Interview With Pavel Shkitin, CEO Of Crypto Exchange Nominex
27 August 2021 - 08:40PM
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In 2020, decentralized exchange Uniswap airdropped every user that
ever interacted with its smart contract with 400 UNI, their newly
launch governance token. This was at the peak of a period in the
crypto space commonly known as the “DeFi Summer”, the expansion in
adoption of a sector that offers users a real use case to become
financially independent. A few months after that, the price of
Bitcoin and other tokens in the crypto market entered uncharted
territory. Many attributed the rally to the fresh affluence of
users jumping into DeFi. We sat down with Pavel Shkitin, CEO of
crypto exchange Nominex to discuss the rise of decentralized
finances, their integration with exchanges, and their potential
futures. This is what he told us. Q: Can you tell us a little bit
about your background, and about Nominex? Why did you decide to
build it and particularly, why offer DeFi products to your users?
A: I am a backend developer by profession. For several years, in
large companies, I have been developing various corporate systems
in Java. In parallel with this, while studying at the university,
with a group of like-minded people, we were trying to create our
own IT projects in various fields, which were unsuccessful for many
reasons. The first development stage of a crypto exchange began at
a time when MtGox still existed but we have not even released it
yet. As a result, we returned to this idea only in 2017, when the
penultimate wave of hype around crypto began. After spending two
years on development, in the fall of 2019, the Nominex exchange
started off working. Since then, we have been systematically
improving our product and looking for new growth points. One of
such points is the growing popularity of DeFi direction. It is
always easier to get results in an area that is growing and gaining
popularity. Q: The DeFi sector opened an opportunity for the entire
crypto industry as it has brought more adoption, fresh capital, and
new potential. At the same time, regulators and politicians have
questioned the decentralized nature of these protocols and the
risks for consumers. What do you think are the biggest obstacles
for the sector? And for exchanges such as Nominex that offer yield
farming, and other DeFi products to its clients? A: The
cryptocurrency market and cryptocurrency projects are remaining as
uncertain as possible in terms of regulation. You are literally
groping and just counting on the right direction. But optimism
grows daily. It is already clear that regulators will not be able
to resist cryptocurrency because plenty of people worldwide are
just not ready to give up on what cryptocurrency offers. One could
even say that mass adoption has already taken place to some extent.
Due to the inability to ban cryptocurrency, regulators in different
countries have been trying to control what is happening around it
recently. We saw these attempts. One of the most notable tendencies
is the introduction of the mandatory KYC procedure at large
exchanges, which were previously in great demand due to the lack of
KYC. Sure, regulators are introducing these restrictions so that,
if necessary, it is possible to quickly identify a person at any
stage of the exchange of one currency for another. Even
decentralized exchanges make it easier to track the money flow
during an exchange as blockchain records all transactions. When
exchanging on centralized exchanges, coins are shuffled and,
without contacting the exchange administrators, it is impossible to
track the money flow after the exchange. From this point of view,
DeFi projects are probably not even that interesting to regulators,
and I admit that DeFi projects will remain without close attention
from regulators. Q: Data published by research firm Messari
estimates that the DeFi sector recently reached a total value
locked of $148 billion. A year ago, this metric stood at less than
$10 billion, what do you think are key factors driving this growth?
Are users only interested in profits or is the promise of
“decentralization” as relevant as we are led to believe? A: I
believe that the DeFi sector has experienced such explosive growth
precisely due to the introduction of farming mechanisms through the
supplementation of funds to liquidity pools (Uniswap, Pancakeswap,
etc.). It is unlikely that you will find at least one person who
would be ready to send their funds to a smart contract if he or she
did not receive any benefit from it. A person puts funds in a
liquidity pool to receive a reward in the farming of coins that are
interesting for him. At the same time, the funds that he or she put
in the liquidity pool are used as liquidity for trading with other
people. And the more competently the mechanics of coin farming are
worked out, the more profitable it is for people to put funds in
the liquidity pool, and the higher the amount of money sent to DeFi
projects. Everyone should understand that the DeFi market is
constantly evolving – projects with weak tokenomics die, projects
with keen tokenomics collect hundreds of millions in their smart
contracts. DeFi projects are getting more and more efficient,
thereby automatically making the DeFi area even more resilient. Q:
Many people jump into crypto to benefit from its potential but find
that they lack technical knowledge, accessible fiat to crypto
onramps, and better user interfaces. What is Nominex doing to
address these issues? Do you believe the industry would benefit
from “simpler” products? A: Indeed, this problem exists. But such a
technological complexity of projects is due precisely to the fact
that the user completely controls what is happening to his or her
funds by using cold wallets. It is the genuine value of
cryptocurrency – when no one except you is in charge of your funds,
but at the same time, you retain the rights not only to store these
funds but also fully manage them in different ways. But, in point
of fact, I would even say that this complete control is even
harmful to a certain percentage of people because it is enough to
make just one careless step and your funds are already in the hands
of a cunning fraudster. I believe that soon there will be an
increase in the demand for CeDeFi projects that provide the
functionality of DeFi projects, but through a more convenient
interface and with foolproof protection. In this case, all the
technological complexity falls on the implementation within the
platform. However, for this, the user must send his or her funds to
the wallet of this platform, just like when working with a
centralized exchange. As for Nominex, about a month ago, we
introduced a mechanism of simplified farming when users literally
need to press one button to send funds to the liquidity pool and
start farming – all this happens in Nominex under the hood. Q: In
recent weeks, the industry has seen an apparent surge in hack
platforms. Bad actors have taken millions from users left without
alternatives to recover their money. Can developers, the crypto
community, and exchanges work together on this problem? Do you
believe projects should be more cautious about their source code
even if that means taking an approach that goes against the
principles of open-source software? A: The more open and at the
same time more complex the platform is, the more potential
vulnerabilities it carries. We saw it one of these days when $600
million were stolen from the Poly Network cross-chain platform. It
precisely happened because the cross-chain mechanism is complex
enough to eliminate all possible vulnerabilities at the development
stage. However, the truth is, with each new hack, there will be
fewer potential vulnerabilities like these. Here you can draw an
analogy with the construction of missiles. There have been many
unsuccessful launches, but they were barely necessary to make
future rockets stable. Talking about more predictable ways out of
such situations, in my opinion, of course, projects with a
transparent corporate structure bear more responsibility for
everything that is happening to their platforms. And yet, the
utmost responsibility for preventing hacks falls on smart contract
auditors since they are the ones who give or do not give the green
light to projects in the early stages. Few developers are
interested in digging into thousands of contracts for small
projects for free, and it may be too late to dig into them when the
project has already become large. Q: Ethereum, Binance Smart Chain,
Solana, Terra, so many layer one networks are emerging amidst the
DeFi promises of more financial inclusion, the opportunity to
maximize profits, and more services. How do you envision the future
for this sector? Do you believe one blockchain will rule them all,
or do you believe users will leverage exchanges such as Nominex to
really capture the value of DeFi protocols? A: Of course, Ethereum
cannot remain the sole leader in the application of DeFi protocols,
which is why we are seeing the emergence of new successful
blockchains on the market that improve one or more features of
other existing protocols. Everything here is going naturally
through the mechanism of healthy competition, and that is great. At
the moment, there is an immense market demand for cross-chain
solutions that would be more convenient and cheaper, and more
secure than what we have now. Therefore, soon, we will definitely
see several outstanding projects in this area. But this does not in
any way negate the fact that any decentralized protocols are
complicated for a rather large category of users, and they need all
of this to be available to them in one click of the mouse button,
what Nominex is trying to do for its users.
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