Crypto: VC investment booming, Terra Luna hits new high, ether surging

Radkl DeFi Specialist Aaron Lammer joins Yahoo Finance Live to discuss venture capital's presence in the cryptocurrency markets and the outlook of crypto banking compared to traditional banking.

Video Transcript

JARED BLIKRE: Welcome back. Hedge fund mogul Stevie Cohen just snagged a new recruit for his latest DeFi venture who also happened to co-write "The Kardashians" theme song. Crypto wizard Aaron Lammer of Radical joins us now to talk decentralized finance and the record year it's been four venture capital in the space. And Yahoo Finance's David Hollerith is also here.

So first, I just want to thank you for coming here, Aaron. You have a pretty fascinating story. I want to begin with the venture capitalist space in crypto, because it has just exploded this year. It's up $27 billion globally. Can you tell me what's happened and why this is such a breakout year?

AARON LAMMER: Yeah, I mean, I think you're seeing something of a merge between what was traditional seed stage investing and what's happening in crypto where you see a lot of companies financing themselves through tokens. And that's certainly a market that a lot of people have wanted to get in on, both as investors, traders, sort of blurred lines between all those things.

DAVID HOLLERITH: Yeah. And, Aaron, you know, you're a DeFi specialist. So I feel like you're a pretty decent demystifier to sort of explain this segment of cryptocurrency, which is a little bit newer and more complex than the rest of the market. So I was just curious-- you know, I know that lending and borrowing is sort of the hallmark of DeFi, but could you sort of just explain sort of what drives the DeFi markets a little bit more?

AARON LAMMER: Yeah. I mean, a lot of DeFi is based on the idea of individual people, individual investors supplying capital into decentralized marketplaces, which are sort of similar to traditional centralized exchanges. Except when you make a swap, you're actually in a pool that people have contributed money to, and therefore get rewarded in tokens. Other services are, as you said, lending borrowing platforms, where you could lend your Bitcoin, or Ethereum, or all sorts of tokens in exchange for a percentage paid in APR. And DeFi consists of those applications and even more exotic applications built on top of those sort of basic primitives.

DAVID HOLLERITH: Yeah. And I know before you sort of got this job at Radical, you produced the podcast series "Exit Scam," which is a true crime podcast about sort of a Canadian cryptocurrency exchange gone wrong, Quadriga CX. So I was just sort of curious, how did you, after learning about the crypto markets and how things can go wrong, what sort of compelled you to move forward into DeFi?

AARON LAMMER: Yeah. I mean, my own interest in cryptocurrencies has not been purely as an investor. I've always found the most interesting thing to be, like, things you can actually do. And in reporting that story about Quadriga, one of the things you learn is that the real vulnerability in the whole crypto ecosystem for a long time was centralized exchanges-- and the fact that you can decentralize this whole system, but if, like in the case of Quadriga, you have a crooked person running the whole thing, that doesn't really provide you very much safety.

So being able to sort of build these systems in a more trustless manner using smart contracts was really interesting to me. And I originally just sort of wanted to poke around and try this stuff. And as I did, I became more and more interested in it. And it's a pretty deep rabbit hole once you start dipping into it.

ZACK GUZMAN: Oh, it's deep. It's very deep. Aaron and I, I think-- I have a similar kind of ethos to what you said earlier around you kind of have to do it to learn it, right? You've got to experiment with a lot of these different projects. And you talk about trustless ways now in DeFi. I'd be curious of your take on some of the projects you're most interested in now.

We've had Thorchain on the program to kind of talk about what they're trying to do, Luna we've discussed as they've now crossed and hit a new record high in terms of trying to build a decentralized stablecoin. I mean, if you're thinking about building something that is truly decentralized and detached from, I guess, the old way of doing things and the old way of banking, I mean, what do you see as maybe the big opportunities out there beyond just price, but the problems they're solving?

AARON LAMMER: Yeah. I mean, I think at its core, probably the biggest innovation are these decentralized exchanges, which are now passing traditional exchanges in volume. And you're starting to see more complex products like dYdX, which are allowing for people to trade in a way that people might be used to from traditional markets, and derivatives, and futures, and building these more complex products.

