ARPA CEO Felix: DeFi Will Grow Far Beyond Ethereum

On July 14, 2020, Binance’s hosted its 3rd Anniversary “Off The Charts” Virtual Conference. ARPA Co-Founder & CEO Felix Xu shared his thoughts on the prospects of stablecoins and DeFi during the roundtable themed “The Future of public blockchain and its Applications”.

The panel was moderated by Alex Saunders from Nugget’s News, joined by Calvin Liu from Compound and Sergej Kunz from 1inch.

Here are the highlights of the points Felix made during the conference:

  • DeFi’s base lies in stablecoins rather than Ethereum. The market cap for stablecoins is around 11 billion USD, which demonstrates its high growth potential. Secondly, there need to be better products in the DeFi field to reach inexperienced users or non-crypto users. They do not have to understand how smart contracts work to use DeFi products. We will have to lower the threshold for users in order to attract more. In the long term, DeFi’s development will be fueled further by the Central Bank Digital Currency (CBDC), and CBDC-based on-chain assets.
  • Currently, although the DeFi concept is hot and the valuation of Compound is extremely high, the number of actual DeFi users is exceptionally low. Compound has 31,000 deposit addresses and only 4,500 loan addresses, which is less than 1% of the 5 million crypto traders worldwide. With product iteration and improved infrastructure, the penetration rate will increase to 10% in the future.
  • Stablecoins will soon surpass Ethereum in market capitalization. Collectively, stablecoins are the capital supply side of DeFi and will grow with DeFi’s market cap, while cryptocurrencies and on-chain assets are the asset side, which serve as collateral. Over the past two years, the total issuance of stablecoins such as USDT and USDC has boomed dramatically with the increase in dollar value of on-chain assets. As the number of asset classes continues to grow on the public blockchain, the trend of large stablecoins issuance will continue. The emergence of DeFi is inevitable, and thinking DeFi as merely a subset of Ethereal is wrong.
  • ARPA team surveyed over 700 users from the ARPA community at the end of June this year. The survey shows that 75% of users need at least 15% in annual return to be willing to participate in liquidity mining. The primary purpose for users using DeFi is to generate high yield, and of the biggest reasons users do not participate in DeFi is the excessive gas fee, which currently costs $3 to $5 worth of ETH for a single transaction. The survey found 74% of users think they will be willing to participate in DeFi given the gas fee is under $2 worth of ETH. In addition, only about 30% of users know how to use dApp, and some do not even have a wallet.
  • DeFi’s current market penetration rate is only less than 1%. With the rise of liquidity mining and future product iterations, penetration rates are going to increase dramatically. Compound’s tokenomics demonstrated the effectiveness of using platform tokens for user acquisition and activation; the short-term rate increases snatched some funds from CeFi.
  • The high entry barrier for DeFi has resulted in the low number of users, a mere 35,000. Felix believes that CeFi and DeFi will merge, CeFi can help users to interact between operations and smart contracts while DeFi empowers CeFi to differentiate its products. At the same time, the native tokens from mining can still be governed by CeFi to hold events to gain more users. Premium users can directly participate in DeFi. Felix hints that ARPA’s upcoming DeFi products will focus on DeFi as a service.
  • From a macro perspective, blockchain is a paradigm shift from traditional finance. Blockchain is decentralized in nature, so there are two traits that it will have for the foreseeable future: first, crypto is speculative in nature; second, it is an upgrade for finance. From the perspective of DeFi, the bigger market in the future is in the CBDC. The emergence of official cryptocurrency will bring more and more assets on-chain. At that time, DeFi can become mainstream and enter the public consciousness. In the next year or two, DeFi’s total addressable market will be even larger than the blockchain it’s built upon. The stablecoins that DeFi relies on will have a higher market cap than bitcoin, due to its ability to continually increase the dollar value of on-chain assets. In the long run, central bank cryptocurrency and on-chain assets will take DeFi to the next level.
  • When it comes to MPC, the current customers served are still mainly enterprises. Some of the immediate use cases include helping them to share their blacklist or perform secure joint risk management safely. It is still a relatively standardized privacy-preserving computation scenario. Secure data sharing will be a long-term trend in the future, but right now, we are mainly helping some traditional businesses to find a safe way to share their tools; this needs to be onboarded to the chain they are using and can’t be rushed. But when public blockchain infrastructure improves, there will be more assets, information, and data going on the public blockchain. That’s when there will be more demand in the area.
  • Any blockchain project will go through two cycles, the first being the financial cycle, and the second being the technology iteration cycle. The second cycle is a bit longer from the perspective of privacy-persevering computing.

About ARPA

ARPA is a blockchain-based solution for privacy-preserving computation, enabled by Multi-Party Computation (“MPC”). Founded in April 2018, the goal of ARPA is to separate data utility from ownership, and enable data renting. ARPA’s MPC protocol creates ways for multiple entities to collaboratively analyze data and extract data synergies, while keeping each party’s data input private and secure. ARPA allows secret sharing of private data, and the correctness of computation is verifiable using information-theoretic Message Authentication Code (MAC).

Developers can build privacy-preserving dApps on blockchains compatible with ARPA. Some immediate use cases include: credit anti-fraud, secure data wallet, precision marketing, joint AI model training, key management systems, etc. For example, banks using the ARPA network can share their credit blacklist with each other for risk management purposes without exposing their customer data or privacy.

Team members have worked at leading institutions such as Google, Amazon, Huawei, Fosun, Tsinghua University, Fidelity Investments. ARPA is currently assisting the China Academy of Information and Communications Technology in setting the national standard for secure multi-party computation. ARPA is a corporate member of MPC Alliance and IEEE and is in partnership with fortune 500 companies to implement proof-of-concepts and MPC products. In 2019, ARPA was named as the Top 10 most innovative blockchain companies in China by China Enterprise News and China Software Industry Association.

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