On this week’s episode of Flywheel we have on Ken Deeter, a partner at Electric Capital who has been a staunch supporter of Frax since its inception. Previously working at VMWare and Facebook, Deeter played a role of building groundbreaking products at each of those company’s and today brings his experience to the world of DeFi in beyond. In the interview, we take a trip down memory lane where Deeter describes first hearing about Bitcoin from discussing the first mailing list email Satoshi sent with colleagues in 2010 as well as look towards the future to how he sees DeFi playing out on a decades long-scale.
What is Ken’s Stablecoin thesis?
Ken believes that blockchains offer a fundamentally different trade-off in terms of how software is built. Prior to blockchains, software was designed to be fast and scalable, even if it meant sacrificing security and reliability. Blockchains, on the other hand, are designed to be secure and reliable, even if it means sacrificing speed and scalability.
This trade-off is ideal for money use cases, which require a high degree of security and reliability. As a result, blockchains have been used to create a new financial system of financial applications called DeFi (decentralized finance). These applications allow users to access financial services without the need for a central authority. This makes DeFi more accessible and affordable than traditional financial services.
Stablecoins are a type of cryptocurrency that is pegged to a fiat currency, such as the US dollar. Deeter believes that stablecoins like FRAX will play a major role in the future of DeFi. He believes that stablecoins will enable new financial products and services that are not possible with traditional financial systems.
Why does Ken think FRAX will be successful?
Ken believes that FRAX is a successful stablecoin because of three main reasons:
- Its mechanism design is conservative. FRAX does not rely solely on an endogenous stablecoin model, which has been shown to be unstable in the past. Instead, FRAX is now increasing its collateral ratio to 100% to ensure it will always be backed..
- FRAX understands the Curve game. Curve is a decentralized exchange that allows users to swap between different stablecoins. FRAX has been able to benefit from Curve by providing liquidity to the exchange. This has helped FRAX to grow its user base and become more liquid.
- FRAX ships quickly. The FRAX team has been able to release new features and products quickly. This has helped FRAX to stay ahead of the competition and continue to grow.
How does Ken integrate long term thinking into his views on crypto?
Technological shifts have a profound impact on society, shaping the way we live, work, and interact with the world around us. From the advent of the internet to the rise of mobile technology, these advancements have transformed our lives over time. The crypto industry, with its promise of decentralized finance and innovative solutions, is on a similar trajectory.
Ken took us on a nostalgic journey back to the pre-internet era when ordering music CDs required flipping through paper catalogs and mailing checks. He vividly recalls the awe-inspiring moment when online shopping emerged, offering a hassle-free experience. However, he notes that it took nearly two decades for these technologies to become deeply ingrained in society, even for older generations to take them for granted. Considering the regulatory complexities surrounding finance, Ken predicts that the path to widespread crypto adoption may be even longer.
Ken considers the four year cycles in crypto an arbitrary limit. He argues that as the industry matures and stabilizes, longer-term commitments, similar to traditional financial instruments like 10-year or 30-year treasuries, may emerge.
Locking liquidity to align incentives and create long-term commitment will be a key part of this future. Frax as a pioneer in locking liquidity within the protocol, differentiating it from protocol-owned liquidity. He thinks we can sold “mercenary liquidity" with reward mechanisms that encourage participants to commit to long-term risks. By fostering a sense of "skin in the game," projects can distinguish between short-term opportunistic liquidity providers and committed, long-term participants.
How does Ken think Frax can improve?
To ensure the continued growth and success of the FRAX ecosystem, there are two key areas that require attention: governance and Frax’s long-term value proposition.
Strengthening governance protocols is crucial as the ecosystem expands, ensuring decentralized control among token holders. This transparency and credibility are vital for wider community acceptance.
However, it's essential not to lose sight of the ultimate goal: widespread adoption of FRAX as a reliable and risk-free asset and ultimately increasing Frax’s monetary premium. The community should remain focused on driving usage, exploring incentive programs, and establishing partnerships that align with the long-term vision.