The Future of On-Chain Lending and RWA's with Mystic Finance

GM GM. Welcome to another fantastic episode of DevNTell. So if you didn't know, DevNTell is a 30-minute podcast held every week, allowing founders, hackers, and anyone in between the opportunity to come on the podcast and showcase what they've built. And today, I'm ecstatic to welcome João Moreira, who is the founder and CEO of Mystic Finance. So if you didn't know, Mystic is a lending market for tokenized real-world assets, which focuses on the best of RWAs to maximize their use in DeFi. So if you stick around for today's episode, you'll get to meet João, learn all about Mystic and what they're up to now, and how you can get started using them today. All right, let's get into it.

Sorry, I was on mute. GM GM. Welcome to the show, João. I'm ecstatic to have you on, man. GM Narb. Nice to meet you, man. And yeah, it's great to be here. Thanks for the invite. It's a pleasure to be at DevNTell. Yeah, it's a pleasure to have you. So before we get into all the great things about Mystic Finance, would you just like to give an introduction about yourself if folks aren't familiar?

Yeah, I appreciate it. I guess I will start with the fact that I am a huge Lord of the Rings fan, so I appreciate your background and you shouting out the culture for the Web3 user base and developer base, that is. So let's hope we do some non-grim stuff in this episode. Yeah, so guys, my name is João, right? I'm from Lisbon, Portugal. I have a background mostly in sales and tech, mostly software as a service, actually. So I created an AI startup back in 2020. Then I went into private equity for SaaS businesses, where I ultimately became CEO for a SaaS business we had bought from another founder, so we were like buy-side after they exited. And around 2022, I started playing around with, 2021 let's say, with crypto as a user and really got into the NFT craze at the time, which was my entry-level drug, I guess. And from there, I really started getting into it. I always looked at it as an interesting builder opportunity, like I've always wanted to build products and have my own thing going on. So even though I was using it as a user at the time, it was always in the back of my mind how I can leverage this technology to build something cool and what problems am I finding. At the time, what happened was we couldn't, completely different than what we're doing now, but I couldn't do like a swap of an NFT for another, like an OTC swap. And yeah, it had to go through a moderator, this kind of very OTC thing. And I wound up developing like an NFT OTC desk ultimately, and that was kind of my first product in crypto. And from that, I was hooked and I've been building stuff in crypto ever since. And nowadays, what we do couldn't be more different than that, but I guess it was what I needed to get started.

Amazing, man. And are you a self-taught developer, or did you kind of pick it up here and there as you were kind of jumping into crypto?

Yeah, good question. In my first startup back in 2020, there were two of us. It was pre-LLM era, so no fast-tracking our way around it. We had to teach ourselves how to code to build the MVP. It was garbage, to say the least, hope my then co-founder doesn't listen to this episode. And we, yeah, ultimately, I taught myself how to code then. To get slightly better, I then did like a mobile app for charitable donations, like a lifestyle project, really more than a business. And now at Mystic, I've actually gone ahead and removed myself from developing almost entirely, and I let the team handle that because I think I'm, even though I know it, I'm not great at it. I think you've kind of got to double down where you can create leverage. And the rest of the team is so much better than me, there's just no point in me doing it. So I'll just do the BD, everything else, and someone's got to do it, right? If it stays in your mind, it's not enough. So yeah, I think that's part of the journey.

Amazing. Yeah, man. You've got to do what you've got to do to get your product out there. And I mean, you did the heavy lifting, you did it the so-called old-school style, getting your hands dirty and learning to code, so that's good to hear. And you mentioned that you kind of come from a background in finance. So I guess for people who aren't familiar, and to kind of set the scene for the rest of this episode, what are some of the major challenges and hurdles that you experienced? I mean, other than your actual user experience with doing on-chain lending and whatnot, what are some of the bigger challenges in your mind around on-chain lending that really motivated you to start Mystic Finance?

