industry? What do you think is the biggest difference in the cryptocurrency market environment between China and the United States?

Atticus: The United States still has a lot of room to grow on digital currency. We have more incumbency in our systems that is slowing down growth and limiting innovation. I think there is more reception to these efforts in China. Beijing for example is one of the great blockchain cities outside of London and Silicon Valley. I am very much looking forward to being active in this community and bridging my work at Stanford with Tsinghua and its amazing institutions and startup community in Beijing. A lot of what I know from the Chinese specific market is from my co-founder of the Stanford effort, Jonathan Padilla, who is has been very active in the blockchain space in Europe, the United States, and China.

I think there is more willingness to take risk and there is greater government support in China for blockchain and that will be a critical element for developing strong technology efforts.

5. The DeFi concept ushered in an explosion about half a year ago. How do you see the future of DeFi? Which tracks and products do you think on DeFi deserve the most attention?

Atticus: DeFi has seen explosive growth over the past few months, adding billions of dollar’s worth of value and driving continued growth in the Ethereum ecosystem. I think some of the larger actors such as Compound and Aave deserve attention and have garnered strong success. I think new projects that are building on different protocols will offer great potential in the long-term as they can benefit from the same technology suite, but also cost-savings given the inefficiencies of the Ethereum blockchain. Projects on Polkadot such as Konomi and others stand to benefit from reduced costs, a good developer community, and general excitement about these newer protocols.

5. What do you think is the biggest risk point in the DeFi field?

Atticus: DeFi has yet to have a true crypto winter. I think when the market does turn south for a long period of time it could cause issues as positions are liquidated to meet collateral requirements. I think this is the short to midterm risk facing DeFi. In the long-term regulatory efforts could reduce yields as projects are forced to have stricter requirements and more oversight from government.

6. The premise of DeFi is “decentralization,” so does it mean that DeFi does not need to be regulated? Or can it be supervised at all? So is there no so-called “compliance” in this field?

Atticus: I think there can be basic requirements and framework designs that help level the playing field and mitigate some actors have information asymmetry. Additionally a lot of regulation focuses in on KYC/AML concerns where governments want to ensure good actors are using this systems and that bad actors cannot launder money or skirt existing financial regulations. As long as a basic framework is in place that sets up standards, there can be a lot of autonomy left to the market to self-regulation.

7. Almost all of the DeFi projects that have grown to the top are based on the Ethereum network, but we have also seen that the problems of the high cost and slow speed of the Ethereum network have become increasingly prominent. Which public chains are expected to impact Ethereum in the DeFi field leading position?

Atticus: Polkadot is a clear contender to challenger Ethereum on this front. They have a great developer community and a leadership team from folks like Gavin Wood and Bjorn Wagner. They have speed and low cost and it will benefit projects built on them. Other protocols such as Algorand, Hedera Hashgraph, Aave and others will eventually offer more competition to Ethereum. This is not a bad thing though as it will force Ethereum to respond and accelerate the efforts of Eth 2.0, which if done properly will be a powerful force for the broader ecosystem.

8. The Polkadot Parallel Slot Auction has brought great market enthusiasm after its launch. What impact do you think the slot auction will have on the Polkadot ecology, especially the DeFi project in the Polkadot ecology?

Atticus: I think it will demonstrate to external actors who is interested in the space and help price the market. As larger enterprise actors take a look at the system, the slot auction will help ensure that parachains and related infrastructure highlight the true power of the Polkadot ecosystem and the ability for substrate to change the game on blockchain.

9. Everyone is talking about Web 3.0, so how far are we from Web 3.0?

Atticus: It is already here. We’re in the early days of Web 3.0. I think we will only see changes further accelerate as more projects come on, as more firms adopt blockchain, and as governments also support blockchain efforts. My work at the Stanford Lab is focused on helping mainstream these efforts and show regulators and governments alike the power and potential of blockchain.