Decentralized derivatives, with Andrey Belyakov of Opium Protocol

Decentralized derivatives, with Andrey Belyakov of Opium Protocol

2021-04-13

Joining us on the podcast this time is Andrey Belyakov, founder and CEO of Opium Protocol – a protocol for creating, trading and settling decentralized derivatives. Andrey is a professional derivative trader and fund manager who has been active in crypto since 2015.

In this episode, Andrey breaks down step by step, what are derivatives, what are decentralized derivatives, and tells us about the exciting things that Opium Protocol has on the horizon, including a partnership with Aave.

Watch the video podcast on Youtube, or listen on Apple Podcasts or Spotify.

In the TX Podcast series, we dive into Web3 technologies and their role in the emergence of data economies with guests from some of the most forward-thinking companies from around the world. We talk about innovative ways of engineering value from data and the next generation of internet technologies including blockchain, decentralization, AI, and machine learning.

Key Learnings with Opium Protocol and Decentralized Derivatives

  1. Understanding the Core Functionality of Derivatives:

    Derivatives are pivotal financial instruments, deriving their value from underlying assets. They are essential for trading price differences, speculation, and accessing diverse markets. Andrey Belyakov emphasizes their role in isolating and trading specific risks, stating, “what is cool about derivatives, then you can isolate risks, which you don’t want to run.” This allows for strategic financial maneuvers and protection against market fluctuations.
  2. Role and Strategy of Hedge Funds in Financial Markets:

    Hedge funds are integral in utilizing derivatives to mitigate unwanted risks, focusing on isolated, specific bets. They implement precise financial strategies, leveraging market movements and inefficiencies to gain profits. Andrey illustrates how hedge funds are a sophisticated way to implement views and capitalize on them, explaining, “hedge funds are called hedge funds because they hedge all the risk, they don’t care, or they don’t know, they’re don’t will to take.”
  3. Innovative Solutions through Opium Protocol:

    Opium Protocol is a revolutionary decentralized platform enabling the creation and trading of derivatives. It aims to democratize derivatives, allowing for the creation of exotic derivatives without extensive legal and administrative processes. “With Ethereum, we realized three years ago that it’s a perfect instrument to create these exotic derivatives,” Andrey mentions, highlighting how it serves as a bridge between traditional finance and the burgeoning DeFi space, focusing on user-friendly insurance products to make derivatives more accessible and understandable.
  4. The Imperative of Financial Education in Trading Derivatives:

    Andrey stresses the crucial role of education in navigating the world of derivatives effectively. “My top tip is to get an education, if you don’t have, you need to have basic education, first,” he advises, emphasizing that a basic understanding of risk and return is essential before delving into the complexities of derivatives. Opium Protocol is committed to educating users about the risks involved in trading derivatives and fostering a community of informed participants in the DeFi space.
  5. Collaborative Ventures between Opium Protocol and Aave:

    The relationship between Aave and Opium Protocol is complementary, with both projects exploring synergies and combining their products and services. Stani Kulechov of Aave serves as an advisor to Opium, and they are working together to explore areas like litigation insurance and smart contract risk insurance, emphasizing the importance of derivatives in mature financial markets. “Stani is very, I think, positive on derivatives in general, because he believes it’s going to be very mature and we’re experimenting together. We’re building together,” Andrey shares.
  6. The Importance of Community-Driven Regulation in DeFi:

    Andrey believes in DeFi’s potential to be a significant component of the next financial system, emphasizing community management and self-regulation in the decentralized space. He advocates for basic financial education for effective management and utilization of protocols in the DeFi space, highlighting the need for self-regulation and community-driven standards in a decentralized environment. “Decentralized finance, owning by community, managing by community, also require this self-reporting, self-regulation part,” he asserts.
  7. Exploring the Massive Market Potential of Derivatives:

    The global derivative market’s immense size compared to the world GDP illustrates the vast potential and scope of derivatives in the financial ecosystem. “For globally, global derivative market is 10 to 20 times bigger than world GDP,” Andrey reveals, highlighting the democratization of access to sophisticated financial instruments through platforms like Opium Protocol.
  8. Envisioning a Future of Transparency and User Empowerment in Finance:

    The conversation with Andrey provides insights into the future of decentralized finance and derivatives. It underscores the need for transparency, education, and user empowerment in the evolving financial landscape. The collaborative efforts between different DeFi projects like Aave and Opium Protocol illustrate the complementary nature of innovations in the space, aiming to create a more inclusive and efficient financial ecosystem.

