The Future of DeFi: Hugo Philion on Flare, XRP, and Real-World Assets

Hugo Filion, the CEO of Flare Labs. Welcome to the Bitcoin.com news podcast. Thank you very much for having me. So Hugo, before we get started to learn all about the latest development with Flare, how about you tell us about yourself, you know, your critical journey and how do you get to working on Flare? Yeah, sure. Well, I've been in crypto for roughly 10 years now, so I used to start these podcasts with what my previous background was, which was I was in finance, I had a number of hedge funds managing portfolios and commodity derivatives. But I left out when study amasters at UCL in machine learning, and that's where I found my co-founders. I think one of the things that drew me to blockchain in reality is that I've always been interested in how the world works, how the economy works. I think that's why I went into commodities, very sort of visceral elements of the economy that, you know, without it literally nothing works. And I think, you know, the whole idea behind blockchain and decentralization, to me, was just fascinating. The idea that you really don't need intermediaries to manage, to make transactions, to make complex transactions with other people seem to me, and I think continues to be, just one of the most effectively the most interesting technical use case of blockchain. So, you know, I think, really I got there because fundamentally, once a technology like that comes along, that is simply better than the existing way of doing things, it's just a matter of time until that becomes the increnched way of doing things. Once you, you know, there's no history really of people inventing things that are better than previous things and those things not being adopted. And coming from a background of both machine learning and commodity trading, I'm guessing right now, you're really enjoying the market at the moment, it's in-street. You know, I don't trade much anymore because I'm part of it's always with building out flair. But yeah, I know I'm watching what's happening, and you know, but I don't maintain positions that I need to, you know, actively manage. But yeah, it's going to be a very complicated time going forward, you know, if things don't let up. Yeah, very interesting times right now. So, I think most people know flair from your XRP ecosystem, but most people still think about XRP, you know, just in terms of payments, right? Can you tell us more about the stuff that we can do on flair today? Was it the defy, the optimization, on-chain finance, and you know, everything else that you guys are working on? Yeah, sure. So, you know, flair is the first and foremost to layer one with embedded data. So we have takes protocols that are a part of the network, as opposed to being external takes protocols. So we leverage security for those data protocols directly from a network structure, which are, you know, is kind of what we think of as the best way to do it. And we're using those data protocols to build bridges, principally the first major bridge being for XRP. So the data protocols powered our bridges on TFI ecosystem and later this year, we will add confidential compute capabilities that again leverage stage protocols. So, you know, that's what flair is in the nutshell. And it can be applied to any token or any use case. But fun, the first place we started is with XRP, a building out a full N2ND-Fight ecosystem for XRP. And today, you know, you can do borrow land, you can create a decentralized stable, you can trade on DeXes and LP indexes, a collateralized PURPS position, open prediction markets, collateralized options, strategies all with XRP. So this has never been available for XRP before. And we are effectively building out that functionality for XRP using an EVM that flows an EVM-based platform. So it's something that pretty much all builders and market participants know how to get engaged with. And our next phase of utility we think will be expanding these markets, you know, really just building the quid is rebuilding debt within the XRP base markets. And then pairing XRP with real world assets on chain. Can you give us some specific examples that are applicable to, let's say, not the most sophisticated XRP holders, like you don't want to have, you know, that level of sophistication, because I've seen votes for XRP. Yeah. So absolutely, we just rolled out about 10 days ago now, something called Flair Smart Accounts. And this is an abstraction of Flair. So that an XRP holder really doesn't have to think about how to use Flair, doesn't have to go in a choir, the Flair token, doesn't have to download a wallet. And effectively Flair Smart Accounts takes advantage of Flair's data protocols to enable a user on the XRP ledger to submit a transaction on the XRP ledger, which encodes what they want to do on Flair. And the first utility of that we've built is a very simple mechanism that allows a user directly from the XRP ledger to mint FXRP and deposit it into upshift fault that is managed by ClearStar, which has, you know, seen tremendous growth since we launched that. And in fact, now has reached its temporarily cap, cap will be increasing, you know, fairly soon. So that's kind of like the absolute basic, you know, way that someone who, you know, doesn't want to have to manage strategies themselves can can engage with Flair directly from the XRP ledger, driving transactions on the XRP ledger, and that making, you know, those transactions on the XRP ledger effectively at working as a remote controlled for Flair. So you can use a, you know, a retail wallet like the MAP. Absolutely. Like, like, it's a man. So it's, you know, it's a, it's a, it's a product that's first been launched with the man. We'll be expanding it to other XRP focused wallets, you know, and hardware wallets, you know, over time. And we'll be expanding the functionality available in Flair smart accounts over, you know, over the next couple of months so that it goes beyond just being able to deposit in