Real Vision founder talks to Vitalik: Ethereum has no killer app, only a killer ecosystem

Share | Raoul Pal, Vitalik Buterin

Compiled by | Lin Qi

During the Singapore FinTech Festival held on November 8, Raoul Pal, CEO of Real Vision and former Goldman Sachs executive, had an in-depth conversation with Ethereum founder Vitalik Buterin, covering various topics such as DeFi, NFTs, and DAOs. They discussed the application scenarios of NFTs and the challenges facing Web 3.0, making it a worthwhile read. Raoul: On this day, Ethereum's price hit an all-time high, and the entire crypto market value also reached a historical peak. Can you imagine that from the moment you first proposed building Ethereum to now, you have created over $500 billion in value within the Ethereum ecosystem's smart contract concept?

Vitalik: To be honest, I didn't have that thought when I was building Ethereum. I just expected we would finish it in a few months and then go back to school. So, I absolutely did not expect Ethereum to develop into what it is today, nor did I anticipate the scale and attention that the crypto space would achieve.

Raoul: The real contribution you made with smart contracts is unlocking the value layer. It created everything we saw last year— the explosive growth of DeFi and NFTs, and now everyone is moving towards Web 3.0, which is creating a whole new ecosystem. How do you view the development of the DeFi ecosystem?

Vitalik: First of all, I think the DeFi ecosystem is maturing. In fact, these projects still exist, and clearly, many projects are occasionally hacked. But if you only focus on the core projects, like Uniswap, which has been around for a few years, they just continue to remain stable, continue to do what people want them to do, continue to grow, and provide any features that people have been expecting.

I believe trust in these platforms will only continue to increase, and people will be able to rely on these platforms. So, I think the trend we will see in the coming years will basically be more sustained adoption, like more types of users using DeFi and the NFT space.

I think the future will not be just financial or non-financial, but a hybrid finance. These projects are not only related to money but can also benefit immensely from this huge value layer created by directly plugging into Ethereum and the larger crypto ecosystem.

Just like DeFi components are plugged into various places, Ethereum does not have a killer app; it has a killer ecosystem, and the value comes from all these different parts that can communicate with each other.

As more and more applications continue to attract new users, I think we will see all these fundamental building blocks continue to thrive and stabilize themselves, ultimately allowing people to see more and more which parts of the DeFi space truly exist and which parts will continue to exist. I believe they will all remain, and I think we will see a lot of value slowly and steadily emerge from them.

Raoul: Yes, I think many people mistakenly believe that DeFi is just a part of the financial system, that it makes banks obsolete. But what is actually happening is that DeFi is building a whole new parallel financial system and economic system; it is an entire ecosystem, not just finance.

The value layer of the NFT space is fascinating. We have some leading projects where people gather around these communities. But it feels like the direction of NFT development is still not very clear, such as developments in NFT intellectual property or NFT insurance. What direction do you think it will take?

Vitalik: NFTs are a very large category, literally representing non-fungible tokens, where each individual unit represents something different. NFTs can be a piece of art, a domain name can be an NFT, and items in video games can also be NFTs.

The different types of NFTs we see, some NFTs represent purely crypto things, so their value basically comes only from the people in the crypto space who are willing to pay attention to them. Others represent assets in the real world that have some legal validity. Intellectual property is one example, and real estate is another. Just like stablecoins, we have purely crypto-based algorithmic stablecoins, and then we also have institutionally backed stablecoins like USDC.

NFTs are similar; their value comes entirely from changes happening in the crypto space. The NFTs we will have may have their value linked to existing legal property rights we already have, but may not currently be used or be that efficient.

Raoul: Now all the composability elements also allow for markets to be built around NFTs, which is why we are starting to see lending markets develop around some artworks and other fragmented things. You can see all these elements starting to combine at an incredible speed.

Vitalik: Exactly, I think there are many different combinations that are really interesting. For example, one is the concept of fractional ownership, where NFTs can be combined with real estate and can also be combined with DAOs. If NFTs are already being used in real estate ownership, then a condo association could be a DAO.

We won't manage it with boring paper processes like in the 20th century, but rather manage it with on-chain contracts and voting governance. There are many different ways to connect each of these components, and most interesting applications will ultimately connect different parts together.

Raoul: Yes, I think tokenizing real estate is very interesting, as many high-performing real estate prices are expensive, and most people cannot participate. Once you tokenize it, anyone can participate; anyone can put their 5% savings into a $100 million real estate asset. This is an extraordinary change, and once this starts happening, the liquidity of the real estate market will be forever changed.