Transcript

Ben Sheppard  00:23

Hi, everyone, welcome to another episode of the TX – Tomorrow Explored podcast show. I’m Ben Sheppard, Managing Director at TX. Today, we’re going to be talking about decentralized derivatives. So, we’ve got on the show, Andrey Belyakov, who’s a founder of Opium Protocol and he’s going to break it down for us right from the beginning of what are derivatives working all the way up to what our decentralized derivatives, and then on to his partnership that he’s got with Aave and the exciting things that we can see on the horizon there. So, Andrey, welcome to the show. Great to have you here.

Andrey Belyakov  01:06

Hey, Ben, thanks so much. Great to be here.

Ben Sheppard  01:10

Cool. How’s life in the Netherlands? I think that’s where you’re located, isn’t it?

Andrey Belyakov  01:14

Yes, Amsterdam. Life is good. Things are good, COVID measures are not so hard. It’s all reasonable and it’s spring, the weather’s getting better. So, the grid looks promising. Defi is going up, crypto is going up, though, I have some worries that it’s started to look like 2017 already. So, that’s my bigger worry than COVID and all the other things.

Ben Sheppard  01:42

Yeah, indeed. So, I’m in Finland and I think it was yesterday, there was a press release that Finland for the fourth-year running has been voted the happiest country in the world and last night, the government decided that they’re going to bring out legislation to put us all in lockdown, and we’re not allowed to leave. It’s like, wow, two pieces of news at the end of the scale all in one day.

Andrey Belyakov  02:09

They’re cooling it down a little bit.

Ben Sheppard  02:15

So that fins are so happy right now. We need to lock these guys. Okay, cool. So, in preparation for this pod, I had to do a bit of research, I must admit, because I wasn’t too familiar with derivatives myself, but there’s actually some fantastic material on YouTube to watch a few movies as well, Wolf of Wall Street, Margin call, a few of them. Okay, we’re really getting into this now is actually a very interesting and exciting space. Looking actually really looking forward to this pod to hear directly from an expert on it, you know, to talk me through the different types of derivatives and what all of that means and how decentralized derivatives is changing from what we’ve seen in the past. So, can you take us through that? So, what are derivatives as a starting point?

Andrey Belyakov  03:09

First of all, I will admit that you need to watch if you want to feel the atmosphere, or the classic movie is Wall Street, from 1987. So, it was a very classic one, very first one. I think it was also a big thing, like back then all the events in the movie, or the atmosphere, I don’t like Wolf of Wall Street so much, and others, it’s like trying to bring it from one perspective, and make it trendy. Make it popular for the people, but the original one I’ve seen; I think 20 times or 30 times or my life. It’s so cool. It’s so good, but yeah, so I was doing derivatives, I was trading derivatives, most of my professional life. So, I can speak a lot about this. I can speak and also in general, what they are like in a very simple language, if you want me to explain something very simple, I can do if you want me to explain something more sophisticated, happy to, and also what is going on now because now we see basically new derivatives, decentralized derivatives, what is this? It used to be small experiments. It’s very big and some people say it’s not an experiment anymore. So, I have the same view, I think it’s something and was born something new, which gonna stay and we see it’s better. It’s faster, it’s more secure. Then, what is the reason to stop using it? I mean, it’s going to stay in genies out of the bottle, but step by step. Guide me with your questions. I’m happy to speak if I speak too much, shut me down and I’m excited about these things, I can speak forever. So, guide me, therefore.

