An Interview With Ivan Starinin And Alexander Salnikov On DeFi Tech

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.  

Not all projects in the industry are intent on establishing a new financial system. What is your take on central bank digital currencies (CBDCs)? 

IS: To make it more clear, we’d better start with explaining the essence of CBDCs which are a type of a stablecoin. Stablecoins are virtual assets that are pegged to fiat currencies and designed to mimic their value so as to avoid extreme market volatility. There are centralized stablecoins like Tether whose backing by the US dollar is guaranteed by a private company. Now, compare that to what are essentially similar initiatives, but from the likes of the Federal Reserve or the People’s Bank of China.

It’s about reputation, and CBDCs supported by big governmental institutions will add credibility to stablecoins, which are still a bit undervalued. We are going to see the effect these projects have on the market in the nearest future, as the accelerated issuance of the digital yuan will force other leading countries to follow suit if they don’t want to be left behind.   

AS: As for the link with centralization, I wouldn’t put it quite like that. Actually, the recent flourishing of the stablecoin market was the main impetus behind DeFi’s progress, as this class of digital assets serves as the fuel for decentralized finance. Moreover, we don’t know much about the nature of CBDCs and how they will function exactly, but if similar state-backed stablecoins, such as the digital dollar or the digital euro, are launched on public blockchains, there will be an opportunity to make them decentralized, which will significantly increase the level of DeFi market penetration.

This could work in a similar fashion to cash, in the sense that the issuance of banknotes is obviously centralized, but their circulation is not. This could also happen with CBDCs, whose supply could be controlled by central banks without compromising their further movements. 

What are your own plans in decentralized finance?

AS: Now the DeFi sector is experiencing an influx of users who are curious about how things will play out here, so we’re preparing to contribute to the mass adoption of the technology by creating a consumer UX-friendly application that simplifies access to DeFi and connects it with real life. 

IS: We haven’t announced this project yet and aren’t really ready to reveal any details about it, but I can assure you that, with DeFi technology under its hood, our company will be able to compete with the world’s major existing banking services. 

We’ve touched on regulations in the blockchain space. What countries do you find the most blockchain-friendly now and where do you think entrepreneurs are privy to the best development conditions?

IS: We’ve decided to incorporate our company in the US, which may seem surprising with all the blockchain entrepreneurs that have been moving to areas with more amiable legislation, like Malta, or to countries where blockchain regulations aren’t as clearly defined, giving them a lot of room to manoeuvre. But as far as the latter option is concerned, one has to be aware that chances are that your business will hit the top of its growth potential way too quickly. 

AS: Another country determining the vector of blockchain evolution is China, the US’s main political and economic rival. Between the two we’ve chosen America because we find this option more suitable in view of long-term development. Moreover, the ongoing crisis impacting the US economy has opened up opportunities for growing demand for DeFi businesses. Additionally, this will assist in dealing with the crisis-caused unemployment issue in the United States. 

What advice do you have for blockchain entrepreneurs and investors as far as dealing with the constantly growing level of competition in this industry?

IS: For entrepreneurs, I’d go back to the point about concentrating on the business end of things I made earlier. It’s not that important right now to create a super technically advanced code or an awesome user interface. What is more important is crafting an effective business model and producing a sustainable product that will bring money to your investor. 

AS: And for investors, now’s the time to get on board with DeFi. The industry is open now in a way that it is unlikely to be for long. Now’s the time to start gathering teams of highly conscious professionals and determining points of entry. If you don’t act quickly, you may miss out on a golden opportunity.