Community-Driven Ecosystem Accelerators ‘A Vital Component of Crypto Funding Mechanisms’ – Elie Le Rest

Large institutions will fully embrace decentralized finance (defi) only when they are confident that their trade counterparties will comply with sanctions and other international laws, argues Elie Le Rest, CEO of Colony Lab. However, Le Rest, also an angel investor, said trade counterparties can still demonstrate their willingness to adhere to rules by implementing gated know-your-customer (KYC) protocols.

Expansion of Onboarding and Offboarding Channels Crucial for Attracting Retail Users

Le Rest further suggests that institutions seeking exposure to defi or related products can leverage the subnet infrastructure of the smart contracts platform, Avalanche. This would allow them to tailor blockchain networks to their specific requirements such as privacy and compliance with laws.

Discussing the broader adoption of decentralized finance and related products by retail users, the CEO highlighted the importance of expanding onboarding and offboarding channels. He argued that with enough such channels, using defi and blockchain infrastructure would not necessitate deep knowledge, as is currently the case.

Also, in written responses delivered via Telegram, the CEO maintained that ecosystem accelerators have become a crucial part of cryptocurrency funding mechanisms. He underscored their role in enabling projects to “decentralize their cap tables by bringing in thousands of investors.” Moreover, he pointed out that involving future users early in a project’s lifecycle can lead to a token distribution that helps alleviate any potential selling pressure.

Below are Elie Le Rest’s answers to all the questions sent.

Bitcoin.com News (BCN): You have spent over a decade in the crypto space, and you also happen to have a background in the traditional finance (tradfi) space at big firms like UBS and Credit Agricole. From your experience, what do you think are some of the things that decentralized finance (defi) must borrow from tradfi to win over the retail crowd and institutions alike?

Elie Le Rest (ELR): Defi already offers incredible alternatives to traditional finance, boasting faster, cheaper, and more efficient processes overall.

To further engage the retail crowd and maximize the benefits of defi mechanisms, we need to expand onboarding and offboarding channels. This would enable individuals to seamlessly utilize defi and blockchain infrastructure without requiring in-depth knowledge, much like how people currently use the internet without understanding its underlying workings. Initiatives such as wallet abstraction technologies and USDC automation flows represent promising steps in this direction.

In the realm of institutional adoption, significant progress has been made in the past five years. This includes the development of comprehensive and secure custody solutions, as well as trading platforms that adhere to the highest compliance standards. However, for large traditional financial institutions to fully embrace defi, it is crucial for them to have confidence in their trade counterparties to comply with sanctions and international laws.

Gated know your customer (KYC) protocols offer solutions to onboard institutions, and ongoing enhancements in processes are continuously improving. Additionally, the Avalanche subnet infrastructure enables customization, empowering institutions to tailor blockchain networks to their specific requirements such as privacy, compliance with laws etc. This includes the ability to select validator sets, ensuring interaction exclusively with compliant partners.

Looking ahead, we anticipate continued experimentation by traditional finance entities, eventually leading to their interaction with public blockchains under specific protocol flows that align with their regulatory requirements.

BCN: What is ecosystem farming and seeing that sits at the intersection of decentralized fundraising and community engagement, in what ways does it benefit the community and the early-stage builders?

ELR: The concept of ecosystem farming aims to provide easy access to the growth within an ecosystem through one platform and by staking a single token. It operates as a set-and-forget strategy, where users receive airdrops from early-stage projects launching on that ecosystem, along with tokens from the protocol’s liquidity provisions performance, and additional rewards like $AVAX from validator nodes.

This mechanism benefits both users and the projects involved. Users gain access to additional tokens and potential rewards through airdrops, while projects receive funding and/or liquidity, along with access to a new user base eager to explore new ecosystem blue-chip projects.

BCN: What is it about the Avalanche ecosystem, or your understanding of it, that made your platform choose Avalanche over other ecosystems?

ELR: Colony chose Avalanche almost three years ago when defi and Gamefi were not yet established, and the chain was in its infancy. Nonetheless, Avalanche was an obvious choice at the time due to its vision and delivery capabilities. The vision is to bring Wall Street on-chain, and Avalanche possesses the necessary building blocks, in my opinion, to achieve this.

By enabling the rapid creation and customization of blockchains using a powerful new consensus mechanism (Snowman), including options such as choosing the gas token, validator set, and virtual machine, Avalanche provided the flexibility needed. In the past, I worked with several large listed companies interested in adopting blockchain technology, but they hesitated due to their inability to customize the infrastructure according to their needs. Now, with Avalanche, they can do so, and I anticipate tremendous growth in the years ahead as the technology and features become production-ready.

This is why Colony chose Avalanche over three years ago, and we are more committed than ever to supporting this burgeoning ecosystem, as it is constructing the best-decentralized blockchain technology currently available in the market.

BCN: Avalanche Foundation recently announced that it would invest some of the money from its $100 million Culture Catalyst fund into meme coins. What are your thoughts on investing in meme coins and do you see them as something that represents culture, even though they lack value?

ELR: Avalanche Foundation is backing a variety of initiatives, spanning from meme coins and NFTs to defi and RWA. Their objective, as I see it, is to bolster builders on the chain and grow a diverse community. This includes fun meme coin projects, which often carry significant community value due to their engagement, community spirit, and culture — aspects that extend beyond the humor and virality they embody. Furthermore, the Foundation actively supports innovative technologies crafted to empower users and builders with additional tools while addressing tangible, real-world challenges.

BCN: As I understand, Colony Lab maintains an index, the Colony Avalanche Index (CAI), which is dedicated to projects built on Avalanche. Can you shed light on what led your firm to introduce the index, how it works and what its constituents are?

ELR: In traditional finance, indexes are the best proxy to access a variety of assets within a specific industry, geography, or economy. In crypto, indexes are not yet very developed in terms of market share, but we believe they will become a growing product as the space continues to evolve and it becomes increasingly difficult to keep track of every asset and trends. We created CAI to facilitate exposure to the growth of Avalanche.

It’s a classic market-cap-weighted index with rules in place to ensure it is a liquid product that can be utilized in defi as collateral. These rules pertain to asset liquidity (requiring at least $2 million) to mitigate slippage risk when the index is rebalanced monthly, as well as in regards to dilution (requiring at least 30% circulating market capitalization). Additionally, assets must be at least 6 months old to avoid pump-and-dump schemes.

Due to these strict rules and the current state of liquidity in the Avalanche ecosystem, the CAI index currently comprises only four constituents: AVAX, sAVAX, JOE, and XAVA. We believe that the value proposition of CAI as a diversification tool and collateral product will substantially increase in the coming months as the Avalanche ecosystem liquidity grows and CAI can integrate more constituents. Soon, CAI will be usable as collateral in Avalanche protocols, facilitating leverage and directional exposure to the growth of the Avalanche ecosystem.

BCN: What should builders look for when seeking the backing of a community-driven ecosystem accelerator and how should builders go about choosing the right set of investors for their projects?

ELR: A community-driven ecosystem accelerator is increasingly becoming a vital component of crypto funding mechanisms. I consider it the linchpin in seed round funding, allowing projects to decentralize their cap table by welcoming thousands of investors. This not only kickstarts a substantial user base from the outset but also ensures their protocol has market fit.

Unlike having solely VCs in their cap table, involving the community of future users in early investment cultivates a robust user base, and alleviates selling pressure through broad token distribution.

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