Yeah, great question. So again, maybe setting the scene again for my setting the scene. At the time, we were really doing NFT stuff. We then pivoted into like gaming NFT marketplace infrastructure. But as long as I did NFT-based technology, we were really ultimately leveraged on NFT valuations, NFT market, and that really just didn't have the outcome we thought of. And then I kind of took a step back early 2024 and thought, I'm really not building on fundamentals. I should be more first-principles about how I go. And I guess I was chasing fads without even realizing it, really. And so I thought, okay, let's take a step back. What's really going to exist in 10 years, and what is going to be the backbone of blockchain activity over the next 5-10 years? And we concluded it is going to be, lending is not the killer use case, but it's definitely one of them, right? And credit as a whole, obviously, is a huge component of the financial fabric of the world. And we thought tokenization RWAs were going to be the next big PMF in crypto beyond stablecoins, which obviously have been on a tear for the past couple of years. And I think that looking at RWAs in early 2024 and where they are now has really happened in a way, or those assumptions have kind of played out correctly. Like RWA TVL has completely exploded from like 5 billion to 35 billion. It's clearly a lending game, so to speak. So it is a game of leveraging these financial products and getting them to be modularly used in DeFi. And so it was with that outlook on things that we started building Mystic, like there will be an opportunity at this intersection. What then happened for us was we met this chain called Plume, who is doing a Layer 1 for RWAs. We kind of wound up committing to building the native lending market on Plume. And at the time, there was really no instance of RWA-backed lending on-chain. I mean, you had the initial guys, the squad that kind of pioneered things like Centrifuge and Goldfinch and Maple, arguably, the guys that really had done the first few steps of taking private credit on-chain. But you didn't have like the more native modular ecosystem that you're seeing now with stuff like Pareto and Securitize and I think the industry is really taking a huge next step in that regard. All you had at the time was Flux Finance from Ondo, which was a more DeFi-native interpretation of RWA lending. Because RWA lending, what is that? Just loans against anything that is not natively digital, right? And so that is fairly broad. We were looking at it more from this DeFi-native interpretation. And so because of that, we were concluding, okay, there's a big opportunity here, but we need to learn more about what the problems of onboarding these assets, which are intrinsically different, are going to look like. And so we committed to build with Plume and work in that ecosystem. And Mystic is still live on Plume to this day, a year and a half or maybe two years. And we wound up meeting Morpho along the way and building on the Morpho stack. We ultimately became the front end for Morpho on Plume and now more chains after that. And it was in that process that we wound up concluding that the problem with RWAs and lending was actually more of a secondary market liquidity problem than a lending infrastructure problem. This might not be the right wording, because there's definitely a problem in lending infrastructure. I guess it's maybe better phrased that we thought our team was best poised to solve the secondary market liquidity problem, because there's big network effects in lending that apps like Morpho already solved, and Euler and Aave. And we just really looked at it as, can we do something 10x over these guys for RWAs? And we ultimately were like, we maybe can't, truthfully. But we really know that there's going to be the secondary liquidity problem now that it's not their business at all, and there's nothing here. And because we were, again, Plume's focus on RWAs, because we were the lending market, we were ultimately the Morpho instance most focused on RWAs at the time, we kind of concluded we were just very early to understanding the secondary market liquidity problem. And so we, I wouldn't say it's a pivot, but we kind of started focusing more the vision on that ultimately. It's still a Mystic product, which is a solution for RWA secondary markets, which ultimately act as an enabler to on-chain lending. And so I'm answering your question in a very roundabout way, which is to say, we did find problems in on-chain lending, which are secondary markets, and maybe just explaining what that is a bit better, double-clicking on that concept. It's the fact that usually when you have a liquidation in a lending market, you will liquidate it by flash loan plus swapping the collateral. So you borrow from the lending market, you pay off the debt in the lending market, and then you use the DEX for swapping collateral for borrow asset, right? And ultimately, that's dependent on AMM liquidity to do these liquidations. The fact of the matter is, that's really not possible in RWAs because they're more fragmented, they're regulated, first and foremost. So you're not really going to have the same AMM liquidity, or I would even rephrase to any AMM liquidity. I think you look at most securities nowadays and they don't have any AMM liquidity to speak of. It's not an AMM game. Also because most of them have redemption features because they're tokenized funds, you can get your stables back one way or the other. And the existence of these redemption features also kind of makes it so that you can always redeem, right? Again, as I said earlier, it's a lending game, so to speak. If you're an issuer, you're better off focusing on getting a lot of lending TVL and ballooning your AUM versus spending the equivalent incentives on secondary liquidity when you already have redemptions, which LSTs have as well, but it's a slightly different dynamic, I think. Also because, again, of the regulatory aspect, and the fact that a lot of assets are permissioned, it kind of changes the dynamic. And so again, the problem we wound up realizing is we need to be able to liquidate these assets predictably, otherwise you can't onboard them as collateral in lending. That was ultimately the problem we found that we were experiencing on Plume. We were having difficulties scaling our Morpho vaults unless we could find predictable liquidation paths. And so we kind of embarked on this journey to build these predictable liquidation paths, these secondary markets, and that's what we've been working on ever since.

Amazing. Amazing and I think it's interesting for me to see so many teams working on RWAs now, like this season, this year on DevNTell, we've had I think at least four or five different teams come on and they're all working on RWAs in one way, shape, or form. I guess in your mind, has there been any particular change from like the regulatory side or anything that kind of has attributed to this like big gold rush, so to speak, of everyone building on RWAs?

