Ethereum wallet app Argent rides DeFi wave in Asia

August 27, 2020 08:05
Matthew Wright, Head of Strategy and Operations at Argent, said the app has received positive response in Asia markets such as Hong Kong. Photo: Argent.

Decentralized finance, or DeFi in short, which refers to an ecosystem of financial applications that are built on top of blockchain networks, has taken the cryptocurrency market by storm.

While traditional finance relies on institutions such as banks to act as intermediaries, dozens of DeFi projects have emerged, claiming to recreate traditional financial services, like saving, borrowing and lending, derivatives trading, and monetary banking services, in a decentralized, permissionless architecture.

Riding on the DeFi wave, Argent, a smart crypto wallet app, has gained huge momentum, as it has grown to about HK$400 million in assets shortly after its official launch in May.

The Ethereum wallet app with a banking look enables the users to store and exchange crypto assets, without the need for memorizing seed phrases and other complicated, technical setup.

As one of its key elements, Argent is equipped with a “social recovery” service, which has been adopted in social media apps like WeChat - If you lose your password of your WeChat account, WeChat asks you to select people in your contact list within a big list of names, in the account recovery process.

In the case of Argent, users can recover his/her crypto assets with the help of his/her ‘guardians’, for example, other Argent users who he/she knows and trusts, and devices he/she owns such as hardware wallets and MetaMask accounts.

In an exclusive interview with EJ Insight, Matthew Wright, Head of Strategy and Operations at Argent, shared Argent’s vision to boost the mainstream adoption of crypto with its security and easy-to-use features.

Surprised by the overwhelming growth in Asia markets like Hong Kong, Wright also revealed Argent’s expansion plan forward, as well as the recent challenge they faced with the surge of ‘gas fees’, i.e. cost of sending a transaction on the Ethereum blockchain.

Edited excerpt:

EJ Insight: To kickstart the interview, firstly could you explain what Argent is?

Wright: Sure, so we want to be the first really easy to use and secure crypto product for a mainstream audience. For people that don't have any technical background or have any familiarity with crypto, we want them to be able to use it and enjoy the benefits of crypto as easily as they would use in the Europe a normal banking app like Revolut or Monzo, in the US something like Robinhood or Venmo.

Before Argent launched, crypto apps were all quite complicated to use. You needed to be familiar with a seed phrase, which you were usually writing down a password on a piece of paper, and it was basically too easy to lose assets and get hacked, and just very clunky user experience. And so we wanted to hide all of that in the background and just provide a very easy-to-use service.

Q: What is (are) the major difference(s) between Argent and other crypto wallet apps?

A: First of all, it is about custody for crypto. As for custodial crypto wallet apps, we can take Coinbase as an example. Coinbase is definitely easy to use, but the problem is that they control all your assets. And while Coinbase has a good reputation, a lot of custodians have proved in the past that it's very risky to leave your assets in the hands of one company. Because that company can get hacked, hackers can steal your assets and start using them.

And the other elements with Coinbase is that they are basically like a bank. Now they have billions of dollars of assets, they have to innovate quite slowly. They have to restrict quite a lot what users can do. Whereas with Argent, we give people complete control. And we give them access to other decentralized apps (DApps), so they can earn interest, invest, borrow; in the future, they can explore games, really, there's much more freedom. And, we've just made Argent as easy to use as Coinbase.

The other main difference is [between Argent and] other non-custodial wallets is, with Argent, you have one-tap access to decentralized finance (DeFi) apps. And these are projects built on Ethereum that let you earn interest, invest, borrow, as well as the basics of storage and sending [crypto] to other people securely.

And for us, there's no seed phrase, you're also protected by daily transfer limits, which automatically blocks large transfers to new addresses. So this is a bit like if your bank detected a large transfer from you to someone, its security team might block the transfer, give you a call, check if you want to make it, whereas with us, we make that all automatic. It's all blockchain based. There's no bank involved. It’s a breakthrough in the security as well as the usability of crypto.

Q: For now, how many users does Argent have? What is the user profile?

A: Since we came out of the invite-only Beta in mid-May, we've grown to about HK$400 million in assets in Argent wallets, grown by a factor of five in a few months, and it is on track for HK$1 billion by the end of the year. And we've got 30,000 downloads.

The US is our biggest market, Europe as a whole probably accounts for around half [of our user base]. We also see quite a big uptick in South America, such as Argentina, which has grown a lot in recent months, and other areas like Turkey, which is very interested in crypto.

