BeinCrypto spoke to Tushar Aggarwal, CEO, and Co-founder of Persistence, about institutions stepping into the decentralized finance world and what this means for the space.
Aggarwal is the CEO of Persistance One, a protocol that focuses on institutional and crypto-aware investors. It is an ecosystem that allows for exposure to multiple asset classes across the space.
“Persistence is a tenement-based protocol. We have Comdex as a third-party application that’s focused on commodities trading. We have pStake and AssetMantel as in-house applications. pStake focuses on liquid staking and AssetMantel on interoperable NFTs,” explains Aggarwal.
pStake abd providing liquidity
pStake is the most recent launch by Persistence, and it’s the platform’s attempt to bring more liquidity for staked assets.
“We want folks to have liquidity and not be sitting with illiquid assets, but you’re earning staking rewards, but nothing else is happening,” he says.
“So what we are essentially doing is, if you stake atoms through the pStake platform, then those atoms get staked with multiple validators in the background. But we issue a stake representative coin, which is called SDK atom. It is completely liquid. So now you can use this as this representative SDK Atom coin in a DEX to supply liquidity or in a borrowing lending platform. So you continue to earn staking rewards, and you’re also using the SDK Atom to borrow USDC, for example,” he says.
This is proof-of-stake (POS) staking. By comparison to DeFi staking, it doesn’t grab as much attention.
“There is DeFi staking, you can stake some of the DeFi coins. However, the other form of staking is proof of stake staking, where what you’re doing is you’re actually staking a coin at the protocol level. This is different from staking at the DeFi application level.”
Driving growth at an instiutitonal level
The benefit of this is providing utility for staked assets, especially to institutions that are used to having their assets actually do something.
“What is going to happen is today we’re in a situation where there are multiple institutions that have exposure to at least ETH if not other assets, and like with all financial institutions, they want to do something with that. So today, what they do is they probably lend it out. There are people who do covered calls. More sophisticated folks will sell covered calls to generate yields on the ETH that they already hold. Now, there’s going to be a third alternative where you can stake it as well,” he says.
“So you’re driving the growth of fixed income markets and crypto at an institutional level. That becomes super interesting. Then ultimately, once you expose institutions to the proof of stake world, once they have exposure to ETH, and the earning staking rewards, they’re like okay, what’s next.”
This then increases interest and provides more opportunities for product growth in crypto as more projects find favor with these new participants.
What is holding institutions back
Currently, institutions are slowly trickling into crypto, with some holding specific crypto-assets like bitcoin. However, DeFi still appears to be the wild west, with multiple uncertainties.
For Aggrawal, this still new infrastructure is the biggest concern for institutional investors looking into the DeFi space.
“I mean, private key management is still very difficult at an institutional level. I would say I think it’s also skill sets. [You can have someone] just being open-minded enough to use some of these applications. Then you need the skill sets because of all the risks that any financial institution takes in crypto. There’s a whole bunch of risks that you’re taking, which is why you get compensated heavily as well in terms of the yields,” he says.
The traditional world, recreated in DeFi
With improvements, Aggrawal does acknowledge that much of the traditional financial world will be replicated in DeFi.
Overall, this is represented in the various ways people can now participate and use their assets in the decentralized space.
“I think if we take a step back with finance today with traditional finance. There’s retail finance, institutional finance. The majority of the capital is with institutions at the retail level. What do people want to do with their money? They want to own it, spend it, want to save it, and invest. At the institutional level, it’s a lot more speculative. Folks want to hedge risk,” he says.
“I think something similar is being recreated in DeFi where retail folks have options too. They can spend, save, invest money. But lot of the products that are being built are actually for institutions that are very savvy, and understand the different kinds of risks, and can model those risks, and then take very informed decisions. Whether they want to make those investments or not,” he says.
“So essentially, whatever happens in traditional finance is sort of being recreated in crypto, but sort of from a bottom-up principle of being trustless in nature. Being more global in nature, transcending across borders, being slightly more decentralized. Traditional finance I wouldn’t say is very decentralized. I think even DeFi itself is pretty centralized. Relatively speaking, depending on how you define decentralized.”
Considering true decentralization
On this point, Aggrawal delves into more of the philosophical aspects of what decentralization means.
“I mean, it’s a philosophical question. Like for example, if you’ve talked about validators, Cosmos has 125 validators. Ethereum, I don’t know the exact number of validators, but maybe, let’s say, Ethereum has 100,000 validators now. Are 125 validators decentralized? Four hundred thousand validators or a million validators? What is decentralized enough? I don’t know,” he says.
“You could argue that 125 validators themselves are decentralized and you could argue that a million validators are actually a waste of resources. There could be human beings and computational power that is better utilized in some other industry or some other area of research.”
He uses the internet as an example of how previous attempts at decentralization have turned around on themselves. As such, the intent to be decentralized is not enough to make it happen.
“So what the internet was trying to do, was sort of decentralize access to information. Things are still centralized, you have companies worth north of a trillion dollars Microsoft, Apple, but so the seat of centralization has changed. In terms of access to information, it’s still better than how things were in the 1970s and 80s, where you would get information from a few newspapers and a few radio shows,” he says.
“So I think something similar is kind of playing out with the DeFi as well. Where that seed of centralization is kind of changing, but fundamentally leading to a better or more democratized access, for sure.”
Risking Institutional overreach is part of the game
Whether DeFi can truly be decentralized or not, it has been championed by smaller projects, many of which aim to change the status quo in finance.
However, increasing adoption and reach requires interest from major players. While this brings attention, investment, and interest to the space, it also risks large bodies overshadowing the work already done.
Web2 to Web3
For Aggrawal, this is part of and parcel of the innovations game.
“It’s inevitable. You still have the New York Times and The Economists that are participating in Web2, and I’m sure over time will participate in Web3 as well. It’s just that, like I said, the seat of power changes over time. So you may have someone like Aave, who’s becoming as powerful or as big as Goldman Sachs. The seat of power has changed,” he says.
“Is that a good thing or a bad thing? I don’t know. It’s a thing. I think this is a sort of fundamental shift that happened with Web2 as well. Initially you had sort of the absolute idealists and the nerds defining what the internet should stand for. Then you had the suits come in and kind of create a diversion of what the internet looks like.”
“That’s happening with web3 as well. These are all things that people probably won’t say out loud, but I think it’s how things are evolving, right? I mean, I think everyone knows this, but people don’t articulate it,” he says.
“The institutions are not going to sit back and kind of just let a bunch of young people, young nerds come and take away their power. So over time, they’re going to sort of join the movement or be part of it or try to have upside from it. So it’s sort of inevitable from my position, obviously want to see how to be part of that.”
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