Ben Sheppard  05:06

So, what originally got you into the world of derivatives things you obviously very passionate about it what brought you into that industry?

Andrey Belyakov  05:13

Mathematics. So, I was doing mathematics, I was born in Russia and Russia is famous for its departments of mathematicians, and so on. Since childhood, I have been a big fan of mathematics. So, I was having quite a professional career there. So, it was a winner of all kinds of championship competitions. So, I was like, top. Then at some point, I was, of course, the best place Moscow State University. So, mathematics is like one of the tops in the world like MIT, there are a few in the world. Then you need to make a choice. So, what do you want to do? So, you can go and do science like mathematics as theoretical scientists, or you can go and apply it somewhere. You can apply it to business, you can apply it to finance. I chose the second way, and I was back then at KPMG. So, big advisory company. So, trying to understand the business, trying to feel the business and being at consultancy you basically, airdropped to different companies, like every two weeks, every three weeks, and you see the company from inside and you see how this is banking business. Okay, it is cool, but I wouldn’t work here. So, oh, this is a big telecommunication company, oh, this is completely not interesting. Then after like 20-30 projects, basically I’ve seen a lot of business, I lived a lot 20 different lives, like, within three, four years, it can be and then I realized the financial market is something that I like. The reason is you can convert your brain into something tangible. It doesn’t matter in financial markets, in investment business, it doesn’t matter, if you wear a hoodie, or if you wear a tie, they will not help. If you write 20 pages of diplomatic correct, very polite shit, that doesn’t matter. So, you have a result, or you don’t have a result. That’s it. So, it’s very measurable and if you enjoy this, because some people don’t like it, the more you like soft skills, but if you enjoy this, then financial markets is a perfect instrument to convert your passion, your mathematical brain into something tangible and the result and actually help system as well. So, that’s why I chose financial markets. I moved here to Holland, 14 years ago already. I was already working in this business. So, I quit three years ago, but then it was a beautiful journey with financial markets and saying that hedge funds top of this, like elite part of this world, because hedge funds is most sophisticated, most flexible, and more like interesting problem.

Ben Sheppard  08:23

How she Dutch coming along?

Andrey Belyakov  08:25

Oh no, doesn’t do these…

Ben Sheppard  08:26

So, derivatives are easier for you than Dutch I get that. I live in Netherland for about four years as well and I think the most I managed was Danka, Val so that was something that stopped it that. Cool.

Andrey Belyakov  08:42

It’s a problem. Everybody speaks English here so good, so you can practice it. There’s no way to practice them.

Ben Sheppard  08:49

Yeah, no, they do though. They’re fantastic in English. So, okay, high level, what are derivatives for our listeners, Andrey? How would you explain what derivatives are?

Andrey Belyakov  08:59

Yep. In high level, let me then continue the logical story. I was talking with hedge funds, like the elite of the financial markets. It’s not boring. It’s super sexy, super interesting. So, maybe make a bridge from hedge funds to the derivatives. So, what are hedge funds basically have different institutions, different players, hedge funds, they are allowed to do anything in a very simple, maybe very, very rough way. They can do anything and what does it mean anything they can make any trades? Okay, what does it mean? Because I can buy stock of Tesla, I can sell stock of Tesla’s it’s not very exciting, right? So okay, after two days, I’m not excited anymore, but hedge funds can do more, they can do anything but again, for public maybe what does anything and I will explain it like taking any risk, any position, any view, any forecasts, that is possible. So, they can take any position, or they can implement any view in a real trade. For example, they can say that they make analysis, they read a lot of books, and then they say, hey, I don’t know, should I buy Tesla stock, or should I sell Tesla stock, but I’m sure that Tesla stock will outperform Apple stock on the bullish market. I don’t know only if raise rates are going to be high and particularly bullish, in this I’m sure that Tesla is going to outperform and this is the view, right? This is the view, but how you’re going to get in? Because you can be very right, but you need to make money out. So, you don’t want to be just right and hedge funds can implement this view or almost any of you into the exact trades and if you are right, you make money and how cool is this? This is really cool.