a, in, into a vault to effectively being able to undertake any transaction you wish on Flair directly from the XRP ledger with whichever one of your XRP wallets, with whichever XRP wallet you wish to use. That's sort of our, our end goal just to make it as easy as possible for people to onboard to the ecosystem. So before we get to institutions, long term your vision is a retail, you know, maybe not oriented, but retail enabled. Oh, no, no, not at all, not at all. We want to make it friendly for retail. We do a lot of work to make it friendly for retail. But I think it's fair to say about estimates are about 60 to 70 percent of XRP is held at exchanges. So, you know, at least for the XRP product, the biggest unlock in that market for us is in enabling institutional products that utilize the DeFi on Flair for exchanges. A really good example of that would be borrow lend through Flair's multi-protocol. So, more thought has launched on Flair. And this is kind of an absolute sort of wonderful product that, you know, we've seen with other chains with other assets that can now be done on Flair with exchanges. And we're working towards that. So, you know, I think we want to serve all the markets. Obviously, you know, retail are a big market, very loud, very supportive of XRP and I think supportive of Flair. But, you know, we think that getting things right both for retail and for institutions like exchanges is absolutely the key for us. Understood. Yeah, that seems to be the direction the market is not just headed, but, you know, where we are right now. Absolutely. Absolutely. I mean, you know, we're not limiting ourselves to, you know, just crypto, crypto institutions. That's not our singular ambition. It's just that crypto institutions. happen to be the correct players for the product that we've launched, which is FXRP. And, you know, but we're, you know, we're building out a much larger layer over time, which I think will broadly service far more potential institutions as well. Should we come on to it a little bit? So you mentioned the FXRP. Can you tell us a little bit more about it? And, you know, what's driving the adoption of it? As I've seen the presentation, it seems to be growing really fast. So, you know, how do you understand that? And what does that tell you? Yeah, so I mean, one of the reasons we always built for XRP, so FXRP is the bridge version of XRP on flat, so XRP. This is the, I said that you get when you bridge XRP to flat. We've grown 31% in the last 10 days since we launched smart accounts, which we covered earlier. So we're now at about 132, 133-ish million units of XRP on flat. We also have large amounts of stable coins and other assets, treasury assets and things like that. So this will go into the DeFi mix. Well, why has FXRP been successful? And I think, I think it's fair to say, that has been successful. You know, I've seen other iterations of people trying to unlock effectively XRP on other chains. And they haven't really get gone in traction, but FXRP has. I think that's because we've really focused on building a well end-to-end DeFi ecosystem for basically at the moment XRP, but also, you know, non-smart contract, other non-smart contract tokens. So, you know, if you look at XRP, it's just this huge source of value just sitting there. Really, as you said, focused on payments, but with really very little activity, you know, in DeFi, whether that was on, you know, the XRP ledger itself or on base. And, you know, I think we've really, as a team, just focused on, okay, how do we build an end-to-end ecosystem around an asset that is lost, but underutilized and got the right mix of builders, got the right mix of incentives, got the right mix of, you know, capital. We've funded and incubated some specific protocols that don't exist anywhere else, you know, in order to drive adoption. Our goal now is to maximize usage and liquidity within the protocols that exist on Flair. And then once we feel we've got an XRP to a place where it's self-sustaining economic market, then we'll be tacking off the tokens like Bitcoin. Yeah, Bitcoin is obviously the biggest example of unutilized capital that's sitting on the side of it. It is, but it's also one of the harder ones to crack. It has a much more amorphous community than say XRP, very much harder to communicate into the Bitcoin ecosystem, whereas the XRP ecosystem is very amorgous and very structured. Yeah, that's an interesting observation. But, you know, at some point, somebody has to crack it because absolutely. Absolutely. And, you know, our goal is to build liquidity within DeFi on Flair with XRP, with stable coins. And then, you know, that liquidity can then be a driver to bring in other assets. And do you think like Bitcoin? And do you think the most use of real-world assets will be tokenized, let's say, Bitcoin or XRP instead of people talking about real estate and stuff like that, is there. Oh, no, no, no. I think when real-world assets truly get on chain, and I think, you know, there are efforts starting there. You know, I think people. I mean, look, if you see hyperliquid, as there's kind of a proxy for real-world asset trading, because you can trade oil there on the weekend, when you can't trade oil on the exchange, on the traditional exchanges, I think that stock bonds, derivatives, you know, all traditional real-world assets will eventually move across to blockchains, I think, is inevitable. I think there are barriers today to that happening, not least that I think, you know, certain institutions, certain types of trading will require privacy. And, you know, that's where we're going next, with something called FLARE 2.0. So, we are building a compute layer in FLARE that enables people to effectively build applications that sit off chain in that compute layer and have privacy while settling on chain on FLARE. So, you know, you. An asset might be issued, let's say, for instance, either on FLARE or on the XRP ledger, let's say, some equities claims to, you know, claims to stocks. And that