A lot of the conversation in the cryptocurrency space focuses on the front-end pieces of the crypto experience: namely, price, and sometimes things like transaction speed, but usually only if something is out of the ordinary.
However, it can be argued that the crypto world should be spending more of our time and energy examining what is happening in the backend of the space.
Recently, Finance Magnates spoke to Joe Lallouz, co-founder and chief executive of blockchain infrastructure firm Bison Trails, about the dichotomy between the front and backends of the crypto industry, the impact of price movements, and the growth of the DeFi space.
Joe is also the founder and CEO of Ambush Labs and a partner at Ambush Capital. He previously served as a Senior Director on the leadership team at Etsy, where he was the Business Head for Etsy’s Innovation Group.
The Birth of Bison Trails
Joe said that the inspiration for creating Bison Trails came from a noticeable gap in the technical side of the crypto space.
He and fellow Bison Trails co-founder Aaron Henshaw “realized that in the blockchain and crypto space, there were incredible people building different pieces of the technology stack, but no one was really focused on the infrastructure piece.”
“It’s kind of un-sexy,” he added, “it’s not very glamorous. There’s not a lot of glory in solving infrastructure problems in blockchains, and so there weren’t a ton of people working on it.”
Nevertheless, “it’s a huge problem in the space: [there was a need to] build out a mature infrastructure layer.”
“So we said to ourselves, someone is going to build this company. We should focus on solving these problems.”
The rest is history: “that’s how we ended up building Bison Trails,” he said. “Bison Trails is an infrastructure service company: we host and build infrastructure components for blockchain protocols.
“Anyone who wants to build a new service, launch an exchange or custodian, build any kind of data product, they have to interact with blockchains. We have an infrastructure platform that makes it really simple for those companies to do that.”
Currently, Bison Trails’ infrastructure allows companies to interface with at least 19 blockchain protocols, with at least five more in the works. The company is also a member of the Libra Association, and has also been involved in the infrastructural development of the Libra protocol. Joe sits as a member of Libra’s technical steering committee.
Price Increases Attract New Life into the Crypto Industry
The last several months have been punctuated with upward price swings across cryptocurrency markets. We asked Joe what his thoughts are about the price boosts in Bitcoin and in altcoins.
“I’m not really paying a lot of attention to markets themselves,” Joe said. “There’s a lot of talk about the ‘b-word’: that we’re in a bull run right now, and it’s a bull market, and that’s great. I hope there’s a bull market.”
However, more than the price movements themselves, Joe sees one of the run-off effects of price increases as more important for the crypto space: “that kind of activity creates more general exposure to the space. It introduces newer and more people to the space as a whole.”
Therefore, while crypto price increases may benefit investors in the short term, the real benefit of upward price movements is the new flora and fauna that are attracted to the crypto ecosystem: “you have new company builders, new entrepreneurs, new founders whose interest is piqued by the excitement.”
Of course, “sometimes that excitement turns to hysteria, and that can be dangerous.”
Still, though, Joe believes that the most important end effect of price rallies, even if they are short-lived, is that they “bring a lot of new people into the fold,” which is “fantastic for crypto and blockchain.”
Moving from the ‘Quiet Build’ Phase into Launch
Joe also believes that the cryptocurrency and blockchain space is currently in the midst of a “high-innovation, high-growth phase of the crypto market.
“In 2017 and early 2018, there were lots of entrepreneurs, projects, and founders that were building new blockchain protocols, and they went through this funding cycle where they would raise a bunch of capital,” he said. “There was this ICO boom where people were ‘ICOing’ these new protocols.”
This was “a really interesting way to bring funding and financing to a new space that didn’t really have it before,” he added.
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Now, however, two and a half years later, “a lot of these projects and protocols are launching.”
Therefore, “we’re moving from this ‘quiet build’ phase, which was great for infrastructure companies and new protocols, like Bison Trails, and we’re seeing these projects all launch.
“That’s really exciting, because we’re getting this new wave and new generation of blockchains that are coming out that have really specific utility or really specific design implementations that are meant to compete with the more generalist chains (like Ethereum, for instance) on very, very specific verticals.”