That’s why they called hedge funds, they have a lot of analysts, and assemblies, they constantly study things and they say, hey, I don’t know 99%, I’m not sure about 99%, but this 1%, I’m sure it’s gonna go like this. Then they are able and allowed to implement this view into the exact trade and they do it with derivatives. Now I’m originally explaining why you need to do this, for hedge funds. What is derivatives, derivatives is a way to trade a risk because everything in our world, if you simplify it, it’s risks that are compensated with return. So, this is very key, with very basic things to understand. So, you risk return, risk return, you cannot compare two different returns, it’s like comparing apples to oranges, you can say 5% return is better than 3% return, because maybe 3% return is with no risk over wherever there is no risk, but very low risk. You get 3% always and 5%, maybe it’s a huge risk. So, you get 5% today, but tomorrow, you lose everything that goes to the capital. So, what is better here 3% or 5%? It looks like 3% is better, to have 3% forever, it’s better than 5% one day, and so on. So, you can’t compare insurance, it’s always risky return. So, it’s two sides of the same metal. This is an important, very basic thing to understand. For everybody who want to do something in financial markets.

Ben Sheppard  12:43

I wonder how many people had been making bets that it was going to be a global pandemic that would lock everyone up in their homes for months on end like this. I mean, there must have been some real winners out there that had bet on things like that. I mean, obviously a lot of losers, but some winners out there that have done those sorts of bets as well, I guess.

Andrey Belyakov  13:02

I got an offer from one of my friends to invest small amounts of money, but in his hotel, restaurant business, so he was expanding, and he said to me, I’m raising good friends and we want to invest a little bit, I was looking at it the number for really good. Then I said, well, I don’t have a feeling for it, because I feel restaurants, it’s not something I understand. I just don’t use it. I look at the numbers. It’s like really high return, and so on, so on and that’s exactly the point. So, I said the return is high, but I don’t understand the risk. I don’t have a clue. I don’t know how the restaurant works. I can go to a restaurant and order the food. That’s pretty much what I know about restaurants. I said, no, I don’t understand. So, sorry and then it ended up being a pandemic and these numbers are close to zero now. It’s a big problem now. So, it would be like a big problem for me as an investment. That’s exactly the thing. So, every return is for some reason, you need to accept some risk. If you don’t understand the risk, then you are playing a casino, there is nothing wrong with playing casino, I mean, you can go and play in the casino, but you need to be honest to yourself, you’re playing casino, if you do understand the risk, then it’s a work. That’s a work what hedge fund managers do and they use it again, they use derivatives to implement their view to trade risks. So, I’m stating very simple derivatives or the way to trade risk, different risks, or any risks and I can make…

Ben Sheppard  14:44

Funds for you working with before moving into the world of decentralization out of curiosity.

Andrey Belyakov  14:50

Well, it’s the biggest font here in Europe. I didn’t actually say the name but it’s my LinkedIn, anyway. So, it’s 400 billion funds and I was managing like 10% of it. So, I was responsible for a big amount of money for 10s of billions, it’s all money. Part of it, it’s not so interesting because it’s buying bonds, selling bonds, just rebalancing, taking positions, that’s fine, but part of it was a hedge fund interest rate. That’s basically super sexy part. So, you can study anything, because you can trade any interest rates in the world, what it means trading interest rate, it means that you have a view on certain interest rates in Singapore, and then you analyze it, what is driving these rates, and what is the connection, and then you find that in China, there are also very interesting trades which are interconnected, and then you see that which mathematically tend to be like this.

