LIFI Protocol AMA

LI.FI  Protocol is a decentralized cross-chain liquidity protocol that is pioneering the facilitation of asset transfers across different blockchains. The team at LI.FI is working diligently to overcome the challenges presented by the fragmentation of DeFi ecosystems. They have developed a solution that ensures seamless transactions, helping to bridge the gap between multiple chains and DeFi applications, thus ushering in a new era of interoperability. Their vision is to ensure that liquidity is never fragmented but instead is universally accessible and optimized. 

Phillip Zentner, CEO and Founder of LI.FI Protocol joined us for an AMA on May 24th.

vVv: Before we delve into the intricacies of the project, can you share a bit about your background and your first encounter with blockchain technology?

Phillip: My journey into the tech world started quite early—I began programming at the tender age of 12. This was during the emergence of the internet right before the dot com bubble burst. I’ve watched and contributed to the evolution of the web from creating CSS switches for Netscape to developing applications through different technological booms like the mobile and social media waves. Over the past decade, I’ve established and grown several companies, starting my first at 15 and a second at 17. I’ve spent the last decade primarily building B2B software services across gaming, biotech, and marketplace intelligence sectors. A constant throughout this entrepreneurial journey has been my co-founder Max. I’m extroverted and focused on business development while Max is very technical. However, we both share a deep understanding of technology, allowing for seamless communication and mitigating any management-IT gaps. This solid decade-long working relationship forms a strong foundation of trust between us.

 Our foray into the crypto space was relatively recent, starting in 2021. Given that our previous companies were data-heavy, we naturally turned our attention to blockchain throughput rates. We soon realized the scalability issues that existed with the high transaction costs confirming our suspicions. A hackathon called Scaling Ethereum organized by ETH Global further sparked our interest in the infrastructure aspect. Looking back at the catalysts of past booms like e-commerce and software as a service (SaaS), we saw companies like Stripe that aggregated different payment processors simplifying the process for web applications. We envisioned a similar aggregator for the DeFi sector that would abstract core DeFi services. Thus LI.FI was born.

vVv: It’s advantageous to work with a partner you deeply trust and share years of experience with. How did you initially meet Max?

Phillip: Our meeting is quite an unusual story. Back in 2012- 2013, our city experienced a massive flood—the largest in 500 years. As students were trying to clean up the city, I developed an app to coordinate their efforts due to a lack of organization and inefficiencies. Max, who was working at the university’s informatics faculty, saw the app and decided to rewrite it in a cleaner code within a single day. That’s when I knew he was someone I wanted to work with.

vVv: Could you explain what your platform does before we delve into the details?

Phillip: Over the past couple of years we’ve observed a growing fragmentation in blockchain technology infrastructure. Multiple chains have become relevant and these chains are splintering into more modular projects like Ethereum’s rollups, sharding, and shared settlements. We see similar trends in modular blockchains as well.

 This results in a fragmented infrastructure landscape including liquidity, which is now scattered across multiple DEXes on different chains. Furthermore, we need cross-chain bridges not only for data but also for liquidity. This fragmentation presents a significant challenge to developers who want to simplify their users’ journey and to traditional financial entities like banks or companies like Robinhood when navigating the crypto space.

 LI.FI aims to address these issues. We conduct the research to identify which infrastructure projects are safe and best to use then aggregate them on two levels. The first level is smart auto-routing. By tracking all liquidity we can offer the best route from one asset on a certain blockchain to any other asset on any other blockchain. We collaborate with all the DEX aggregators and bridge providers to find the best route across different infrastructure pieces.

 The second level involves an on-chain execution environment. Our smart contracts on each chain communicate with different infrastructure pieces enabling complex transaction sequences like swap-bridge-swap-stake within a single transaction. This powerful execution environment simplifies user experience in the increasingly multi-chain environment.

Currently LI.FI is a team of 41 serving over 100 integration partners with MetaMask being the largest through which we handle approximately 80-90% of bridging volume.

vVv: You’ve mentioned that you offer solutions for both sides including user-facing solutions and developer-facing products. Could you walk us through the different services and products that you provide?

