Ivan Starinin and Alexander Salnikov are two alumni of Moscow’s elite Higher School of Economics that went on to forge a prolific entrepreneurial partnership in the blockchain space.
The now seasoned blockchain entrepreneur duo got started by building cryptocurrency trading software and went on to helm a number of projects, including MarginCall, the fastest and most advanced open-source crypto exchange as well as CoinOffering, the first company to offer its shares in the form of blockchain assets.
Together, Ivan and Alexander raised the total of over BTC 5,000 for various blockchain companies as a result of successfully performed ICO campaigns. Currently, Starinin and Salnikov are exploring the potential of the decentralized finance (DeFi) sector.
With almost a decade of entrepreneurial experience in the blockchain space, you’ve sent waves in two distinct areas of the industry: the cryptocurrency market and virtual infrastructure development. Which of these spheres do you prefer working in?
IS: Well, while it might seem like these kinds of projects are distinct from each other on the surface, if you look a bit deeper, they are interconnected and feed off of each other. The growth of the cryptocurrency market contributes greatly to the evolution of the blockchain industry. It’s unfortunate that there are still people who associate virtual currencies with reckless speculation, but that is gradually giving way to recognition of the opportunities inherent in the space.
Even though working with cryptocurrencies has served many as a means to enter the blockchain space and get a taste of the benefits of digital money short-term, there are also a select few who stay devoted to the cause and create technological breakthrough solutions.
AS: Yes, each emerging coin or token, so long as it brings something of worth to the table, has the potential to make the market function more effectively. Some digital assets fuel blockchain networks while also serving as a store of value in their own right.
For instance, a lot of blockchain projects have designed their own native cryptocurrencies in order to lower fees for cross-border payments or to give access to financial services for developing economies. That’s why we are convinced that crypto goes hand-in-hand with blockchain development and both are essential for future technological development.
In this context let’s talk about the overall growth of decentralized finance. Taking into consideration all the possible vulnerabilities in DeFi, what is your opinion on the short and long-term prospects of this sector?
IS: What comes to mind when hearing talk of DeFi, and specifically concerning possible security issues, is the old Bitcoin mantra of “be your own bank.” While the freedom that comes with that is great, it comes at a price. Ultimately you are responsible for your experience with digital money and security is an issue that has to be reckoned with by everyone involved in this space individually. As for the short-term, the DeFi economy is organized in such a way that higher risks can lead to higher capital gains.
AS: However, all of the above are more growth related challenges than inherent flaws. This is reflected by the current investment environment surrounding DeFI. The space is still free and full of potential in terms of technical innovation. There is certainly risk and, perhaps DeFi isn’t for the faint of heart, but, then again, what sector of finance is?
Meanwhile, there are safety nets out there, like decentralized insurance, which can help people protect their capital. The beauty of DeFi lies in its transparent nature. As an open system, anyone can audit DeFi, so, the more investors and developers that get involved, the more positive growth and system refinement we are going to see.
**What other problems exist in the DeFi market and how can these problems be resolved? **
IS: There is lack of regulation, making the market rather uncertain for those seeking to invest big money. As it happened to blockchain in general and crypto in particular, initial legislation was only created post factum with regulators playing catch up, and the process seems to be repeating itself with DeFi. What is important here is to understand that the lack of regulation at this stage provides opportunities for higher revenue and ROI - when there is no regulation, there is often a substantial growth potential.
I’d also say that there is a vulnerable link between decentralized services and the real world. Let’s go back to decentralized insurance as an example of what I’m talking about. Here, transactions are executed through the participation of a third party which in many cases is a trustee, chosen by vote and in charge of transmitting information to the blockchain.
Unfortunately, third party intermediaries are not always honest. A perfect solution for this problem might be creating an independent and self-contained system that runs in accordance with game theory concepts with minimal influence from third parties. There is actually, I believe, quite a lot that could be improved in DeFi via the application of game theory principles.
AS: In addition to that, there is a general perception out there that the UX design of DeFi products tends to be far from high-quality. What we need here is detailed “user manual” style instructions - similar to those provided to first telephone users right after it was introduced to the general public in 1876. If you’re well versed in decentralized finance, structure your product so that it is straightforward, user friendly and serves as a practical representation of the technology.
Again, this is more indicative of the industry being in its early stages of development than it is of structural problems.
What areas of DeFi development do you find the most promising?
IS: Before we move on to that, let me just briefly comment on the ongoing debates about whether it’s necessary to upgrade the protocols and interfaces of DeFi projects. My personal stance is that market participants should focus more on the business end of things. Currently, the DeFi community has plenty of technical enthusiasts but very few skilled entrepreneurs capable of introducing solid business models and bringing theoretical fundamentals to reality in the form of innovative products.
Once serious revenue flows are established, they will naturally improve both protocols and the interface as well as attract more ambitious developers.
AS: So, the most remarkable examples of DeFi businesses deal with lending and deposits, insurance and various investment products and instruments. From this list, those that deal with lending and deposits seem the most promising to us because their success represents a further advancement of the original principles behind Bitcoin and can lead to the construction of an alternative global banking system open to everyone.
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