So, it should be different pricing. Then when you confirm it, you choose to switch to present one side and the other side, you go long and short. There are lots of money. After some months, you have a very nice return with very limited trades, which you understand in which you isolate. So, basically, what is the cool about derivatives, then you can isolate risks, which you don’t want to run, simple example. So, if I, simplifying my previous example, let’s say I want to, I think that Tesla’s are gonna be better than Apple. That’s it, I don’t know, the stock market’s gonna go up and down. So, one, I’m sure the Tesla’s are going to be better than Apple, and I want to win. Regardless, if the whole market is going down, I still want to win. So, what I do, I used to do derivatives, so I buy future for Tesla, and I sell future for Apple, and that’s it, basically, I’m winning the difference in pricing, it can stay flat, and Tesla can just grow, then I’m making money in the hole, it’s a disaster for equity market, all equity going down, but because Tesla is gonna go a little bit slower than Apple, I am still making money. So, I don’t care about this risk. Professionally speaking, I’m hedging the market rates. So, that’s why hedge funds are called hedge funds because they hedge all the risk, they don’t care, or they don’t know, they’re don’t will to take. So, I’m only taking very specific, very isolated bets and they hedge their risks, I don’t care about the risks. That’s the hedge funds. That’s a really cool way to bring your view and make money out of your view and you need to do it. Because, as I said, I can make examples now, but as I said, every derivative is a way to trade surgeries.

Ben Sheppard  18:04

It’s fascinating just listening to you. As you’re speaking, I’m thinking, okay, so if you need to understand the risk, in order to be able to sort of set these derivatives, you need to have a good sort of market awareness of a particular market that you’re going to start doing derivatives within. So, is there a specialist market that you’ve always operated within, Andrey? Or is there like a portfolio of markets that you’re like, okay, I understand these markets, these are the ones that I’m comfortable within, because I understand the risk profiles of these companies, and so on and so forth?

Andrey Belyakov  18:36

Exactly and that’s a very good question and there is no answer for it because everybody is doing things their own way. There are so many hedge funds, they’re a lot of super successful hedge funds, extremely successful, but even more unsuccessful, because you don’t have limitations. You don’t have a mandate from government or from anyone, you are allowed to do almost anything. You can choose your own way and that’s the cool thing. So, suppose you know everything about Finland, I know everything about Poland and then we start to look at the trading between Finland and Poland. We see have a beer and we say, hey, why don’t we make a hedge fund? Call it the TEKS hedge fund and because we’re extremely good experts in this, we can make money out of this very small part of the market. We hedge the wrist, and you make money because we are right, we are better than everybody else in this specific field and this is why it’s so cool and fascinating.

Ben Sheppard  19:39

How big is this market must be huge?

Andrey Belyakov  19:44

For globally, global derivative market is 10 to 20 times bigger than world GDP. So, it’s bigger than the whole GDP 20 times, I think.

Ben Sheppard  19:58

Wow. That’s amazing. That is absolutely incredible, isn’t it? It’s just absolutely humongous. Wow.

Andrey Belyakov  20:05

Yeah, I’m started with hedge funds because they’re super fascinating for me and I think it’s for everyone, because actually what I wanted to say is that with Defi everybody can make his own hedge funds and that’s what I will explain later, but not only do hedge funds use derivatives, it’s also a super easy way to get exposure. Let’s say we’re trading oil there between Finland and Netherlands and I know that I have a lot of oil, but I don’t want to take the price risk, because I think there is going to be something happening, maybe going up, maybe down, but something is cooking in a macro economy. Let’s catch the trades and I can do it very simple trade, sell a future contract for oil for next half a year, it means I am selling oil on synthetic derivative markets and I’m owning oil in my storage somewhere, it means I’m the market neutral. So, I don’t care where the price goes, if it goes up, then it makes a lot of money in my warehouse, but I’m losing the same amount on my derivatives, I don’t care, I’m a zero, or the other way around. So, I can do business without focusing on the stupid price of oil. This is super helpful for companies as well. So, it’s not only for speculation, or it’s not only for implement me being smartest guy in the room and finding those financial inefficiencies, but it’s also for real economy, for real trading. It’s super helpful.

