We recently spoke with Denke Mancheski, the CEO and Co-Founder of Reef Finance. So here we are up with the transcript of the interview.
Reef in brief:
Reef Finance is the first DeFi cross-chain Operating System powered by Polkadot. The liquidity aggregator recently completed a seed funding round worth $3.9 million. The capital raised will be deployed to support the platform’s goal to make decentralized finance [DeFi] more accessible to the average retail investor.
TWJ: Hello Denko, Could you please tell us a little bit about your background?
Denko: So, I am Denko. I am the CEO of Reef Finance I have a tech background. I began programming in early high school, started with C++, did algorithmic competitions. And then a few years later, I moved into the enterprise world. I worked for two companies that provided ERP software. I built some modules and some mobile apps for them, which are still in use today. And then a few years later, I moved into healthcare. I have worked for one of the biggest healthcare platform providers in Europe. I was there for over two and a half years, and in the last six months, I was leading a team. We were working on a complex app for healthcare data modeling and around five and a half years ago, I discovered crypto.
I got into it, started to develop the blockchain myself. My first experience was with NXT (then turned into Ardor), and I have also been doing a lot of Solidity (Ethereum), Steem, and some EOS. Basically, I am based in Slovenia. Here the development community is not so big. I’ve been working with familiar people on different projects and around two years ago we decided to team up. So we worked on multiple blockchain projects as well as for analytics projects. Last year, we mostly did analytics in the B2B sector. Around November last year, we decided to fully focus on DeFi. And in January, I started working on Reef and since then I’ve been basically, you know, working full time and that’s, that’s about me.
TWJ: Congratulations on closing the $3.9 million funding round. Could you please tell us how Reef Finance aims to solve the technical barrier that investors face while they attempt to participate?
Denko: Yes, thanks. We see that the landscape has three, basically different issues. The first being the liquidity problem, you have centralized exchanges that are completely isolated and prone to hacks. While the decentralized exchanges have unstable liquidity, they are slow, hard, and more expensive due to Ethereum’s network congestion. Additionally, neither of them, centralized or decentralized exchanges, they don’t integrate with the DeFi ecosystem directly.
The second is the yield problem. It has a high technical barrier of entry for the average retail investor. So when they come into the landscape, they are confused. They don’t know the names of the projects. They don’t know what exactly they have to learn. It’s overwhelming and they cannot keep up with the best strategies and stay safe and well-diversified. And on top of that, again, due to the Ethereum network congestion, the gas fees are skyrocketing for certain activities, like $70 or $140.
And the third problem that we see is the fragmentation problem. So participating in different activities, such as trading, lending, staking yield farming are currently fragmented and painful experiences. You need to go to five different websites, learn how to use different UI made by different vendors. And it’s overwhelming. It’s hard for the average users to learn all of this. And basically, while they’re learning these things, they are missing out on the available opportunities. So would Reef we aim to solve these problems basically.
TWJ: When you say the Yield Farming ecosystem is fragmented, what do you mean by that?
Denko: This landscape is moving very fast and in order to be able to get the best opportunities out there, you have to stay very well connected. You’ve got to follow all the new farming protocols and it’s super hard because there are like five new projects coming every day and all of them offer different farming opportunities, but they have different interfaces, they’re on different websites, and so on. And it’s super hard for the average user to like find all of these and basically jump on them and start yield farming them. And, through the Reef’s yield engine, we are basically like integrating all of them and we are also monitoring the whole landscape. So we’re able to add those things, automatically.
TWJ: You stressed about Ethereum congestion fees. How do you work around this? Also, while this has posed as a massive problem for the ecosystem, on the brighter side, it has sort of, paved the way for other alternatives. In that respect, what kind of future do you see for Polkadot?
Denko: Yes. So, there are a few things. Reef has infrastructure both on Ethereum as well as Polkadot. But regarding helping around the Ethereum’s network congestion in the fees, we’re currently building like a pooling mechanism. So whenever you participate in DeFi through Reef baskets, the pooling mechanism is basically the first smart contract. Here, the user funds will be pooled and their requests will be taken. These orders will be routed after a certain amount of time or after a certain amount of money. Allocations will be fulfilled and vice versa. Whenever people want to liquidate their baskets, the order is taken to be buffered, basically pooled. And then the baskets are liquidated, so users will be able to save on fees. That’s with regard to Ethereum, whereas with regard to Polkadot, being able to do upgrades and high throughput, this will never be a problem.
TWJ: These days, it is not just only about 100% decentralization. It is also about integrating and sort of bridging centralized and decentralized capabilities. Can you explain why it is so necessary in today’s world and how Reef is working on that front?
Denko: So Reef has two parts. One is like the decentralized part, which is our basket engine, and all the smart contracts that are deployed on Ethereum and Polkadot and soon [will be deployed] in different places. And the other is the analytics engine. This is our centralist component and is basically sourcing intelligence. The reason why it exists in the first place is there is a lot of processing that needs to be done. For example, we collect a lot of data from exchanges, from social media, as well as blockchain traffic. So we run our own nodes. We are storing this data in a database and we are processing it with different algorithms. Currently, all of those things are not possible to be done properly in a decentralized manner. And that’s why we need to use decentralized infrastructure.