Phillip: At its core LI.FI is a B2B company. We primarily cater to other businesses providing them with an API and SDK to use our execution environment and smart auto-routing to build more complex products. However, we also have a B2C interface. Over the course of the past three years, we’ve found that just having the multi-chain swap resolves a significant pain point for many retail investors. To cater to them we launched a platform called “Jumper Exchange.” Here we offer our widget to consumers enabling them to easily swap and bridge as necessary. The widget is a highly customizable tool allowing businesses to adjust it to match their corporate identity—be it corners, shapes, colors, font families, and more. If they don’t have the resources or time to build their own user experience around the API or SDK they can implement our widget. So while it serves as a showcase of our technology, it also addresses the needs of retail users.

vVv: To be more exact, it’s more like a template that others can implement into their own projects. But onboarding retail customers is not your main focus?

Phillip: Exactly, our primary focus has always been on the B2B sector. That’s where our expertise lies and that’s where we continue to focus our efforts.

vVv: Could you share a bit more about your internal process to keep up with the new ecosystems, bridges, and chains that pop up daily?

Phillip: It’s indeed quite a challenge. We have a dedicated internal research team of two people who keep up with new technologies and infrastructure developments. Over time, we’ve built a solid brand so we are often introduced to new projects as they emerge. For instance, over the past two to three weeks we’ve been in discussions with six to seven different chain sequencer projects. These introductions come from the projects themselves or through our investors. It’s beneficial for these projects to engage with us early for feedback and to ensure their future inclusion in our offerings. Our aim is to alleviate the pain of keeping up with infrastructure changes and we predict a continued fragmentation across the infrastructure in the foreseeable future. This fragmentation is necessary to get back to a level that matches the speed of traditional trading. For example, high-frequency trading operates on a nanosecond level while crypto trading currently operates on a second level. Bridging this gap while maintaining decentralization and censorship resistance and addressing challenges like Miner Extractable Value (MEV) will be our primary focus over the next five to ten years. We believe it’s important to have a way to build prototypes quickly and avoid getting trapped in long development cycles.

vVv: It’s great to hear about the major building blocks in your SDK, namely the swaps, cross-chain swaps, bridging, and data messaging. Besides the conventional swaps, what applications do you envision being built on top of your SDKs in the future?

Phillip: In the future, we see our SDK being used for any major DeFi transactions. This could range from transactions involving hedge funds to liquid funds, large wallets, and more. Once we see more real-world assets being tokenized, these transactions may happen on private or permissioned chains. The challenge, and at the same time the opportunity, is enormous. We see ourselves as the middleware for any crypto transactions akin to what Stripe does for credit card payments.

vVv: That’s a very ambitious goal and it’s exciting to hear. Speaking of the future of DeFi, how do you perceive the institutional space? Will they join the party?

Phillip: The institutional space is already stepping into crypto. Major financial institutions are exploring the crypto domain and the regulatory environment is becoming increasingly favorable. Across Europe, Asia, Latin America, and Africa regulations are taking shape. The US will likely follow suit. Custody is the closest business model to what banks currently do and that’s what they are exploring. I predict that there will be increasing engagement with DeFi products and we might see a trend towards permissioned liquidity pools. It will be interesting to see how this coexists with DeFi liquidity pools, especially in the context of anti-money laundering rules.

vVv: Currently, there is a lot of uncertainty in the space with many on the sidelines waiting for the regulatory environment to stabilize globally. As a founder in this space, how do you prepare for these ever-changing governmental risks and new regulations?