Ben Sheppard  21:46

Tell us about the Opium Protocol, then I’m really interested in your organization now. So, what is Opium protocol? How does it differ to centralized sort of derivatives offerings as well, because this one is obviously decentralized?

Andrey Belyakov  22:02

So, I quit my job from this three years ago, during previous Bull Run, everybody will raise about ICO and we said, okay, we don’t want to invest anywhere, we want to do our own projects, because before we were like investing a little bit in building, but we said, okay, it’s time to build something in 2017, and we did it from our own money. So, we didn’t raise anything. It was cool. The idea was to bring decentralized derivatives to the financial sector, it was not about Defi, because it was even before Defi became a term. We thought, okay, derivatives are cool, but there are a lot of problems with exotic derivatives. So, it means that if we want to create a contract, derivative contract, which is not super popular, we need to hire lawyers, we need to pay them probably in million dollars altogether for all the administration lawyers, and so on. Then it’s also difficult to trade and so on, lawyers are going to be happy, yeah, but we’re not going to be happy. We’re not going to do it because it’s very high entry barrier and with Ethereum, we realized three years ago that it’s a perfect instrument to create these exotic derivatives. So, you can create a contract in Ethereum, within some hours, days, months of programming depends how are you gonna do? Then it’s going to be immutable. So, you can trust it, because blockchain gonna do all the works of the Moore’s bankers, and so on, so on. So, you just program something, it’s pretty, it’s fascinating, it’s working. We will do it first futures, options, CDS, and then just adding products and then we got a brilliant idea, like, why do we design all these products ourselves, and 90% of these products look the same, because you need to program secondary market, but it doesn’t matter really what the programming options are future, it’s very marginal difference.

We said, let’s make a protocol where everybody can just go like Uniswap will go and create a pool. You go and create your own derivative and 90% of this, 90% which is common, it’s already in the protocol. So, you just put on top of it like definitions, and you can play instruments which you can trade and that was an idea. So, we build it and optimize it, rebuild it several times. We refactored it, put it live like one and a half two years ago, and it was a Defier already and that was cool for us because well, first of all, we build architecture like for traditional financial markets. Second, we’ve seen a sandbox of Defi which were started to play and it’s not the same sandbox anymore. It’s quite a big sandbox. Now we’re basically doing two things. First of all, we’re looking for the long-term solution, how we can serve financial system, because I think, Defi is not something which completely segregated should be the same. It should serve people; it should serve economy companies and so on, but at the same time, Defi is already pretty cool. We see automatic market makers, we see some cool stuff that is working, and communities like it. So, we’re also going to Defi, we came up with very complex solution, like professional exchange, and it was too complex for the Defi. Now, we came with insurance methodology and say, we back derivatives as an insurance. I need to make a stop and explain why we do so. Derivatives are used by literally anyone. So, you have a lot of derivatives, me my grandmother, everybody, because simply when you have a deposit at the bank, it’s cooked with derivatives. So, the banks are using derivatives to make a deposit rate for you. So, everybody has it, without even knowing it. First idea was to go to Defi offer them super complex protocol that can create anything, and people are not so sophisticated. They don’t understand what it’s anything, what can I do with it? That’s why we said, okay, this is we keep it maybe for us the next step, and as a first step, we focus on insurance, because everybody understand insurance and then it’s also needed, by the way in Defi. We pack different instruments as insurance. So, we don’t say, you’re gonna get the put option for Ethereum. So, wrong, because put option is already scary. We say this is in price insurance. So, you can buy this price insurance and guarantee the price, which is 100% the same as a put option, but we just pack it differently. This is just a product, different product work.

Ben Sheppard  27:07

You definitely need it in Defi, when you’ve got such price or token volatility, you know, it’s a bullish market at the moment, but who knows, when it will go to a bearish market? Again, if you can get insurance on some of those investments, then you know, I think that’s a very popular, you know, tool to have available to you. So, I can definitely see the use cases for it in the world of Defi. So, if I am….

