 Sooner or later Ethereum is going to outpace Bitcoin and then become the global standard. Sandeep Nailwal is the co-founder and CEO of Polygon, a multi-chain scaling solution aimed at improving the efficiency of the Ethereum blockchain. Polygon has been among the fastest growing DeFi protocols in 2021 and it now has the official backing of billionaire investor Mark Cuban. Despite increasing competition within the DeFi space, Sandeep is convinced there is no such a thing as an Ethereum killer. In this interview, Sandeep tells us his vision of DeFi's future and how Ethereum will eventually overtake Bitcoin as the leading cryptocurrency. Welcome to another exclusive Cointelegraph interview. So I would like to start talking about DeFi. So we saw the amazing growth of the DeFi ecosystem in the past two years, especially also this year we saw an amazing growth. Still, it looks like, to me, it still looks like a parallel universe that is pretty much detached from any real-world use cases. So what is still missing here? What does DeFi need in order to have more concrete impact on the traditional financial world? It would be first, I would say, some way to identify or some way to have the identity on-chain. With which you can have KYC and you can have undercollateralized loans and things like that because right now on DeFi, it's like you have $1,000 in some other token and then you want to lend $600 on top of it whereas that particular crypto itself has all the features of, let's say, money for which you could have used that particular asset. So we need to have some sort of KYC or some sort of not KYC but identity form with which you can create your identity can have some credit worthiness on-chain and with that you can actually take loans and all that. So that's one second. I would say it's also like more closer connection between the traditional finance and the DeFi and this could be easier where some bridges could be created by which the capital in the traditional industry can flow into DeFi industry. So that would be also, I would say that more closer integration of DeFi with the traditional finance and third would be what I would say is that even if you see the DeFi protocols today, like for example, Aave, Compound or all the other top DeFi protocols, they are not completely on-chain. If you see that way that they still use oracle services and off-chain actors and things like that, compare that to the beauty of Uniswap for example. Uniswap is completely on-chain and it has a simple and elegant algorithm with which it is able to price assets and things like that. So such protocols which can completely remove the dependence on these off-chain systems and create algorithms to have full-blown DeFi money Legos, on-chain money Legos that would also kind of accelerate the growth of DeFi. So these three would be my main pointers I would say. What time frame are you looking at? When are we going to see these improvements implemented according to you? So identity, I think we are at least at least two to three years away from some solid identity protocol emerging. Similarly, for the C-Fi and DeFi connections, we are seeing already a few things happening. These traditional banks are getting to know about DeFi and as a bit of regulatory clarity comes in and I think that regularity, clarity globally especially in the bigger economies will also drive a lot of growth for DeFi. When that comes, I think these institutions will be able to participate in the wider DeFi ecosystem and that's when the best thing is that when you have a retail bank and your retail bank allows you to kind of put your savings into some DeFi protocol and you can get a better yield maybe from DeFi. So that will take, I think this is at least like again the time frame would be, I don't think it is going to be any less than two to three years to five years to happen where the full blown integration or bridges between C-Fi and DeFi has been built. The third one having more of these on-chain protocols and all that, I think this is going to happen much sooner. I see that within six to 12 months you will have some of these fully on-chain protocols to have these start acting as DeFi money legos into the DeFi ecosystem. Now I would like to touch upon the first element that you mentioned which is identity. So one other main problem of DeFi so far has been like the security. So the safety of people involved into these protocols. We are seeing a lot of fraudulent activity going on in DeFi according to a latest report by Cypher Trace. Elicit activity in the crypto ecosystem overall is actually going down, it has been going down in the last couple of years. On the contrary in DeFi we are seeing a surge of elicit activity. It seems that due to the lack of centralized oversight DeFi is still a dangerous place especially for unexperienced users. So what is a solution that could be adopted in order to solve this problem according to you? Maybe it's something connected with this identity solution that you suggested. I don't think that there is too much of elicit activity using DeFi as a mechanism or DeFi like people doing money laundering or whatnot with DeFi. There might be some elements. I have also heard that there are some elements who are trying to do that but by and large the elicit activity that you are seeing in DeFi are primarily due to hacks and that is because the system or the environment or the ecosystem is still very immature in terms of like the programmers who are building these protocols, the auditors who are auditing these protocols and all that that has not reached a particular level. Whereas yes definitely if you like with like you have identity then these things should go down but although I feel that even if you have identity the hackers will be smart enough to not do it not do their you know kind of hacking with some identified addresses. So I don't know how much identities will bring down these hacking related scenarios but yeah like if there are other attack vectors or people trying to do some illicit activities because they have anonymous accounts then definitely identity will bring it down but I'm currently I'm not able to think of scenarios where people are using a DeFi protocol in the way it is built as a protocol but then using it for illicit activity. I mean you mentioned hacks but besides hacks we also know about rug pools. So the hacks usually is performed by an external attacker right but there are a lot a lot of projects a lot of tokens that are being created every five minutes which are fraudulent they are just schemes to basically get people money as it used to be in the ICO boom of a couple of years ago. Everybody can make its own token everybody can