• Meesum Zaidi

The two distinct worlds of DeFi and how retail investors are losing out

Updated: Oct 15, 2020


  • DeFi is supposed to be inclusive but beyond basic products with fiat-like returns (APR < 10%), discovery and usability are too complex for retail investors. This is the leading reason that (1) 95% of all crypto assets still generate no interest and (2) 90% of all DeFi tokens are held by less than 500 wallets (professionals).

  • “Deep” DeFi products can generate mind-blowing returns (APR > 100%) on these idle assets and hold game changing potential if opened up to retail investors. But these products use multiple underlying protocols and are therefore inherently complex.

  • keyTango provides an accessible and accommodating platform for retail investors to make sense of deep DeFi products, with tailored discovery, education and investment processes that are personalised for retail investors based on their goals, risk appetite and knowledge of DeFi products.

Most of Crypto Is Still Idle

DeFi is supposed to be inclusive but beyond products with low yields (APR < 10%), discovery and usability are too complex for retail investors. A recent study by Simone Conti (Head of CryptoLab’s Digital Assets Investments), suggests that as few as 500 wallets hold 90% of all DeFi tokens[1]. In order to make DeFi truly inclusive, there needs to be a better way for retail investors to discover and use DeFi products with more attractive returns.[2]

Complexity Hinders Retail Adoption

In order to make “crypto kind of returns” (APR > x100%) DeFi investors use sophisticated products and strategies such as flash loans that interact with multiple underlying protocols. In contrast, for retail investors DeFi protocols are often overwhelming even as stand-alone products; the added complexity in using different combinations of protocols is simply prohibiting.

“Retail DeFi” vs. “Attractive DeFi” or in other words “Shallow” vs. “Deep”  

We at keyTango believe that there are currently 2 distinct DeFi eco-systems:

1) Shallow DeFi (used by retail)

2) Deep DeFi (used by insiders/ professionals)

Shallow DeFi products are used by retail investors to generate up to 10% ROI while Deep products used by professionals, often exceed x100% ROI.

What distinguishes Shallow from Deep is that the former contains products that use only one underlying protocol. Conversely, Deep DeFi contains products that use multiple underlying protocols. An example of shallow DeFi is when an Argent client makes an ETH deposit on Compound Finance. An example of Deep DeFi is yield farming, a strategy often used by DeFi traders, moving assets between different protocols to maximise profits from both interest and token rewards.

Every "Shallow" product has a direct competitor in the CeFi (centralised finance) space.

For example, the value proposition to the retail investor of the CeFi products offered by Nexo, BlockFi and Celsius directly competes with DeFi’s Compound Finance and MakerDao. In contrast, Deep products are unique to DeFi. These are inherently unique and powerful because they leverage Ethereum's composability trait, that has no preceding in FIAT or CeFi. This trait of the Ethereum platform allows multiple protocols and applications to interact with one another. As described by Linda Xie (managing director at Scalar Capital) “within Ethereum, protocols and applications can easily plug into each other and be combined together to create something entirely new from what you started with. This is sometimes referred to within the community as “lego pieces.” It could even be a completely new concept that isn’t possible in the traditional world, not just a decentralised replica of what we already have.” [3]

“Deep DeFi” products are hard to discover and use by retail investors

Shallow products have retail friendly interfaces, Deep products require coding and  trading experience. Historically, every time someone took a widely used Deep DeFi product, wrapped it with a retail friendly UI, and marketed it to retail clients, it resulted in a huge spike in market demand. This is a recurring pattern that was used by InstaDapp, yEarn, Set and others. Here is Curve’s tweet about their traffic following the release of yEarn (which uses Curve):

Introducing KeyTango, Deep DeFi For Retail Investors

keyTango’s team is comprised of MIT, Ycombinator and Enigma MPC alumni. The team is backed by Outlier Ventures. keyTango takes a 3 step approach to enhance retail adoption:

1) Identifying trending products: using network analysis, financial know-how and our network of investors, we are monitoring the deep DeFi ecosystem to identify the most attractive DeFi opportunities in real time

2) Smart contract execution: we execute these strategies through smart contracts optimising for security, risk-adjusted return on capital (RAROC) and gas fees.

3) Simple & relevant UX: we offer these strategies to retail investors through a simple UX/UI. The strategies are picked by our relevancy engine, tailored to the particular investor knowledge and risk appetite in a fashion the enables efficient discovery process and informed investment decision making

Whilst other protocols offer complicated products that are often siloed from other platforms, keyTango provides information that integrates and aggregates these products, using well-designed and calibrated models that help give consumers step-by-step guides on how to optimise and maximise returns on their strategies.

If you want to learn more and/or sign up for our limited beta, please reach out to [email protected]

[1] Analysis: Most DeFi Tokens Are Concentrated In Hands of Top 500 Holders

[2] Table by Simone Conti

[3] https://lindajxie.com/2019/09/25/interoperability-and-composability-within-ethereum/

[4] https://www.coindesk.com/defi-flippening-uniswap-topples-coinbase-trading-volume

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