asset, you know, it needs to be traded or wants to. People wish to trade that asset, but they don't wish to necessarily give up the anonymity that they have in the traditional markets. So, you know, FLARE's compute layer, one of the purposes of FLARE's compute layer, there are many, is to act as a privacy preserving layer where people can build essentially fully fledged applications such as, you know, DEXs, order-book-based DEXs, lending protocols, perhaps even derivative protocols, with real world assets for the issued either on FLARE or on other chains that FLARE is connected to. I definitely see the need for that with having privacy and still being able to trade on chain assets because we're seeing, you know, other endeavors trying to make it more, you know, lockdown and controlled. Yeah, I mean, I think also, you know, there are. there's competition for this, right? There's a number of change, focusing specifically on real world asset. And I think we're FLAREFETSEN as it gives chains that don't have that privacy capability. The ability to participate in the real world asset story, because otherwise, you know, if your chain's sitting there with effectively no privacy capabilities, and I think most importantly, complex privacy capabilities. What I mean by that is, you know, you can build one, let's say, ZK application and that's fine, for a specific use case. But what our compute layer gives us is the ability to have a very flexible domain in which you can build any application you'd like, which is privacy preserving. So FLAREFETSEN can work with lots of chains where people issue real world assets in order to give them a place that they're more complex transactions can happen on that chain. A good example of that again is XRP. XRP ledger has been become, you know, a sizable place for the issuance of real world assets. But, you know, there's a limited number of things that you can do directly on the XRP ledger with those real world assets. And as yet, the XRP ledger does not have privacy. And I believe, you know, regardless of what is built there, it's very valuable to have a flexible layer where anyone can build an application that is privacy preserving, and that application can be other fairly complex. Yeah, we mainly think about privacy as, you know, other are human rights or retail demand, but for someone like hedge funds that's doing some complex trading. Yeah, they have to protect their, you know, make it obscure, and have somebody can tell what their plan is. And, you know, and yes, I mean, when you're trying to build a position in an asset, you really don't want to be observed. Or if you're trying to exit a large position in an asset, you also don't want to be observed, you know, because that then means people start saying, oh, well, they're exiting. Let's push the price down a bit. You know, it's very undesirable for everyone to know exactly. actually, lot assets, someone holds at any point in time from a profit and loss perspective. So, you know, privacy is critical. You know, there are other reasons why privacy is important beyond just being a human right and I think it is. But, you know, for instance, let's say you are a large Middle Eastern family and you wish to take out some credit against, let's say, a large portfolio of properties or assets you have. You know, you might not necessarily want that to be known within your community. These are objectives other than just profit and loss where privacy is valuable. Of course, the use cases are very clear for anyone that is operating in a market that might be shifting or they might have the ability to themselves to change the market. Absolutely. And what FLAZ completely gives us is an off-chain place where an off-chain platform where there is privacy, but you know, everything is provable back down to chain and all settlements can happen directly on chain. So, you know, and it has, you know, because it is off-chain, it is highly scalable. Yeah, so we talked about, you mentioned the institutions coming on chain and, you know, we've seen banks experimenting with blockchain rails and, you know, more and more, you know, putting into stable coins and, you know, even considering tokenized securities as a way to, you know, to enable trading on the weekend or reduce their costs and stuff like that. Where do you see FLAIR in that broader ecosystem of institutional, let's call it institutional blockchain or institutional, defy or institutional crypto, you know, have you seen it? I mean, I think, you know, I think that is fairly nascent at the moment with the exception of stable coins. Real world asset issuance, you know, and trading of tokenized equities, bonds and all that kind of stuff is relatively limited in reality at the moment on chain. We are, you know, principally focused right now this year on, you know, XRP and DFI with XRP, you know, but we are building for the future, which is our compute layer, which is, you know, we don't think this is going to be any one chain that wins the issuance battle of our WAs. So, I think, you know, our WAs are going to be issued on XRP ledger, they're going to be issued on stellar, they're going to be issued on Ethereum, they're going to be issued on Solano and all the different variants. Where FLAIR's gets in is in being a chain where those assets once issued can be used, can be traded, can be traded with privacy. So that's why we started with data, because in order to, you know, be able to get those assets onto FLAIR, we have to be able to have connectivity to the other chains. And that's why FLAIR is person-former to layer one with embedded data protocols, because then we can build what we think of as, you know, highly secure bridges to those chains. So, you know, there might be, you know, an asset that's on, you know, another layer one, but there's a trading, a private trading protocol that sits in FLAIR's Compute Layer for which the owner of that asset wishes to execute trades through FLAIR's private trading protocol. Compliant, AML, all that kind of stuff