list the token on a decentralized exchange so how do we deal with these problems of rug pools. I see so these rug pools because they have already happened a lot on on ethereum then they happened on polygon also then vsc and then they keep happening on various different chains but the magnitude of them is you know slowly coming down down down and then the people who get rug pool generally are the people who are like many of the people are they themselves know that they are like you know playing with fire just going and depositing like tens of thousands of dollars in in some unknown protocols for the end user perspective I think people are building you know like I have heard like this is again like very early stage but people are building audit related DAOs where you know imagine you had an auditing DAO which kind of certified some protocols that okay this protocol is good and their owners do not have the rights to kind of change the program logic or kind of rug pool or things like that so maybe that will evolve secondly as I you know already said the free markets like free markets will evolve slowly and steadily where people you know will realize that okay if there is a protocol which is not backed by you know let's say proper investors or is not approved by some community DAOs which are actually which approve that okay this is fully audited or some independent auditing companies where it is fully approved from then people will not put their money over there so basically as far as I understand from what you said you you hope more for a self-regulation within the DeFi space than a regulation imposed from outside am I correct yeah definitely like you know if let's say there is regulatory you know fully regulatory interference comes into it then DeFi doesn't remain DeFi right the D gets replaced with C5 right so you know like I don't think that there should be extreme interference from there and as free markets have shown that you know the DeFi industry will you know keep evolving into avoiding such scams more and more and also if you see like you know these scams also happen in bull markets and then bull markets do not remain forever right I mean right now we are in extreme bull markets eventually when there are less then automatically the reputed protocols come up like Aave and Compound for example they came up in the last you know beer market and then they are that's why they are the most successful protocols like slowly and steadily the larger percentage of the market will move into more evolved protocols as we know polygon is a layer to solution for Ethereum so your kind of future is linked to the future of Ethereum we saw that this year Ethereum has been outperforming Bitcoin and there are more and more talks about whether Ethereum is going to become the leading cryptocurrencies replacing Bitcoin you said that Ethereum is going to become the ultimate settlement layer for the internet of chains so can you give us a bit more of details sir about this vision this final vision for Ethereum yeah so I mean I think that the Ethereum chain because of its fundamental you know security the level of decentralization and the kind of you know the community and the trust that it has created as a chain over time you know is like you know just beyond you know beyond the reach of any other any other chain in terms of like you know being able to process smart contracts we feel is that eventually the business activity will move to these layer tools like polygon like layer tools or you know polygon is also an aggregator which has layer tools which has side chains and things like that but eventually you know the activity will move into these chains built on top of Ethereum connected to Ethereum where the business activity or the processing of the business logic takes place and Ethereum acts as the settlement layer where all these chains you know combine their data batch their data into Ethereum and larger kind of value transfers happen on Ethereum and which makes me feel that BTC since BTC has only one use case to fulfill and you know I mean from the larger institutions like Warren Buffet and things like that like many big luminaries have said that Bitcoin might not have any intrinsic value if you come to Ethereum Ethereum has a intrinsic value I mean that the Ethereum you use Ethereum to pay for the gas fees to pay for this block space on this and many of these layer 2 chains that are being built they also use Ethereum as the as the as the money to you know kind of pay for the block space okay and now I would like to pick something that you just said before so you said that basically the future is the future of DeFi is going to be on Ethereum so Ethereum is going to be this ultimate settlement layer for the internet of block chains still there are some projects that are betting on a different kind of future so they are trying to kill Ethereum in the sense that they are competing directly with Ethereum as layer one solutions one of these is Solana which is growing at a astonishing speed projects like Solana and also Binance, Smart Chain and a couple of more projects are challenging Ethereum's dominance in the DeFi space so are you not concerned that eventually Solana or another project could take on Takeover Ethereum as the leading protocol and at that point what would Polygon do is it prepared such a scenario or you just rule this scenario out of the equation? Yeah so I mean like I would still say that although the market narrative and the crypto markets actually run very much on the narratives but I don't think that this narrative is correct it's still very very early days for somebody to to be said that okay they are going to kill Ethereum right so that's my only perspective like whether it is in terms of the community whether it is in terms of the you know the distribution of the token whether it's it's in the terms of distribution of the mining power so all I'm saying is they might be doing something but give them more time give them two to three years where they are running with multi-billion dollars transacting on their chain and then you can say that okay this chain might be I would say for example Solana is you know very very early stage very very early stage with their with their validators and you know amount of activity they have amount of players the developers they have still very early stage so that's why at Polygon we are not evaluating we are like fully focused and you know we are hard time I mean very big time believers in Ethereum so right now our focus is completely on providing whatever Solana is providing or like any other protocol is providing separately we want to provide that same scalability on Ethereum got you so I