For example, “you can have a protocol like Solana that’s focused on high transaction volume and high transaction speed–the founders wanted to solve specifically that problem, because they were seeing that the existing blockchains weren’t solving that problem very well, which was proving to be bad for certain types of applications.
“You also have other protocols that are kind of competing on things like scalability and decentralization,” he continued; blockchains that are “employing technologies like sharding technologies to make it so that these blockchains are more scalable or less expensive at scale.”
In other words, “this technology is booming right now. There’s a huge, huge amount of new technology pieces that are coming to market.” Joe said that he expects this ‘launch’ phase to continue for the next few months.
“The Pace of Innovation in the DeFi Space Has Been Astonishing.”
This ‘launch’ phase has also been taking place in the DeFi space, perhaps at an even faster rate.
“Two years ago, DeFi didn’t exist,” he said. “For all intents and purposes, DeFi was not a thing two years ago. It was just a few folks at a meetup who were talking about this idea that we could have finance that was built using smart contracting platforms and systems.
“The pace of innovation in the DeFi space has been astonishing,” he continued. “New protocols, new pieces of technology that fit into the different protocols, everything from liquidity pools to automated market-making to lending to insurance: literally everything across the board is sort of being built in the decentralized finance space.”
However, because innovation at the DeFi space has been moving at warp speed, there is another important consideration about the DeFi space as a whole: “it’s still a baby.
“It’s only a couple of years old,” Joe said. “There have been plenty of mishaps or mistakes or accidents or ‘missteps’, so to speak.”
Indeed, so far this year, there have been several large-scale DeFi ‘missteps’: for example, in late April, the dForce ecosystem protocol Lendf.me temporarily lost 99.95% of its funds from a hacking exploit. Earlier in the year, infrastructural issues on MakerDao were exposed when the price of ETH sharply fell on March 12th.
Mishaps Are ‘Completely Normal’ at This Stage of DeFi’s Development
However, Joe said that these kinds of trial-by-fire incidents are “completely normal.”
“I think that a lot of the participants that are involved, whether they’re investors, or builders, or token holders, or even just folks that are trying out lending, or trying out these new crypto assets that are designed to interact with the DeFi space in general, they’re all sort of accepting of that.”
In other words, Joe believes that the majority of the participants currently in the DeFi ecosystem are people who understand and accept the risks associated when trusting such nascent technology with their money.
Kyle Samani noted a similar phenomenon in an interview with Finance Magnates conducted earlier this year: he said that usage in the DeFi space “is extremely circular–basically, there’s on the order of between 100 and 1000 people who are ‘ETH Whales’, who comprise roughly 90-95% of all DeFi protocols,” he continued, adding that “this is pretty well-documented at this point.”
In other words, “there is a very small number of people who are already ETH-wealthy who are more or less using these platforms for one reason–that reason is just to lever up and go marginal ETH and other things,” Samani said.
The DeFi Ecosystem Is Very Small, but That May Not Be Such a Bad Thing
However, as long as these kinds of DeFi missteps are a fairly common occurrence, the fact that the DeFi ecosystem is such a circular space may be a good thing.
This is because the majority of those involved in the DeFi space seem to have accepted the risks associated with using DeFi platforms. “Everyone who is involved thinks, ‘oh, this is really interesting. Let me try understanding what it means to take out a loan in crypto; let me leverage these assets, and maybe I can do something interesting with them.
“The other thing that’s crazy and that’s cool about it is that it’s basically been the number one use case for Ethereum for the last little bit, which is great. It means that Ethereum has actually found product-market fit in one vertical.
“That’s really important for the blockchain and crypto space,” he continued. “It’s like if Bitcoin has really nailed store-of-value, and is really viewed by the ecosystem as the place to store value, the Ethereum ecosystem has really nailed this single vertical of decentralized finance for right now. Which is cool.”
And in the long run, the fact that these DeFi mishaps have happened so early in DeFi’s life cycle may be a net positive for the future of the industry: “the sooner and faster that these things happen, the sooner and faster that these kinks can be ironed out, and the sooner that we can transition these services and products to be a little bit more ‘mainstream-ready.’”
“So, I would say that the pace of innovation in DeFi is fascinating, and the pace at which it’s being ‘battled-tested’ is also fascinating.”