baked in, but ultimately FLAIR is, you know, I see, I see other chains probably as the issuance layers and FLAIR as one of the foremost Compute layers for our top UAs. I wonder why do you think that is, like, I agree that it seems the direction that we're headed, but do you have any insights about why that is, why there isn't, you know, more consolidation or, you know, like a winner-tick or. Well, I think, first of all, because I think no one in digital finance wants to give any of the blockchains effectively an unlimited license over their business. And so, everyone's, you know, playing effectively called a multi-chain strategy. Secondly, I don't think there's any chain that you would want to today, that the world would want to look at today and say, okay, if that chain is the chain for our top UAs. Of course, there's some that claim to be, but I don't think that's how it will pan out. I think, you know, it will be highly risky to put, you know, the entire world's financial system on, you know, Ethereum. And so, therefore, you know, any singular chain. So, therefore, I think assets will be spread out across pretty much all the major L1s. And I think Flair will be one of the preeminent places where those assets can be traded. Yeah, we definitely see that in our field that, you know, people are giving out their other digital sovereignty or our energy sovereignty. And, you know, they can't regret that. So, definitely, I can see why largest institutions would want to have, you know, multiple players, so they're not stuck with that. I mean, there'll be some chains that are largely owned by large institutions, but, again, there'll be other institutions in the world that won't want to play with those institutions and won't want them to win the entire stack, so to speak. So, I just think that it's, you know, as yet, it's impossible to say that there's going to be a singular winner. And I think, you know, I think everything I've seen about blockchain and crypto suggests that that's not really the case. And in a longer timeframe, let's say 10 years, where do you see, I mean, if it's capable, you know, some markets are unpredictable, where do you think, or where's your vision, you know, for 10 years from now, how do you see the market look like? Would it, for example, would defy it still be a term or would be some, you know, it's debaked into the traditional infrastructure of finance without, you know, people necessarily knowing how does, you know, the thing goes on what blockchain. But I think, I think, you know, I think 10 years is an awfully long time, but I'll tell you what I'd like to see. I do hope DeFi is still going and I hope that, you know, it remains broadly permissionless. In fact, I'm hoping that over the longer term, you know, we have lessening permissions required over traditional real-world assets. I think once, once you unlock the kind of 24/7 liquidity that can be achieved through bringing real-world assets on chain, you know, regulators will start to understand that the value of reducing but not eliminating the permissions around real-world assets will be very, very high. Do I think, you know, do I think DeFi will be baited in? Yes, I think it'll look more like a consumer application. I mean, look, we're, we, we pioneer this with our smart accounts and everything we do, we try to make it as easy as possible as accessible from whatever device you have. So, you know, I think people will just, you know, get their salary and put it to work any money that they don't need to immediately use, put it to work on a chain. So, I think, ultimately, why would you take a terrible interest rate from a bank when you can just click a few buttons on your phone? Exactly. And especially in places where you don't even get to have that, you know, for a lot of money. Exactly. Yeah. And in places like Argentina, for example, you know, these types of solutions, are life-saving for people that don't really have a way to protect their savings and their family's capital. I agree. I agree. I mean, in Argentina, and those kind of cases, you know, stable coins have been a panacea. But if you look at Europe, you go to a high street bank, you're getting, you know, I don't have three percent interest, maybe four, you're lucky. You can do better, you know, in crypto, without taking volatility risk particularly, where I think the value comes in and one of the things that has been built on Flair, which is called Firelight, which is in adding insurance as a layer to this. So, you know, insuring protocols like Arve, insuring protocols like Morphe, then, you know, people could genuinely feel fully comfortable about, you know, taking their salary in stable coins or whatever their national currency is, and then putting it to work on chain and hopefully getting a higher rate than the traditional banks can offer. And, you know, if you can offer that, then, you know, that, then, is that become sizable enough, then traditional banks no longer have the capital base that they used to and effectively will finance and that living on chain, which is quite interesting. Yeah, that's a great vision. And that would be the scale what we want to achieve over the next 10 years. Yeah, so it's great to have, you know, people working on this and like yourself and Flair, so that's great. I think we learned a lot about, you know, the current situation and where Flair is going, where should our audience go to follow up on, you know, more developments that are coming up with Flair and with yourself? Sure, we have a lot of channels, Flair.network is our website. You can find all our channels there. We're also see highly active on X. We have that's Flair networks. We have a number of telegram channels. We have Discord. We have all those kind of things. There's also an awful lot of videos about Flair on YouTube. Wonderful. So we'll have those links in the description. I want to thank you so much, Hugo, for taking the time and coming to the process today. Thank you, really appreciate it. Thank you for your time.