But Economics wise, this centralized component does not influence anything because everything is transparent. We are fully non-custodial, we don’t hold user funds. We don’t hold personal information. The only centralized part is just sourcing intelligence through the analytics engine. Until the whole landscape matures and we are able to like fully decentralize everything, it’s completely fine to have certain components centralized because our main focus is the user base. We need to be able to onboard average users, we have to lower the technical barrier of entry. And if certain centralized components help with that, they’re welcome.
TWJ: Reef functions as a DeFi yield engine. There have been recent talks that Yield Farming statistics have cooled down on Ethereum. What opportunity does that bring for Reef Finance and Polkadot? And, do you think Yield Farming’s popularity has declined? How does the future look for this sector?
Denko: Yeah. So, you know, just like in any landscape that’s new, you have these psychological cycles where there are ups and downs and it’s part of the whole evolution and the iterative process. So when certain things show up such as some form of farming, everyone jumps on it and then you have the peak formed very fast for interest. And then it slowly, because of bubbles and different, technical issues and, bad actors, everything peaks. And then comes the period where things need to stabilize. The whole thing needs to earn social capital from the community and slowly get back. What happens here is that we’re at a point where, certain people try different games.
Most of them do not have a lot of utility, but it was a nice way to participate. And now everyone is participating, but they’re more cautious and so on. So I think that this DeFi landscape will evolve in multiple parallel tracks and they will have different like psychological cycles. But eventually, like projects that want to do something serious, projects that are backed by something tangible and productive, these projects will survive long-term because they are sustainable. Eventually, the whole DeFi landscape will mature over time.
TWJ: Reef Finance recently partnered with Bluezelle to leverage Bluezelle Oracles. can you please elaborate on how it is working out for you and why did you choose Bluezelle?
Denko: We have a lot of data in the background, and we’re looking for ways to turn all of our centralized parts into decentralized parts. This is our ultimate goal. The reason we partnered with them is that we are now able to store data and keep the data fresh and resistant to censorship. And these are just a few of the projects we’re utilizing. We are also planning to announce more projects that will help in certain other things besides data.
TWJ: Is Reef Finance planning to expand the one architecture to some other layer apart from Polkadot?
Denko: Yes, that’s correct. When people hear about Reef, they have to understand that through Reef, they will be able to access the whole, basically the landscape, and currently most of the users and activities are in Ethereum. And that’s why we decided to use our initial version to support all of the Ethereum protocols. And right after we’ve been implementing all the Polkadots related things, and we want to be like the first product that will give access to the Ethereum user base and give exposure to Polkadot DeFi activities.
TWJ: Last month’s KuCoin hack was one of the biggest security breaches in recent history. Despite the fact that it was a centralized exchange whose hot wallets were compromised, the names of many DeFi platforms were also dragged into this incident. This reignited the debates about centralization-decentralization and questions were raised as to whether the decentralized principles were abandoned to save the decentralized systems. What is your take on it?
Denko: Over the last few years, we’ve had a certain monopolization of power around centralized exchanges, and with all the innovations that have taken place in blockchain technology, we’ve seen users switch to platforms like Uniswap and Balancer that are fully decentralized protocols. And I feel that centralized exchanges are slowly losing the battle, because they are being pushed from two sides, not just one, from a legal point of view. So, as you can see, they’ve moved to different jurisdictions. The regulations are becoming more and more strict and they also have been pushed for technology innovation. So I think long-term, decentralized exchanges are the way to go. Even though I think centralized exchanges are still very important because they are the main points for entry and exit between the fiat world and the crypto world.
But I think over time, most of the activities will be happening around decentralized exchanges, especially the fact that you cannot get hacked easily. You can diversify risk easier. And the hacks will most likely not be of the scale of like Kucoin in $200 million. I think the problem with centralized exchanges is not about, transparency and the technology being centralized, but the fact that there are a few people that are controlling a very big portion of the system. And that’s what happened. This was obviously an internal hack and in a decentralized world, this cannot happen.
TWJ: Due to the hack, DeFi has attracted a lot of bad press. Especially accusations of money laundering through a few DeFi platforms emerged. So do you think episodes like this are going to draw regulatory attention?
Denko: Yes. I believe the DeFi regulations are definitely coming. I think every time something new happens, you have bad actors coming in. It doesn’t matter if it’s called DeFi or something else and the fact that you have bad actors coming, it’s usually a sign of innovation because they are aware that the regulators are lagging behind the innovation. They don’t understand these technologies, but I believe that regulations are coming and again, with those regulations will make the landscape more mature.
TWJ: What sort of regulation do you expect in the future from the authorities?
Denko: Well, certain things cannot really become centralized because when decentralized protocols such as Reef are deployed out there in the world, it’s kind of impossible to take them down. Even the team or the creator cannot do it. But I believe it will be sort of a hybrid system. And I think the regulation will happen only at the edges of the system. For example, the exchanges, the entry, the exit, and, the rest of the things will just stay as it is because it’s just impossible to regulate certain things.
TWJ: Before wrapping up, could you please sign off by talking a little bit more about your product and how it is going to help the newcomers that are struggling to understand the extensive DeFi world and how does Reef makes it accessible for them?
Denko: Yeah. So, basically, what Reef aims to do is what Robinhood did to the traditional financial landscape. The way in which Robinhood gave access to traditional, average non – tech-savvy users to complex option chains and derivatives, and to equity from different markets with a very simple click, the way in which they abstracted the interaction with the order book, is what Reef aims to do to the DeFi landscape. And our goal is to be able to onboard an average user with a credit card, and we are working towards that.