Continuing the series on AVI’s mini-thesis, Plaid for Crypto (discussed above), we facilitated two more calls to introduce more potential collaborators to discuss their views on the mini-thesis and how they might contribute toward its realization.
Recordings can be found here: Thursday, Friday
Below is a summary of key take-aways from each discussion.
Annamite
Speaker: Lucas Gaylord
Annamite Capital is a hedge fund specializing in both CeFi and DeFi, aiming to aggregate alpha from trading teams while maintaining control over risk management. The discussion highlighted the challenges and strategies for engaging institutional capital and liquidity in the DeFi ecosystem, particularly focusing on Arbitrum.
Key Insights and Recommendations:
- DeFi Hedge Strategies: While MEV, yield farming, and directional token bets represent existing strategies, market-neutral and non-directional strategies present the greatest potential for hedge funds in DeFi.
- Institutional Participation in DeFi: Institutions are already engaged in DeFi, but typically through intermediaries like Annamite, instead of participating directly. The lack of deep liquidity is one of the biggest barriers to entry for institutional players now that regulatory issues are diminishing… Overcoming this liquidity gap is key to unlocking larger capital inflows.
- Arbitrum’s Role in Liquidity Strategy: Lucas suggested that Arbitrum focus on consolidating liquidity in targeted areas first, rather than spreading it too thin across multiple markets. He argued that even $10M of seed liquidity can significantly improve a protocol’s viability and create network effects that attract further institutional capital.
- Strategic Capital Deployment Recommendations for Arbitrum:
- Instead of relying on incentives alone, focus on strategically deploying liquidity into key areas such as loan books, leveraged trading protocols, and market-making strategies.
- Lucas noted that capital efficiency should be a primary focus, particularly in on-chain trading infrastructures that reduce counterparty risk and increase capital effectiveness in the ecosystem.
- Institutional appetite for DeFi is strong, but protocols must provide stable and structured liquidity pools to meet institutional needs.
How Annamite Can Support Arbitrum Ventures:
- Liquidity and Capital Management: Assisting Arbitrum Ventures in optimizing liquidity deployment strategies to attract institutional participation and enhance capital efficiency.
- Institutional Engagement: Supporting AVI’s efforts to attract institutional liquidity by designing structured liquidity provision frameworks that align with the ecosystem’s growth objectives.
- Targeted Capital Deployment: Working with AVI to identify high-impact areas for early liquidity investments, ensuring a foundation for long-term success in institutional adoption.
Gearbox
Speaker: Ambrose
Gearbox Finance is an on-chain lending and borrowing protocol that allows users to access leverage across DeFi using a credit account system. Unlike first generation lending protocols that require looping strategies, Gearbox provides capital-efficient margin trading and leveraged yield farming.
Challenges in Scaling DeFi Credit Solutions:
- DeFi Adoption Remains Limited: The number of DeFi lending users (~400K) is minuscule compared to traditional finance terms of borrowing and lending.
- Over-collateralization: Current DeFi lending models require over-collateralization, limiting their use compared to traditional finance, where creditworthiness determines borrowing power and flexibility.
- Potential for Embedded DeFi Lending: Instead of creating new DeFi interfaces, lending protocols like Gearbox should integrate into existing financial apps, making blockchain-based lending accessible through familiar financial tools.
- Long-Term Liquidity: Gearbox’s TVL on Arbitrum previously peaked at $30M, but that TVL decreased to approx $2M after the incentives programs ended. Without stable liquidity, lending markets cannot function and teams can’t test new models.
How Gearbox Can Support Arbitrum Ventures:
- User Experience Solutions: Introducing Gearbox to wallet providers, neobanks, and FinTech partners would help integrate DeFi credit solutions into existing user experiences.
Outlier
Speaker: Chris Cajoleas
Outlier Ventures is a leading Web3 accelerator that supports blockchain startups by providing funding, mentorship, and ecosystem connections. It has backed 355+ portfolio companies and runs programs for ecosystems like Filecoin, Near, Aptos, and Wormhole.
Accelerating Ecosystem Growth Through Targeted Incubation:
- FinTech and DeFi Need to Merge: The key to adoption is not creating new blockchain-native wallets but embedding Web3 into existing financial platforms.
- Arbitrum’s Ecosystem is Well-Positioned: With a strong DeFi presence, Arbitrum is primed to lead in middleware development that connects traditional finance with DeFi.
- Institutional Readiness Matters: Investors and institutions require compliance-ready solutions, such as those made possible through the Arbitrum Orbit framework, which allows for customized regulatory implementations.
How Outlier Ventures Can Support Arbitrum Ventures:
- Structured Accelerator Program: Would run a 5-6 month program under the “Plaid for Crypto” thesis, focused on developing real-world FinTech-DeFi integrations.