But I also think it's interesting what's happening on other chains like Avalanche and Solana, where fees are a lot lower to make a single transaction, which allows people to build more and more complex projects. And you're starting to see some of those come out as well.

JARED BLIKRE: And I'm just going to address the elephant in the room here, because I see all this great equipment behind you, Aaron-- musically oriented. And I'm sure you have a great story about how it came about that you ended up co-writing the intro to "The Kardashians." I'll just throw off hand here, I once met the person who wrote the "Jersey Shore" intro. And that was a very interesting story as well. I can't share it, but I'd love to hear yours.

AARON LAMMER: Yeah. I was-- from when I was in college, I was involved in a musical project called Francis and the Lights. And that is one of our songs that is in the intro to the current season of "Keeping Up with the Kardashians." Ironically, actually, I think that experience led me to get into podcasting, which is another thing that you can hoard a lot of equipment for. And that ultimately, actually, led me to crypto-- so kind of one thing after another, I guess.

DAVID HOLLERITH: Yeah. And, Aaron, with Ethereum outperforming Bitcoin the way it has this week, I think we've sort of got to ask you a little bit about that. And obviously, Ethereum sort of underpins a lot of the DeFi markets. So could you sort of explain-- I know you're also an Ether investor, and just what's going on with that market and sort of what explains maybe some of the price movement going on right now.

AARON LAMMER: Yeah. I mean, you know, Ether is a little bit different than Bitcoin, because you need to use Ether to do something, which is to write smart contracts on the Ethereum network. And so in some ways, you can look at the price of Ethereum as the bid price to get into a new block of Ethereum transactions. And you know, what you've been seeing on Ethereum, as price has gone up and demand for network space has gone up, it's gotten very, very expensive to get any space on a block on the Ethereum blockchain.

And this, you know, has a couple of effects. One of the effects is that people are starting to look at other chains like Solana and Avalanche, where the fees are lower, but also, people are starting to see a pretty long-term value use case for Ethereum. I mean, if it's this expensive now to use the Ethereum blockchain and there's still a huge number of people waiting to be onloaded-- or waiting to be on-ramped into DeFi and NFTs, we might see the price of writing to the Ethereum blockchain go even higher and really only become available to people who are sort of using it in a large-scale, institutional way. So a lot of different headwinds, I guess.

ZACK GUZMAN: Yeah. And to me, the DeFi narrative, I think, is larger than maybe the NFTs, because there are people who are still very skeptical of what's kind of going on with just JPEG art, if you want to call it that, and maybe overlook the community aspect that comes with NFTs. But they're skeptical of it. And then you look at what you could do in yield farming. And just kind of-- rather than earning maybe a 9% on a stablecoin at a centralized lender like a BlockFi, you can maybe earn 15%, 20% in some of these different situations where there are risks that come with it too.

But when everything is going up, obviously, yield farming looks great. But when things start to come back down or if we do see another kind of crypto winter, I'm not sure if it's going to be as big of a driver. So I mean, when you look at maybe some of the yield farming opportunities right now, I mean, are you looking at it in a similar fashion-- that, yes, it's kind of great right now, but kind of where are those opportunities and what do they look like long-term?

AARON LAMMER: Well, if you're yield farming and holding tokens, you're taking a risk, which is the price of those tokens. But I think you also see people getting into yield farming that are primarily using stablecoins. And the whole market of people trying to use these stablecoins, which are stand-ins for US dollars-- they have other risks, but they represent the dollar-- in that case, you're competing less with crypto markets and more with however much you can earn depositing at a bank, or in a savings account, or in a CD.

So I think there's different sort of ways to approach the trying to earn yield with your existing funds question. And there's an increasing number of them that don't necessarily correlate with crypto markets where you're sort of expecting these huge, volatile swings.

ZACK GUZMAN: It's been fascinating to watch. It's been a heck of a year, 2021, in everything crypto, but appreciate you coming on here to chat with us today.