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Tokenizing traditional assets for the DeFi market — Convergence Finance and OKEx roundtable
Convergence Finance’s Oscar Yeung chats with OKEx’s Jay Hao about the intersection of traditional finance and DeFi.
In our latest OKExDeFi roundtable, held on April 13, OKEx CEO Jay Hao spoke with Oscar Yeung, one of the co-founders of Convergence Finance. They discussed bridging traditional and decentralized finance with security tokens, synthetic assets and price oracles, plus the state and future of DeFi.
Below are the highlights from this latest DeFi roundtable. You can listen to the full conversation here.
Jay: Wrapped security tokens are one of the main elements of Convergence’s ecosystem. What is the difference between wrapped security tokens and synthetic assets in Mirror Protocol or Synthetix?
Oscar: I think Mirror Protocol and Synthetix are great companies that really came out in this last DeFi wave, but the approach we take is totally different.
For some background, I can explain a little about how Mirror Protocol and Synthetix work. They have a debt pool. Everyone contributes their portion of debt, and when one person makes money, it essentially means that someone in the debt pool loses money. So it’s a zero-sum game that allows everyone to invest and speculate against each other.
What we do here is a little different because we believe that there are almost no sure hits with these private investments. So, we don’t want anyone to short it, we just want people to gain exposure.
But how do we have the capital to continuously pay that out? We have the actual underlying assets, so when the private shares go IPO, those shares will be liquidated into cash and given back to the token holders. So, it’s not a zero-sum game in our case; we don’t have a debt pool. We really have the actual underlying assets and are giving exposure to investors.
Jay: The rapid development of DeFi has surely created demand for decentralized oracle services. What’s your take on blockchain oracles in the Convergence ecosystem?
Oscar: Yeah, that’s actually a great question. We obviously want to use pricing oracles, but at the same time, the real-world comparables of what we’re trying to do are a little different.
As I mentioned before, if you look at funding rounds for private companies, they go like rounds A, B, C, D, and then the valuation jumps from $50 million to $200 million or $500 million. So, there are no day-to-day pricing oracles that can offer that kind of exposure right now. The existing ones, like Chainlink, have a marketplace to have liquid assets that you can always update every second. This one doesn’t have that.
But, this is an issue we want to solve as well. We think it’s important for people to have a reference of what the market thinks and trade using that. We can’t have something that is worth $10 billion, but on Convergence trades for $5 billion because people need to know what the real market thinks.
And so, actually, we have a project right now that we will be working with to collect that valuation information from brokers, family offices and institutional investors to get their insights on what they think the real value prices of these private companies are. It’s not exactly perfect because they’re not publicly traded, but it will give a good sense. And when integrated on Convergence, it will give investors enough information to trade on.
Jay: If you could give one word that describes the future of DeFi, what would it be and why?
Oscar: One word to describe DeFi, I think, is disintermediated. So, it pretty much means breaking down the middleman.
In traditional finance, where I came from, that’s where the banks make their bread and butter. They get into the middle of transactions and take a cut. A lot of those can be solved with DeFi. We see a lot of leading players, like Compound, Aave — these guys are taking collateral, lending it out, but removing the middleman. So, the cut goes back to both sides, and both sides benefit.
For us, it’s really about disrupting the broker market, where, most of the time, the buyers and sellers have multiple layers in between, and they all take a cut of the transaction. That makes it hard to facilitate because both sides are far apart.
Part of the reason is that people are too greedy in the middle. Without proof, if you don’t have a blockchain to see if someone actually has ownership over something, there are a lot of fraudulent cases.
So, I think removing the middlemen, having the benefit for both sides increase, is where the DeFi wave is going, and I don’t see this slowing down anytime soon.
This discussion has been edited and condensed for clarity. Watch the full version.