Hugo Philion, Co-Founder of Flare, on DeFi Being Worse Than TradFi, Crypto’s Critical Problem, and Solutions for Adoption Issue | Ep. 370
In an exclusive interview with Cryptonews Podcast, Hugo Philion, a co-founder of blockchain for data Flare and CEO of Flare Labs, discussed building Web2 experiences with Web3 guarantees and why DeFi is currently worse than TradFi.
He talked about the industry iterating itself “into a corner that no one cares about,” projects being too focused on infrastructure, and Trusted Execution Environments (TEEs) as the best route to mass adoption.
Launching Dirty Solutions for Money
While doing research before launching Flare, the team notices a major issue. “People are really happy to launch quick and dirty solutions because it makes them a lot of money,” Philion said.
This is not something serious engineers do, he stressed.
Looking at the models of existing oracles, Philion continued, there are several issues to note.
First, an oracle is an application that is not native to a chain – it’s an external service.
Therefore, there are no clear security guarantees. Nobody guarantees the number of nodes providing a price, for example.
“The situation gets worse when you think between the largest oracle providers, the worst provided price has only five nodes that are contributing to that price,” the CEO warned.
That’s a very small number of people who need to be malicious in order to damage the price.
Thus, Philion argued, “the reality is we’ve built something worse than TradFi. […] And to me, that seems completely berserk.”
While trading in TradFi, there are legal obligations to provide a fair price. But in DeFi, there is no obligation on the oracle to give anyone a correct liquidation or entry price.
Also, projects can’t just make everything based on money. “People are not sufficiently interested in decentralized money that it’s going to become mass-adoptable,” Philion argued.
The industry needs to work on solutions that people are actually interested in. Prediction markets within crypto, for example, though not perfect, “feel and smell like adoption.”
Crypto’s Critical Problem: Stagnation
We came far, and yet nowhere near far enough, said Philion. The whole space has stagnated in use cases for a long time now.
The industry can’t just “iterate further and further on DeFi because we’re just iterating ourselves into a corner that no one cares about.”
A critical problem with crypto, Philion told us, it that a project can make a lot of money by investing in infrastructure.
And while this may lead to certain people getting rich, it doesn’t lead to mass adoption.
So, while most discuss infrastructure, Trusted Execution Environments (TEEs) are neglected and underrated, the CEO suggested.
“TEEs aren’t that sexy,” he explained. “Our industry has been very hamstrung by just being able to tell a really good story as opposed to a really good application.”
The Flare team believes that the path to mass adoption is to give people what they want – great apps with blockchain guarantees.
The key to that is industry advancement, and the route to advancement is TEEs. Per the Flare team, this is the fastest and most secure way to reach billions of people.
TEEs are chips we use every day already (e.g., our phone’s Face ID). The rest of the system doesn’t have access to its data, so it’s secure.
For Flare’s purposes, they provide computational results that can be verified.
TEEs allow a substantial amount of data to be brought on-chain at a lower price than popular solutions.
For example, it would cost about $60 million to store a gigabyte on Ethereum or $10 million on Solana. It’s $0.27 on Google Cloud, says Philion.
“We have to find ways to combine the efficiency of the technology that we know […] with trustlessness and uncensorability of blockchain,” he remarked.
TradFi = Legal Guarantees, Crypto = Software Guarantee
As noted above, Philion argued that TradFi comes with legal guarantees, but this is not the case for the novel digital asset industry.
In crypto, he said, we don’t even want any legal guarantees.
“We want software guarantees, [those] that come from the theory and the practice behind decentralization. We want for our systems to be as secure as proof-of-stake,” the CEO commented.
However, he added, the structure behind a blockchain with only five validators and minimal stake at risk doesn’t work.
The point with Flare’s oracles, Philion claimed, is that the data is secured by 67% of the staked token.
Its oracles are part of the Layer-1 chain and secured in the same way as the chain itself.
Flare has two core oracles.
One is called the Flare Time Series Oracle. It’s for things that can’t be viewed by validators perfectly – meaning, the data that moves over time (e.g., prices).
The other is the Flare Data Connector. It’s used for deterministic or observable Web2 and Web3 data – something that doesn’t change rapidly (e.g. number of transactions from one address to another, number of likes on a post, or anything else).
“So we can prove onto the chain an event from another blockchain like Bitcoin, Ethereum, and L2s – any of the other chains that we’re connected to,” Philion said.
“And we can do that where the data is secured by the weight of stake on the network. This is fundamentally not the case with existing oracles. I challenge anyone to look into the existing oracles and find me a true security mechanism. They don’t exist,” Philion concluded.
Blockchain Locks the Bet
One of the very obvious areas where the Flare ecosystem is highly useful is sports betting.
The Flare Data Connector serves well here. Getting results is easy as there are many sources.
What Flare solves is the transmission from a Web2 API to the chain. One can use it to reach a consensus over the winner of a presidential debate or a sporting match, for example. The oracle can aggregate data from any news outlet that provides it.
Importantly, “once you’ve entered into a particular guarantee of odds, you can’t go and change the chain history.”
In the current sports betting arbitrage, mispricing between various bookmakers is common. This results in bet cancellation and money loss.
“This is not really a fair way to treat your customers,” says Philion.
But with blockchain, “once you fix the price, that’s your price. That’s what you get.”
The collateral is held on-chain against two or more betting parties who are able to settle the bet based on high-quality data, Philion concluded.
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That’s not all.
In this interview, Philion also discussed:
- moving from TradFi to blockchain;
- meeting the co-founders while studying machine learning at UCL and choosing the name Flare;
- Google Cloud running a validator: good but not best-performing;
- the biggest validator in the system;
- a hackathon focusing on Confidential Compute using TEEs and blockchains;
- the US presidential elections and the Federal Reserve’s power over crypto – the US is not the only factor of importance;
- the relevance of Asian economies in crypto-related matters;
- different views on owning crypto in Asia and certain ‘Western’ countries.
You can watch the full podcast episode here.
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About Hugo Philion
Hugo Philion, a globally recognized speaker and thought leader, is a co-founder of Flare and CEO of Flare Labs.
Flare is the blockchain for data: an EVM smart contract platform specifically designed to support data-intensive use cases, including machine learning, real-world asset tokenization, gaming, and social.