Ruaridh O’Donnell, Director of Information Systems and Co-Founder at Kava Labs, sits down with ValueWalk to talk crypto markets
Can you tell us about your background?
I’m Ruaridh and I’m the Director of Information Systems and Co-Founder at Kava Labs. Prior to working in blockchain, I was working on fraud analytics at a previous startup. I have a background in physics and machine learning but I’ve always been interested in startups. My entrance to the blockchain space began when I first heard about bitcoin in 2013 and found it pretty intriguing. However, it was Ethereum that later really caught my attention as it showed that these systems could offer much more than just a currency.
When did you start your firm and what services do you offer?
Kava launched officially at the start of 2018. We offer a decentralized lending platform where users can use their cryptocurrencies as collateral to take out loans on a blockchain. Users collateralize their assets in exchange for a loan denominated a stablecoin pegged 1:1 to the US dollar. In this way, users can gain exposure to the upside of the collateral asset, while unlocking liquid capital to deploy.
Unlike other existing DeFi products on the market today, we’re set apart by our ability to allow users to collateralize a broader range of digital assets, with an initial pipeline of BTC, ATOM, XRP, and BNB, being added to our platform. This is important because while decentralized financial products have been growing over the past two years they’ve been mainly limited to one blockchain––Ethereum. By opening up DeFi to other large cryptocurrencies such as BTC and XRP, we expected that this could potentially create a big boost to the ecosystem.
What trends are you seeing with blockchain is it just a hype word or does it solve any pain points businesses have?
The most promising area of blockchain at the moment is in decentralized finance. With consistent growth over the past couple of years, there’s now about $600M of assets in use in the ecosystem. A variety of products have sprung up, covering a wide range of traditional financial services from lending and exchanges to derivatives. These are all open to the world and anyone can use them without gatekeepers or censorship. This makes them valuable people who are unbanked (or underbanked) and do not have good access to the world of traditional finance.
Being open also brings much greater transparency and accountability which is critical for financial products as it allows anyone to assess the products and be sure they are safe and secure. It also means prices between products can be compared and even new interfaces can be built on top of them in order to connect them together.
As the sector continues to mature, what we can see is a concerted effort in bringing together people from a wide range of backgrounds in order to combine ideas from different fields. While working in this field I’ve met developers, economists, language designers, lawyers, and mathematicians. I remain excited to see what new ideas this unique group of people come up with.
How do you value a new currency or asset like bitcoin––how do you decide if you want to buy, sell or hold it?
When dealing with new financial asset classes or financial instruments, one of the main roadblocks is always education. In the case of cryptocurrencies this is especially the case, with value being largely determined by external factors. Meaningful technological development as much as business developments can both easily impact market sentiment, while technical indicators such as support levels and cyclical movement, can play into how traders view various crypto assets.
Fundamentally it’s hard to predict in advance, but that’s one of the factors that makes the technology interesting to me––advances can come out of places you least expect.
What is DeFi?
Decentralized finance (DeFi) refers to a broad range of financial applications that are built on decentralized public blockchain networks. They range from crypto borrowing and lending to stablecoins and derivatives and margin trading to decentralized exchanges. Today, DeFi is one of the most prominent use cases for blockchain and it’s still growing.
At its core, DeFi democratizes access to financial services, addressing the needs of the underbanked and unbanked. The decentralization of finance opens up access to any person, regardless of whether or not they hold a bank account, or credit. This accessibility works hand in hand with innovation as the ecosystem allows anyone to experiment and build new services, bringing up the speed of innovation greatly.
How common is crypto borrowing or lending? Who typically participates in the DeFi ecosystem?
There are currently over $400M locked in Maker which is the top lending platform in the DeFi space. The participants range widely from consumer enthusiasts to institutional investors and well-funded projects. They have a wide range of reasons for taking part, ranging from gaining liquidity or leverage, to accessing lower rates on borrowing to refinance loans. Some of the low rates in particular have drawn attention.
Education can still be a barrier for some newcomers as there are technical concepts that need to be understood in order to interact with these systems effectively. Better user interfaces are being built that will make the core products much easier to access. But if you’re technically minded, I recommend learning more about the ecosystem as the technical community is very welcoming.
What trends do you think will emerge in DeFi in 2020?
Within the blockchain space right now, the biggest DeFi services are on the Ethereum blockchain. However, bitcoin is several times the market cap of ether and XRP is similarly sized. Using those assets in DeFi services remains cumbersome at this point in time but the technology for connecting these different blockchains and creating interoperability has been advancing. I see this being a big theme in 2020, creating a more connected ecosystem and encouraging the mixing of platforms and ideas. DeFi will keep growing throughout the next year, with an expansion in the range of digital assets that can be collateralized, alongside the experimentation and mixing of new ideas, and stability and greater adoption of current offerings.
The DeFi landscape has also seen the participation of traditional enterprises over the course of the past year as they’ve looked to address issues of financial inclusion and the pitfalls of intermediaries in legacy finance. For example, the Libra Association has ambitious plans to create a digital currency for use in cross-border remittance. I think we’ll see a continuation of that in 2020, as the ecosystem continues to mature and further gains legitimacy in the eyes of traditional industries.
About Ruaridh O’Donnell
Ruaridh O’Donnell is the Director of Information Systems and Co-Founder at Kava. He’s a software developer and entrepreneur with a track record in research and innovation, Ruaridh led machine learning groups before working on data analysis and fraud detection systems with advertising technology company AppEase, founded by Kava’s Head of Product Scott Stuart. Holding a Masters in Physics with the University of Glasgow, as well as being a published researcher in multinational research firms, Ruaridh is most at home combining areas of deep research to create products with real world value.
About Kava Labs
Kava is a cross-chain Decentralized Finance (DeFi) platform offering decentralized leverage and hedging of major digital assets such as BTC, ATOM, and BNB, built by Kava Labs. The first DeFi application built within the Cosmos ecosystem, Kava aims to bridge the crypto economy and traditional collateralization processes through the issuance of USDX, a US dollar-pegged stablecoin loan in proportion to digital assets collateralized. Using a system of smart contracts, Kava enables users open access to loans and algorithmically managed stablecoins backed by crypto assets—empowering digital asset owners with user-friendly DeFi services, making them more accessible than ever before.
The first DeFi platform to receive formal backing from Binance Launchpad, Kava successfully completed its Initial Exchange Offering with a US$3 million token sale on October 24, 2019, adding Binance as its exclusive listings partner. The Kava partnership network also includes world-renowned blockchain industry veterans, Ripple, Arrington XRP Capital, and Tendermint, as well as leading staking-as-a-service providers, StakeWith.Us and Dokia Capital.
For more information, visit: Kava.io.