We do have a big range [of users]. We have some people who have just been introduced to crypto for the first time, and others who have over a million dollars in their Argent accounts. But as a whole we can see that it's still quite an early adopter crowd. In the months and years ahead, we definitely want to expand to people that have never used crypto before.

Q: What about the Asia market, for example Hong Kong?

A: Hong Kong is now our seventh biggest market, we've seen a huge growth in Hong Kong, despite the app and our marketing so far only being targeted to an English-language audience.

Next year or after, we will definitely make a big push in Asia, looking to localize the app, and then hopefully one day, hiring people on the ground there, because we know it's such an enthusiastic community. [In Asia] you have always been much earlier adopters of technology than elsewhere.

Q: What would be Argent’s major focus this year?

A: I think probably the biggest challenge with Ethereum right now is that it is getting almost too busy, it means that the transaction fees have increased a lot. So these are fees paid per transaction to the miners that help secure and process the network. And it has got really quite expensive, especially for more complex transactions like those involved in decentralized finance. The issue is that it makes it a bit prohibitive to people with smaller amounts of assets.

Our mission is really to make crypto accessible to everyone, regardless of their budget. So we're working with some of the top research and development teams in this space to find ways to make what's called "layer 2" more accessible, which is infrastructure built on Ethereum that can really help the scalability, so that you can do lots and lots of transfers very cheaply, and then everything is reconciled periodically on Ethereum blockchain. That's really the priority and we'll have more to announce on that in the coming months.

Q: Regarding the transaction fee on Ethereum blockchain, we realize that Argent has released an update to its fair use policy for gas, the transaction fees on Ethereum.

A: Yes, as we announced in mid-August, we'll no longer pay the gas for all transfers in Argent. We knew when we launched Argent, that basically we wanted to make Argent the easiest, the best of non-crypto apps, just as Revolut and Monzo and Robinhood, when you send money to someone or use something, you don't have to worry about transaction fees so much. We wanted to recreate that seamless experience.

When we first started, we subsidized everything in Argent. And then we stopped subsidizing the integrated DeFi DApps, because they are much more computationally intensive than a normal transfer. But the fees have increased by over 100 times, and it got to a level where the costs just simply weren't sustainable for us.

Also, as we mentioned in the email to our users, [our subsidies on gas fees] was leading to people to not knowing if there was congestion or not, so people were trying to make a transaction of, say $2, while we were paying $20 or $30 in transaction fees, leading to congestion on everyone [on Ethereum blockchain] else, so actually it was kind of harming the community as a whole.

So we think for now the most responsible thing for the community as a whole is for us to have everyone pay-as-you-go. If we want to build a sustainable business for the long term, we decided to just stop subsidizing.

Maybe when layer 2 [solutions] becomes feasible on a large scale, and there's no risk of us making congestion worse, then we would look to subsidize transfers again, but we'll see once that technology is live and how it's being used.

Q: As we have seen that there is a surge in popularity in decentralized finance use cases, but going deep into it, what is DeFi in your view?

A: For us, decentralized finance is largely open source projects built on public blockchains, which are nearly all on Ethereum, where it's permissionless, so anyone can access them, anyone can build on them, and combine elements of those projects into others to enable new use cases. [DeFi projects] are global, there's a lot of transparency, there should be no custodian, so it's always the users in control of their funds.

Within that, there is such a big spectrum, with varied standards for their security, decentralization, and the levels of community governance. But at the most fundamental level, it's just a big breakthrough from traditional finance, where there's usually one company in complete control, the people don't have control of their money, the system is quite opaque, it's very hard to combine different projects and companies. Everything is very siloed.

DeFi is a complete breakthrough from there, it's really rethinking financial infrastructure from the ground up to be more global, interoperable, and transparent.

Q: During the heated discussion around DeFi in the crypto community, renowned Ethereum founder Vitalik Buterin recently warned against the DeFi hype. What is your take on that?

A: I think what he said is very fair and accurate. People have to be aware that this is a really early technology that some of these projects, in terms of their risk models, their economic models, and the level of complexity, you don't have the same guarantees in DeFi as you do in some financial systems. So I think people need to be aware that it's new and it’s experimental.

So we've made a big effort to make sure an easy user experience as well as security, and we're really tightly integrated so that you're protected by things like daily transfer limits. So there's things that we can do to improve security, and do a lot in terms of education, to help people make the decisions for themselves.

And across DeFi, there's a big big spectrum of risk. Something like Compound has established itself as one of the leaders in the space, and some of these new [projects], like yield farming crazes, appear within a few days, they don't have the right audit, they don't have a track record, so people should definitely be doing their own research, not rushing into things, and should definitely be aware. It shouldn't let them put off experimenting with what is a very new and exciting technology, but they should just be careful.