Andrey Belyakov  27:30

This is people split, sorry for interrupting, people split into two groups, basically, one group says, share your view and saying, hey, this is something a little bit already too hot. So, we want insurance, want protection. Institutional money goes there, they need protection, because they understand they cannot risk the capital. So, that’s one and then a second group of people who say, no, we want harder, we want more return, we can take any risk, but we want more leverage we really bullish fine. So, we were really happy that such segregation is in place because we were non-custodial, right? We build a protocol which allows people to trade their views. Basically, one group of people set selling risk to another group of people. That’s it and everybody’s happy.

Ben Sheppard  28:21

Yeah, cool. Now, I’m gonna check that out and see how to use it is quite an interesting way of doing it. So, anyone can basically go to your protocol and create their own derivative. They can use the framework that you’ve created there.

Andrey Belyakov  28:36

Exactly and we’re working now on the better UI this year, they can but still now is not as easy as two clicks of the button. I promise you in the summer, you will have like a really simple interface and just create your own stuff. This is also super cool, one common which maybe I wanted to make anyway, that these hedge funds are elite right, then my dream was always to work in a hedge fund, and I was managing one. I’m super happy, but it’s very difficult to make a hedge fund super costly, super difficult regulation, a lot of stuff you need to do and hire all kinds of administration is there. Working in hedge funds is super difficult because competition is very high. Now with Defi everybody can run their own hedge funds, so they can just analyze things and then you don’t need anything. You just need to make them ask and you can implement any of you so you can analyze how impermanent loss works. You can analyze relations and then you can say, hey, I know something which I gonna just implement as my trading strategy and this is super, this is unique. This is first time in history.

Ben Sheppard  29:52

Now super excited. I’m just wondering. Okay, so the other side of the coin, obviously, there’s big opportunities here. It could be really advantageous for some people to go, but there’s also a good chance people would lose a lot of money if they don’t understand that. So, how would open protocol deal with making sure people sort of understand what they’re getting into? Like, is there a good product education on there to sort of guide them through it, for example, on Binance, when I first decided to get into liquid swaps, I got some tokens going to put it into a liquid swap pool and then this quiz comes up, and there’s like, 10 questions on there like, right, unless you can answer these correctly, basically, you can’t invest and I was like, hey, that’s pretty neat. Actually, you know, at least there’s some sort of safeguard there. Then there was a tutorial to watch and things like that. So, in open protocol, you also sort of educate people in that way to make sure they know what it is they’re about to do, you know, they sort of understand those risks that go with it.

Andrey Belyakov  30:48

Exactly. So, that’s exactly one of the reasons why we came with insurance products, because it doesn’t require a lot of education, you understand insurance? Yes, the answer is yes. We need to educate people. We all need to work. This is a problem for or challenge for all Defi. People, users don’t understand most of the Defi. So, I know people they actively contribute to Uniswap to LP and then they don’t understand what this impairment loss is, how it works. They have no clue and even like the basics. So, we all need to do this. One of the cool things, I think it’s cool. We came together with Burn Bridge, which is another interesting project, doing derivatives and we designed common standards for risk disclosures. So, we made this very simple, we came together, we say we do decentralized product, but still, we want to educate people about them and we want to assess the risks of these products ourselves. We want to do it in the same way because it’s consistent. So, we design very simple, but I think quite powerful way to speak about risks. When we speak about risk, and when they speak about risk is going to be consistent. So, we measure, we speak the same language and so on, we actively ask everybody else to join because there is no regulation which requires you to do this, but we making self-regulation, I think decentralized finance, owning by community, managing by community, also require this self-reporting, self-regulation part, because regulation it’s not always met. It’s bad when it’s 10,000 pages of nonsense regulation, but basic regulation, it’s very good, right?