Phillip: Our approach involves careful market positioning and strategic product development. For instance, our non-custodial nature is an intentional design aimed at mitigating certain regulatory risks. Equally important is our ongoing communication with regulators and individuals closely linked to policy-making. We’re not only reacting to new regulations but we’re also actively trying to shape them. It’s crucial to realize that as founders it’s part of our responsibility to stay in touch with the evolving regulatory landscape and that we understand our product and the broader industry more deeply than anyone else. Therefore, it’s our duty to articulate our vision of this decentralized financial infrastructure and counter any misconceptions that it’s just a high-risk investment environment. The narrative we want to push forward is that this is a transformative development in global finance which necessitates our active involvement in guiding regulatory discussions.

vVv: Many people are drawn to this space because of the promise of decentralized solutions offering everyone access to financial instruments. However, we’ve seen some regions become blocked from certain protocols or wallets facing the reality of governmental censorship. What’s your perspective on this governmental influence?

Phillip: It’s tempting to criticize governments for such actions but remember we’re all grappling with the rapid development of this industry. Governments which are often influenced by financial institutions are expected to initially react defensively. Nonetheless, we see countries working on regulations like Europe’s MICA regulations. It’s a reasonable first step and despite the slow nature of politics we’re seeing progression. When I entered this space it was clear regulations would eventually need to tighten. China did just that and now there are rumors it’s reopening having gained a better understanding. Other countries like Japan are aggressively striving to be blockchain leaders. These dynamics are all part of the industry’s expected organic growth.

vVv: Given US dominance in Web 2.0 and their current blockchain restrictions, is there a chance for a new blockchain-centric “Silicon Valley” and where might that be?

Phillip: With Web 3.0 your geographical base isn’t as crucial as it was in the era of Web 2.0. Silicon Valley isn’t the primary hub for all emerging fields. It’s also not the top spot for biotech, AI, or blockchain despite its continued relevance. Yes, significant investments in AI still happen there but its influence isn’t as vast as it once was. Venture capital is still channeled heavily towards Silicon Valley but the funds are being spent globally. If you’re diligent, network effectively, attend events, and secure good introductions to investors, it doesn’t really matter where you’re based.

vVv: The concept of decentralized innovation across the globe is exciting. Like our team, diverse members from different cultures and time zones can participate. Can you share how your team is structured? Are they primarily based in Germany, or is it an international team?

Phillip: We are an international team currently consisting of 41 members. While we’ve tried to increase hires in Europe for efficient communication we have team members across the globe including the US, Colombia, Singapore, Japan, India, Africa, and Thailand among others. Initially, we hired globally due to the talent shortage during the bull market. While it’s a little easier to find talent now our team still remains truly global.

vVv: Could you describe the kind of professionals you’re seeking for your team?

Phillip: Our main focus is on hiring a Senior Backend Engineer and Technical Support Engineer. The latter involves understanding our technical documentation and being responsive in addressing the edge cases that emerge from our work with many third-party providers. Being able to provide good customer service and solve client problems efficiently is important. Unfortunately, as our traction increases our developers are spending more time serving clients rather than progressing on the product side. Anyone interested can find more job offerings on join.com by searching for LI.FI.

vVv: Given your broad interaction with multiple ecosystems and the responsibility that comes with it, how do you handle the challenge of ensuring security in using bridges given the high-profile bridge hacks in recent years?

Phillip: We conduct multi-tiered due diligence. We assess the team behind the project, their track record, who’s invested in them, and the reputation of those investors. We ask technical questions to understand their operations such as who can deploy contracts or push updates. We consult with the auditing companies behind these projects. We have developed a risk assessment framework with Consensus to understand the design of the bridge. We recommend users to perform their own research and our blog offers resources to aid in this process. Our API and SDK allow whitelisting or blacklisting of any third-party provider, allowing adjustments to match the risk profile.

vVv: Given the decentralized nature of your operations, how do you see the future structure of LI.Fi’s team and the due diligence process?

Phillip: Having a committee to research infrastructure will always be necessary but it can be decentralized. For instance, the Uniswap Foundation recently formed a committee to assess bridge solutions. Likewise, we’re considering whether to move towards message aggregation where a message is sent across multiple bridges and only proceeds if it hasn’t been manipulated. While we see potential for decentralizing our organization it’s not a short-term plan.

vVv: Could you share insights about the importance of selecting the right investors during your recent Series A funding round?