can see that you are of course a long time a long-term believer in Ethereum and that's why I wanted to ask you another question which is more related to price prediction so since you are a big believer in the future of Ethereum do you see where do you see the Ethereum's price going by the end of this year for example? end of this year like short-term predictions are hard but I think like whenever this current bull cycle is ending like you know whenever this bull cycle is going to end and if Bitcoin grows to goes to $100,000 plus I think Ethereum should definitely be at $10,000 I definitely believe so and my like I've been very open on this that you know my if you see my personal portfolio I am like because I have a lot of like MATIC because of being one of the co-founders but my like that will be 80-90% MATIC and then rest other most of my non-MATIC protocol or portfolio is Ethereum only because I am I am like very strongly I strongly believe that this this would be more should be what more than $10,000 you know dollars right but in and in terms of how Bitcoin and Ethereum are going to develop do you see them co-existing peacefully or do you see some sort of competition between the two how do you see the long-term development of Ethereum and Bitcoin's relationship my opinion is that like just like internet these like layer ones like layer one protocols are going to be last man standing like it's going to be a last man standing game that means that you know either of these chains eventually in the long enough term like maybe 10 years maybe more one of these chains will survive like for layer ones so I strongly believe that they will not coexist sooner or later Ethereum is going to outpace Bitcoin and then become the global you know standard and ETH becomes the global token but you know it might take like 10 years from now not in the short end but I don't I don't see a world where multiple layer ones will exist layer twos definitely but layer ones I don't I don't think so but that's that sounds interesting because you seem to be kind of an ethereum maximalist in a sense because you say only one will remain and it will be ethereum in a way yeah but I mean I will not call myself maximalist like we at ethereum community we don't want to be anything maximalist like to be honest like we want to have like the discourse to be very you know kind of open and all that so all I'm saying is for layer ones there will be eventually one layer one which will emerge out and it can be if bitcoin has smart contracts if bitcoin is able to add smart contracts where this defi and everything can live maybe bitcoin will be that layer one but if they don't have it and they only have this payment mechanism and then ethereum most likely ethereum or some other protocol comes up and you know they have all this defi and all that and there is a native asset then all I'm saying is there will be eventually last man standing that means one layer one which will be the ultimate settlement layer and on top of which all of these subnets will be there like these sub chains will be there but but what do you think about a very unique feature that bitcoin has which is kind of inbuilt in its own essence which is the limited supply which is something that ethereum doesn't have and that's why it doesn't have the status of digital gold how can ethereum take on also this one role yeah yeah so I think like especially with this eip 1559 you see that the inflation is also like kind of getting controlled and eventually I think by 2023 the net inflation will actually started going down so ethereum will have not only fixed supply in fact a deflating supply so then then what is the response to that and also with that fixed supply I don't think that anybody or the the the kind of thinking is that this this inflation should be zero like the thinking or why I think we all are against inflation is basically inflation being introduced by these by these regulatory bodies like federal banks and all that without even consulting anyone like suddenly they're dropping or someone suddenly saying that okay we are going to put you know print six trillion dollars whereas ethereum if there is a defined like you know and and fully declared and defined inflation which is fixed right I don't think that should be a very big problem because it's it's it's it's like fairly you know that okay the the the the kind of rules of inflation how much token number of tokens extra will come out are very well codified into the blockchain level just like it is for bitcoin the difference is that okay they say 21 million fixed here we are saying okay one percent of one percent ethereum extra will come out into the market every year but I think even if some people don't agree to that that argument I would say that with eip 1559 anyways ethereum supply is going to come down so then what happens so then this argument goes for a toss for bitcoin that sounds like a fair argument but there is also another argument which a bitcoin maximalist would forward to you which is the fact that bitcoin is not controlled by any centralized entity it was built by this anonymous entity satosh nakamoto then he then he disappeared so it has more this kind of decentralized network kind of reputation so how would you respond to this argument we are in the ethereum community because we feel that sense of belongingness that sense of ownership that okay we also own ethereum right so I personally don't haven't have not felt that ethereum is kind of this centralized you know this thing and all that it's like very very decentralized even vitalik doesn't control that's why you see that even the the roadmap for each 2.0 there are multiple versions of it even now bitcoin is maybe slightly more decentralized but I don't think the difference is too big and then ethereum is like you know already extremely decentralized and it is also slowly moving towards a more and more decentralization if not already equivalent to bitcoin like to be if you ask me that bitcoin also has core developers who built these core features and all that and then other miners of course miners have the capability to either adopt those changes or new releases or not and ethereum has also the same like if there are new changes new kind of client changes people can adopt them or not adopt them it's completely their choice right so I don't see that but if some bitcoin maximist is like okay no bitcoin is more decentralized than ethereum then okay you know maybe a little bit but then eventually ethereum is reaching there awesome okay Sandeep that was a great conversation thanks a lot for joining our show yeah thank you thank you so much you honey coin telegraph like subscribe and hodl