- Strong Founder Pipelines: Would attract 200-300 applicants, selecting 8-12 teams for funding and structured mentorship.
- Investment, Not Just Incubation: Outlier Ventures would invest $100K per team, with an opportunity for Arbitrum Ventures to co-invest.
- Proven Success in Past Programs: Previously ran an accelerator with Peak, where none of the original teams built on Peak initially, but all transitioned by the program’s end.
Narval
Speaker: Greg
Narval is a Plaid-like institutional connectivity layer for DeFi, enabling secure, policy-based access between custodians and on-chain applications. It helps hedge funds and financial institutions safely interact with DeFi protocols.
Bridging Institutional Capital with DeFi Infrastructure:
- Institutions Are Critical to Market Stability: Liquidity in financial markets comes from institutional players, not just retail users.
- Security & Compliance Barriers Prevent Institutional Adoption: Large financial firms hesitate to enter DeFi due to custody risks, compliance concerns, and lack of technical infrastructure.
- Institutions Need Regulated Access to On-Chain Assets: Unlike retail investors, institutions cannot self-custody assets; they require trusted custodians and compliance-ready access mechanisms.
How Narval Can Support Arbitrum Ventures:
- Building a Plaid-Like Connectivity Layer: Offers a secure bridge between custodians and DeFi protocols, allowing institutional investors to participate safely.
- Integrating with Arbitrum-Based DeFi Protocols: Expanding liquidity channels for Arbitrum by facilitating institutional investment flows.
Tezoro
Speaker: Kamil
Tezoro provides AI-powered automated trading solutions for self-custody users, allowing on-chain portfolio rebalancing and yield optimization without relying on centralized exchanges like Binance.
Enabling AI-Driven Asset Management for Self-Custody Users:
- Retail Users Lack Automated Trading Tools: Binance offers AI-based trading bots, but self-custody wallets do not have equivalent automated portfolio management.
- Reducing Risk Through Smart Automation: Fully on-chain AI prevents reckless asset allocation, adding built-in risk management features.
How Tezoro Can Support Arbitrum Ventures:
- Deploying AI-Based Portfolio Rebalancing on Arbitrum: Already live on Arbitrum, helping users automate portfolio optimization without relying on centralized exchanges.
- Improving Market Efficiency with AI: By using on-chain AI agents, Tezoro can dynamically rebalance portfolios and optimize trading strategies for users.
- Wallet & FinTech Integrations: Integrating with Arbitrum-based wallets to enable seamless automated asset management.
Bonadocs
Speaker: David
Bonadocs is building an open-source API framework to enable identity-based transactions on centralized exchanges (CEXs), reducing transaction errors and simplifying cross-border payments.
Simplifying Blockchain-Based Payments Through Identity-Based Transfers:
- Crypto Still Lacks Mainstream Payment Solutions: Most users rely on centralized exchanges (CEXs) for remittances, but these platforms lack identity-based transfer mechanisms.
- Reducing Transaction Errors Through ENS-Like Solutions: Users often send funds to the wrong wallet addresses because CEXs don’t support human-readable payment identifiers.
- Unlocking Global Remittances via Open Banking: Blockchain-based remittances could compete with similar services, if linked directly to existing neobanks.
How Bonadocs Can Support Arbitrum Ventures:
- Building an Open-Source API Framework for CEXs: Helps centralized exchanges support identity-based payments, reducing human errors in transactions.
- Enabling Direct Fiat-to-Stablecoin Conversions: Users could send payments to any supported country without interacting with a wallet, simplifying onboarding.
HiFi
Speaker: Zach
HiFi is an automated fiat on/off-ramp solution that integrates directly with bank accounts to enable seamless crypto-to-fiat and fiat-to-crypto conversions for institutional investors.
Improving Fiat-to-Crypto On/Off-Ramping for Institutions:
- Institutional Capital Flow into Crypto is Still Inefficient: The process of depositing and withdrawing fiat is slow and costly.
- DeFi Needs Seamless Banking Infrastructure: Institutions hesitate to engage with DeFi due to complexity and regulatory uncertainty in fiat-to-crypto transactions.
How HiFi Can Support Arbitrum Ventures:
- Provides Automated On/Off-Ramps for Institutional Investors: Institutions can deposit funds into bank accounts that automatically convert to on-chain assets.
- Enhancing Capital Efficiency for Arbitrum: By removing friction in fiat-to-crypto conversion, more liquidity can flow into Arbitrum-based DeFi protocols.
Want to Get Involved?
Gain context in the Deliverables Hub, with a special emphasis on the “Plaid for Crypto” mini-thesis discussed in these calls. Then join the conversation!