The other point that Vitalik said and we also believe is that as for some of these newer DeFi projects, they're really aimed at the existing hardcore DeFi audience. I think potentially a more interesting area for Ethereum and crypto as a whole, is to think about what we can build in DeFi that will attract and solve real problems for people around the world that aren't in DeFi already.

It could be something like Compound, that's global, that gives people access to a dollar savings account, even if you're in somewhere like Argentina. The more interesting challenge that we're focused on in the long term is how to solve problems for those kinds of people.

Q: Will DeFi become another bubble that is fuelled by hype and speculation?

A: We're totally confident that DeFi will be here for many years to come. It's genuinely innovative in terms of technology, business models, community participation, and finance. But within that, there are definitely projects that will fade away, there are definitely trends that will come and go very quickly.

And for Argent, we want to not get caught up in chasing every single new projects and chasing every new trends for the hardcore audience, and instead, look for more long term at, say, what are the real innovations here? How can we make those simple and safe to a mainstream audience over many years to come?

I think there's a long way to go, in terms of assets and the user base. But as for the yield farming projects that appear out of the blue, I think at the moment people are in a real frantic experimentation phase, as they're testing new models, testing new things. I don't think that will last for too long.

Q: In addition to DeFi, what do you think would be the key theme for the blockchain sector in the year?

A: Within the crypto space, I think the main focus will be on these layer 2 solutions on Ethereum, and the development of Ethereum 2.0 in the next few years. Because within crypto, I think Bitcoin will always have a role as the original project that a lot of people know and trust as the equivalent of gold, but that you can't do much with. And in terms of developer activity, new use cases, and the focus for innovation, it will be Ethereum for quite a few years to come, so Ethereum 2.0 and layer 2 could be really important.

Q: What about central bank digital currencies (CBDC)?

A: I have to say that I don't know much at all about central bank digital currencies. But with Twitter looking at more decentralization in the future, Reddit is looking at more community governance, and Facebook and Libra, and central banks with digital currency... I do think that there is a big macro shift to people realizing that there are problems with large tech monopolies, and overly centralized control over financial systems and tech companies. And that some of the aspects of blockchain-based technology can help a bit with some of those problems.

It's not going to solve every problem by any means. But there are underlying breakthroughs there that can help with some of those problems, in terms of more decentralization, more community ownership, more transparent, more globally accessible, those kinds of things.

Q: Would the emergence of CBDCs become a boost for decentralized cryptocurrencies and services like Argent?

A: This is hard to say. On one hand, central bankers getting involved in digital currency validates some elements of the idea that, at a very basic level, the digital currency is the future. But as you point out, they're rejecting some of the central tenants of decentralization.

Actually, we should be concerned about if central bank digital currencies could lead to more centralization, more surveillance, basically, and more real-time tracking of what's happening in the economy. We think that privacy is particularly important to people, and we would hope that digital currency goes down that route, rather than being to the surveillance space. But this is without speaking to a particular central bank currency, because I really haven't followed the workings of any one in particular very closely.

Q: Here we come to the final question of the interview. As you mentioned, Argent is positioning itself as the crypto of Revolut or Monzo, in a revolution against traditional finance. So, will we see Argent growing into a large corporation like those challenger banks and fintech unicorns?

A: Actually, we really don't need to be, because we're [offering] non-custodial [service], and everything is blockchain-based, we don't need to have the kind of teams like you would with Coinbase of storing everyone's assets. And we can just operate a lot leaner, than some of those traditional custodians in crypto, let alone even Monzo and Revolut, which are kind of copying the bank.

We definitely don't need to become one of those big companies. Of course, we will grow more in the years to come, in terms of engineers, designers, and customer support, which is important. I believe the customer support service can help people build trust, and give them peace of mind and reassurance as they're using some new thing. We can grow there, but we won't need the massive compliance teams and massive staffs of banks and custodians.

Q: What is the team size of Argent?

A: There are 24 of us, and we're remotely based in Europe. We've got one founder in London, two founders in Brussels, and we’ve got engineers from Belfast to Bulgaria. We really spread out, so we were lucky before [the coronavirus outbreak] that we were already working from home.

We have a very flat structure, and this actually works really well for us because people we hire tend to be more experienced. They're working from home, they're decentralized, and we really put a lot of trust in them that they know what they should be working on, how best to contribute to the team, and to really take ownership of their work. That model has worked really well.

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EJ Insight writer