After the collapse of the first coin offerings, venture capital became the main source of funding for cryptocurrency projects. A large number of crypto-native funds opened their doors, one of which is Framework Ventures, a fund primarily investing in decentralized finance and co-founded by Michael Anderson and Vance Spencer.
Cointelegraph previously reported on Anderson’s network capital philosophy, a shift in investment mindset almost necessary in an area where decentralized protocols are replacing traditional corporations and capital structures.
Framework Ventures has made several investments, most notably in Chainlink’s LINK token and Synthetix’s SNX token. But The fund is not just about passive investing, but recently announced a formal spin-off that will focus on developing new DeFi projects internally.
As DeFi experts, the founders of the framework have a great understanding of current trends and future potential. You correctly predicted that Compound’s token incentive system won’t be the last, and in fact, it could be said that they popularized the term “income farming”.
Cointelegraph sat down with Anderson again to discuss a range of topics across the DeFi space in addition to his fund’s strategies.
This interview was recorded on September 3rd and some events discussed may have evolved since then.
Cointelegraph: Your predictions about DeFis earnings wars were correct and have evolved significantly over time. What do you think of what’s happening right now?
Michael Anderson: I think it’s like what we saw with the ICO craze in 2017. There was a lot of junk, but it had real value. I mean, Maker started, Chainlink was started at the time, and there have been some projects that are pretty basic now that they started in 2017.
And so I think that in crop farming there are a lot of the same things that there will be a lot of junk, there will be a lot of pump and dump, literally price tables that look like this [esquemas de bombeo y descarga]. But I think there will be some value. And as someone who uses and invests in these protocols, it is our job to make sure we find that value.
CT: The most popular high-yield agriculture currently is SUSHI. What do you think of SushiSwap’s goal of migrating Uniswap’s liquidity? You can do it?
MA: I think what SushiSwap is telling the market is that, in addition to the fees generated in the liquidity pools, Uniswap needs to implement incentives or some method of capturing value. We’ll see if SushiSwap works or not. I make popcorn, sit back and wait and watch.
However, I think this should be a signal to Uniswap that it is time to launch a token with an incentive or value-capturing model for Uniswap’s users or liquidity providers. Because if they don’t, other people will try to steal it.
CT: You announced a capital increase for a spin-off company called Framework Labs. What can we expect from this initiative? And why do you need a separate investment?
MA: Framework Labs existed before. It is our management company where we are technically minded. We have recapitalized Framework Labs with a deeper balance sheet so we can come up with new ideas to create products in-house and leverage, share, and productively use any DeFi protocols we invest in.
We have hired one of the best technical teams, definitely in the DeFi space, and we enable them to develop different products, features and services. But that requires capital, and we also want to know that if we hire them we will not run out of money.
And we would also like to be able to incubate new ideas internally, which would possibly require three to five people to be involved for six, nine or 12 months, incubating the concept internally, and then developing it further.
CT: You said before that despite Chainlink’s big rally, you still won’t sell it. Why is that?
MA: I think the big point here is that Chainlink is becoming the de facto security layer for DeFi. And I think we can start thinking about the nodes and data sources that are being pumped through Chainlink that need to be just as secure as the smart contract tiers they run on.
And this concept is growing in popularity, especially as DeFi expands into more complex products, more interesting and slightly more esoteric initiatives. As we expand into centralized funding, either through traditional sources of stock, commodity, and currency prices, and not just through crypto price sources, where what we’re building is very circular, Chainlink is going to get even more important at this point.
CT: But there are big projects like Maker and Compound that don’t use Chainlink. So is the platform really a necessity?
MA: Maker actually has a governance proposal to include Chainlink oracles, especially when they need collateral that isn’t just crypto assets. You have to use Chainlink as this is the only one that works. And I think Compound will be in the crypto money markets for a long time, so their need for oracles other than crypto prices may be less.
DeFi may be circular these days, but DeFi is hoping we can build bridges with CeFi. That is, frankly, where we should be going as an industry, and if you’re a DeFi protocol expanding to anything other than cryptocurrency prices, the only way to get there is Chainlink.
CT: What about the Chainlink “LINK Marines” community? How did this whole phenomenon develop and could it be some kind of complicated marketing strategy?
MA: So number one: it’s not intended. I can assure you that. I have had many conversations with people on the team who asked me the exact same question. And I don’t have an answer either.
I think you have the combination of a really simple and prominent problem space which is the oracle problem. In three words you can fully grasp what Chainlink does. And then you contrasted and combined it with this high level of academic research. So it is this ability to have a very complex solution to a very large but easy to understand problem.
And the other aspect, just from a financial standpoint, is that LINK Marines really launched in August 2017. You all competed in the race through January 2018 and then saw the price drop of 95% for the next six months in 2018 So you cared for this incredibly connected group of people who went through these “wars” together.
CT: Ethereum’s gas rates suggest that the network is reaching its maximum load. Do you think external projects might re-emerge due to Ethereum issues?
MA: I think there will be viable opportunities for non-Ethereum DeFi in the next six months. Now it’s a kind of race to build viable bridges from Ethereum to non-Ethereum DeFi protocols. A good example here: There is currently no bridge between the liquidity of ether and serum. So you can bring USDC with you, but you need to add it to the Solana blockchain. It is not something that you simply transfer from your ETH wallet. You have to go through Coinbase or Circle.
The same goes for polkadot. There is no bridge from Ether to Polkadot. And although Polkadot or even Cosmos or Substrates build DeFi platforms and ecosystems themselves, it will really take a bridge to Ethereum to be real DeFi, because that’s where SushiSwap, worth $ 500 billion US, comes from. [Risas.]
So this is number one. Number two is that there is also an army of Layer 2 solutions for Ethereum that can solve these scalability problems very drastically. And at that point it’s kind of a horse race where you tie Ethereum to these different ecosystems and then form the second layer.
I bet layer two removes a lot of core backbone problems before bridges are activated. I still think that DeFi will take place in Ethereum. I think there will be new ways to create DeFi that Ethereum couldn’t, but I think Ethereum is where DeFi will continue to be.