Vitalik: Yes, I think the non-fungibility in the real estate sector is actually the root of many problems. In today's cities, you are either a homeowner, in which case you are overly exposed to one type of asset; or you are a renter, in which case you are negatively affected by that asset.

So, people need options that lie between these two extremes, like fractional ownership, a system where some ownership is built over time to facilitate their development. I think there are many cool things happening.

Raoul: Another thing you mentioned is emerging quickly; everyone is trying to figure out what DAOs are and how they will manifest. There are many experiments going on, and it sometimes feels difficult to have such broad project ownership because there is no specific leader. We are trying to figure out how all this will work; how do you view the evolution of DAOs?

Vitalik: DAOs and smart contracts are like Lego blocks for governance, allowing people to easily create new and different structures. Unlike now, where if you want to create an organization, you have to pay huge fees to lawyers and wait a long time to achieve it. DAO organizations lower the cost for people to do these things.

I think we can easily see this organization becoming less standardized, with many more different types of tailored DAO organizations, and there could even be organizations that exist for a very specific purpose for just a few months, even if they have very little funding. I don't see a dominant scenario; I just see it opening the floodgates for a thousand different scenarios.

Raoul: Yes, one very interesting thing I see is that the fund management industry is now revolving around DAOs. The cost of building these things is so low that it is causing huge disruption to this very traditional fund management business.

Vitalik: Absolutely.

Raoul: So how do you think about another thing? It feels like everything we are building points towards Web 3.0. Now everyone has their own definition, just like everyone has their own definition of the metaverse. What is your definition of Web 3.0? How far along are we in this process?

Vitalik: I think Web 3.0 is obviously a very large term, and I think there are many different things that excite different people, like creating decentralized forms of social media, possibly more open and transparent governance, creating better integration between internet applications and financial layers, or increasing the ability to own assets.

I mean, Web 3 is definitely a very broad umbrella term that encompasses a lot of things. I think they are all fine; what everyone knows is that a technological revolution is happening. I think not just blockchain, but zero-knowledge proofs are also very important.

These changes will address many of the previous issues, such as trust issues, allowing for more collaboration without a central point of trust. Many people have different perspectives, and I think it's great that they are realizing their dreams and visions in their own ways.

Raoul: I still think one key factor missing from all of this is the wallet experience, and another thing is the zero-knowledge proof identity layer that I think many of us share as necessary for the internet. Many people's view of Web 3.0 is that we have our own data, and if we want to sell our data, we can. How far are we from having the availability of digital identities and wallets that are not so difficult to set up?

Vitalik: I think the biggest usability challenge in practice is the appropriate transaction fees, just like layer two protocols are a solution to that. In the Ethereum space, we have Optimism, Arbitrum, and Polygon, with more and more members of the zero-knowledge family.

These developments are ongoing, and I think they are great, and once realized, the biggest practical usability issue that users face today will basically be resolved.

I think another very big issue is that most people are not well prepared to fully self-manage their existing cryptocurrency wallets, ensuring they do not lose all these digital assets.

In the real world, if people make a mistake, they can go talk to a banker, go to court, talk to the police, or anyone else, and they will figure it out. Nowadays, the crypto space is also exploring corresponding solutions, and people are working to solve problems and reduce the chances of losing or having funds stolen, making people feel safer when dealing with these assets.

For example, through multi-signature wallets, social recovery wallets, or hybrid institutional forms of custody, institutions can help as a backup without actually having full control over the assets. Therefore, there is a lot of important work being done in these areas as well. I think all these issues will slowly start to be resolved in the coming years, so I am very excited about that.

Raoul: The revolution you and I are talking about seems to be the fastest technological adoption in human history. Its growth rate is twice that of internet adoption. As we just discussed, so much is happening; I mean, the entire space is exploding deeply, not only in terms of the number of different protocols but also in all use cases.

Moreover, because the crypto space is often anti-establishment, the government space and the crypto space will collide. Whether it is the establishment of central bank digital currencies or new financial systems, they must communicate with each other and establish a new set of rules to ensure we can all operate. This benefits everyone, but in some countries, it is difficult because we are still using laws from 1934, which makes it tricky. We need to address a situation where we must establish a set of open rules so that we can adapt and change as it develops so rapidly.

Vitalik: I think the crypto space is a large space, and I think many people have many different visions. I believe there is space in this area to accommodate all these visions.

I think from another possible angle, it is about creating a fairer way for people to interact with existing institutions. Existing institutions have less opportunity to exercise control, but at the same time, they can still provide important services.

New institutions can penetrate the market in a way that makes it easier to provide services, impacting existing institutions. Existing institutions have a lot of control over interfaces. However, the crypto world does not allow anyone to control the entry points to the same extent because it is entirely about creating open infrastructure.