Ben Sheppard  32:50

Definitely. Yeah, it’s good to have a few rules just to keep you on the straight and narrow, so know for sure. So, okay, I’m curious, then. You’ve got a relationship with Aave. I think Stani is one of the advisors on Opium Protocol. If I’m reading the website correctly. So, what’s the relationship there? What can you tell us about things going on with Aave, if anything, shouldn’t bring out?

Andrey Belyakov  33:16

I keep holding on confidential plans. Yes, Stani is an advisor. So, he’s absolutely cool and helpful, because Aave made a long way from [Inaudible 33:31], to Aave through several years. We’re not competing, well, I don’t think anyone is competing in Defi, we are kind of complementary to each other. What they do, and their experience in the community building in Defiance was one that is really helpful for us. At the same time, I think Stani sees importance of the derivatives in the future, and we’re combining our duties and their products in different ways with trying so one of the things we were doing Kerkrade litigation, insurance, so we made a tail risk insurance for their crazy litigation, for example. We’re now looking at smart contracts, maybe I’m saying too much already, but smart contract risk, and how to insure this. So, saying differently, that mature financial markets, they have a lot of derivatives, at the beginning you don’t need so much maybe for speculation, maybe to hedge basic things, but the more mature the system is, the more derivatives is needed. So, Stani is very, I think, positive on derivatives in general, because he believes it’s going to be very mature and we’re experimenting together. We’re building together.

Ben Sheppard  34:52

Yeah, I can see this taken off. I mean, I think this is a fantastic thing that’s coming out and I’ve seen a few other decentralized sorts of derivatives projects that are out there as well and I think this is a very exciting space. Okay, just to sort of wrap up the pod, someone who’s thinking about getting into decentralized derivatives, what would your couple of bits of advice be to them, if they’re thinking about getting into this space, having now listen to your wonderful explanation of it all, and no doubt, they’re excited, like, oh, we need to check out Opium Protocol and see what’s possible here. So, what would your top tips be?

Andrey Belyakov  35:29

My top tip is to get an education, if you don’t have, you need to have basic education, first. If you do have an education, if you know, whatever it is, you just need to see how Defi works and you can directly make your hedge fund there. So, like today, education is a crucial part, because the derivatives, I was comparing it another interview with a very sharp knife, which is super handy for the good cook. So, if I know how to cook, I really appreciate this super sharp knife, it’s much better than trying to cook without a knife, but if I have no clue what the knife is, I can also cut my finger and that’s the risk. So, you need to understand the basics and you don’t need to study for like 10 years, like I did, to understand everything, all the nitty gritty details, you need to start to educate yourself with very simple things like risk and return, how you assess risk and how to assess return. If you do it roughly, it’s already 80% of jobs. So, you don’t need to assess your risks, super nitty gritty, like for the hedge fund, you just need to have a basic understanding and I think this is the key because it’s going to be if we think that Defi won’t be the next financial system or next part of the financial system. It’s self-regulated, it’s related by the community is built by the community, you need to understand basic things. Otherwise, you cannot manage those protocols you can build, and you cannot use. So, that’s super crucial. So, I think now the educational part cannot be undervalued. So, it’s super important. It’s super hard to find a solidity developer right now, because everybody wants to build. Everybody think about building solidarity, but it’s also super important to understand basic financial principles. We’ve done some block and I want to do more, and I want to do more with other founders. I think that’s how we’re going to build a community.

Ben Sheppard  37:42

I think that’s a brilliant way you explained it with the sharp cooking knife that served us a really nice way to sort of understand it. By education, we definitely mean a bit more than watching Wall Street from 1987, but I will watch that movie later now. Andrey, it’s been great having you on the pod. I’ve really enjoyed this conversation and I hope you can come on again, actually, because I’d like to hear again, in the future, the great things that Opium Protocol is up to and sort of the direction that you’re moving in. So, yeah, great to have you on. Thank you.

Andrey Belyakov  38:15

Thank you so much.

38:19

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