Phillip: Signal is important in the investor selection process. Principally, the signaling effect of established funds that have invested in successful companies usually has a good track record. Strategically positioned investors who can assist in future growth strategies are equally important. We’ve collaborated closely with our investors and utilized their networks and advice. We had a strategic cap table from the beginning and our investors have proactively introduced us to new projects. As we shift focus from DeFi to traditional finance (TradFi) due to better monetization opportunities, we have chosen investors like CoinFund with a background in TradFi and Superscrypt, the new venture arm of Temasek.

vVv: Considering you’re a B2B project, how significant is the community aspect to your platform?

Phillip: Community is very important for us. It’s not just about attracting developers and clients, it’s also about attracting talent. A large community is a byproduct of good market positioning and providing value. We offer value through the products we build and the content we share. The community is what drives us forward in this industry.

vVv: Could you let us know which ecosystems you currently support and to which blockchains we can bridge on LI.FI?

Phillip: LI.FI currently supports about 20 different Ethereum Virtual Machine (EVM) compatible chains including both major and smaller ones. In the near future, we’re planning to expand our support to non-EVM chains such as Solana and Cosmos. We’re also planning on supporting both native and wrapped Bitcoin. This will allow users to seamlessly move these assets across different ecosystems further enhancing the interoperability and usability of our platform.

vVv: What are the benefits of using LI.FI compared to existing platforms like 1inch?

Phillip: LI.FI operates as a multi-chain aggregator which sets it apart from existing platforms such as 1inch. This functionality is a significant advantage for users as it allows them to obtain the best possible transaction outcomes across multiple chains and platforms. In contrast, DEX aggregators like 1inch only aggregate across decentralized exchanges (DEXs). LI.FI provides a more comprehensive service by comparing the best prices from multiple DEX aggregators including 1Inch, 0x, PowerSwap, Matcha, and DODO among others while communicating with many bridge providers. This ability to compare across multiple aggregators and chains means that LI.FI can secure the best possible price for users irrespective of where that might be found.

Moreover LI.FI can execute swap and bridge operations in a single transaction. This feature is not only convenient but also saves a significant amount of gas which is an important consideration for DeFi users given the high transaction costs on some blockchains. Additionally LI.FI’s commitment to simplifying the user experience is evident in the design of our interface which is designed to be intuitive and user-friendly. This way even those who are relatively new to DeFi can easily navigate the platform and execute their transactions with confidence. In essence, LI.FI goes beyond the services offered by a standard DEX aggregator making it a powerful tool for users seeking to maximize the benefits of DeFi while minimizing the associated costs and complexities.

vVv: Could you tell us about the future plans of LI.FI and any exciting milestones coming up?

Phillip: Our next milestones involve implementing bridges to new ecosystems. Since these ecosystems are non-EVM, like Solana, it will take additional audits and overhead. This year we are focusing on implementing new bridges and ecosystems, optimizing smart contracts, enhancing our API performance and reliability, and utilizing the data we collect to improve our product and user experience.

vVv: What do you think are the biggest hurdles in attracting the Web 2.0 masses to crypto?

Phillip: There are several challenges. One is the need for a safe regulatory environment that can encourage companies to get involved. The other is scalability, as the speed at which high-frequency trading is done in traditional finance is far superior to crypto. Other issues include the reliability of the ecosystem, high transaction costs, lack of deep liquidity, and Miner Extractable Value (MEV) concerns. Additionally, the user experience needs to improve with more emphasis on network and account abstraction and automation. It’s a rapidly evolving space but it will take time for these issues to be fully addressed.

vVv: Would you like to offer any closing words?

Phillip: Always stay in a continuous learning mode. Continuously update yourself about the developments and advancements in the field. The world of technology, especially in this sector is incredibly exciting. The deeper your understanding, the easier it will be to grasp new concepts and ideas. I too, am constantly catching up with so many things. Apart from investing, remember to appreciate the developments we’re making. Education is paramount. You need to educate yourself to be able to educate your peers, your friends, and your family and tell them what we’re doing.

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