Yes, interesting to hear. Yeah, I mean, from my perspective, I think you have a combination of aspects like the more crypto-friendly regulatory environment in the US, which I think facilitates institutional appetite for crypto. That's definitely one. I think that regulatory clarity helps this intersection or this, pardon me, this overlap happen. I think you also saw something that was different, which is for the longest time we thought institutions coming on-chain meant they buying our bags, so to speak. I think you kind of realized that what you're seeing now is actually the opposite, it's us buying their bags. Like they're using crypto as a distribution channel and they can distribute off-chain products to an on-chain user base. And for them, that's good, right? It's just increasing AUM, they have less regulatory oversight because they can work with these partners like Securitize, for example, or other issuers that help them come on-chain. And I think that change in perspective helps a lot. Obviously, you have the first example I gave also, right? You have that and you're seeing these worlds merge even from they buying our bags perspective. But I think that native issuance on-chain of off-chain products and the diversification of the underlying yield that that brings really helps. If I'm answering your question also very directly, when US Treasury bill yields went up to 5% or 4-something percent, that really accelerated the RWA space by I think four years, three years, five years because suddenly it was a great idea to hold T-bills on-chain and it became really competitive with on-chain yields, whereas before RWAs were just getting crushed by on-chain yields. So when that was a reality, it was going to be very hard to justify to a natively on-chain user base to hold RWAs. They're not familiar with it, they don't know how to underwrite it, there's kind of no reason. When suddenly it becomes competitive, the regulatory clarity is better, and you're starting to see genuine demand for it, then it starts becoming like, okay, now let's fill this and let's start to do this. And I think all things combined mean you're starting to see a Web2 user base that's interested, a Web3 user base that's interested in having these on, and yeah, it's really great to see because when I first joined crypto we would never shut up about the time the industry would get to this point, if you were around you'll remember shortly, and it's great to see it happening now, basically.

100% I agree and on my timeline I'm like every day I'm seeing something about oh hey, like Nasdaq wants to start messing around with tokenized securities and operating 24/7, Coinbase offering securities, on-chain securities of stocks and whatnot. So yeah, it's certainly the floodgates have opened and yeah, I share your same sentiment like I remember early in 2021, that's when I got into crypto and Web3, it's like everyone was saying oh yeah, this is the dream, like we're going to get there eventually and now we're here, so we'll see how it continues to play out. But I guess reeling it back into Mystic itself, I want to kind of paint the picture for kind of two sides of the coin in terms of the users of Mystic. So for the everyday user of Mystic Finance, what features can they expect to see on the platform?

Yeah, I appreciate it. So there's kind of two worlds to our product. One is mysticfinance.xyz, which is ultimately this secondary UI for Morpho, which has the same features Morpho has. You can supply on the app, borrow on the app, leverage on the app, see the same kind of lending and borrow analytics that you could. Fairly simple app but actually works really well on emerging chains where Morpho doesn't want to come, there needs to be a player like this. And we've kind of found this pocket where we work really well and that has active users pretty much every single minute and we have good feedback, so that's worked well. This RWA-focused product that we've been mentioning, that one's going to live in a separate domain called Octarine Finance, O-C-T-E-R-I-N-E finance, Octarine. And ultimately, that UX is going to be a DEX UX of just, right, swap, which ultimately enables users to swap RWAs for stablecoins immediately. And this is the product that ultimately solves that secondary market liquidity problem I mentioned earlier. So what we do there is we ultimately auction with LPs requests of users that don't want to wait the redemption time of an asset. And LPs that are comfortable underwriting that duration risk effectively, or in other words, they're comfortable waiting that period in return of the user, they will buy the user's asset at a premium, redeem it themselves, and pocket a premium in the process. So ultimately, it enables RWA holders to get out immediately, aka creating a secondary market for them. And it gives LPs that are comfortable underwriting these assets access to this pretty unique deal flow of users that ultimately mean, ultimately are okay selling them at a slight discount, right? And so that's going to market very soon, hopefully in the next three to four weeks. And that's our V1 for Octarine. Our V2, which we're really excited about, is infrastructure for anyone to create instant liquidity facilities, which means issuers, curators, protocols can themselves stand up vaults that act as secondary market liquidity themselves. And yeah, we think that really plays to our strengths of building curator infrastructure, of all the understanding and experience we have now in the RWA space. And I think that's the final form of our builder journey, hopefully. But I guess more experienced people than me will tell you that there's probably no end, you just keep on finding more stuff to do. But if so, that will be our next thing to do.

Awesome. And yeah, that sounds all super exciting and yeah, I mean, it'd be awesome for some of our users or some of our viewers today to become Mystic users after they go play around, see what's up. And I guess for the other side of the coin, for our developers in the audience, we are a developer show, you kind of touched on it on the infra side, but is there any other SDKs, APIs, or anything top of mind that you think might be exciting for developers to kind of poke into to plug in Mystic into their apps?

Yeah, absolutely. I guess I would kind of subdivide it into two things. For Mystic, the Morpho-based app, if you're building lending experiences on emerging chains, I mean, we've frequently had requests for APIs, for our API to be able to access lending information so people can build their own lending experiences on these chains, whether it's a liquidation bot or it's an LP that wants to track positions more accurately, right? So that's been a recurring topic. So for any developer building lending apps on emerging EVM chains, we're happy to work with you guys in that regard. Completely open public infrastructure. And then on Octarine, the RWA instant liquidity facility, I guess that one is more interesting for users interested in adding support for RWA secondary markets in their protocols, in their apps. Perfect example is you already have a lending market, you want to enable RWA secondary market liquidity, we come in as a plugin almost to make that happen. And we're very interested in working with everyone, with anyone working on lending right now and anyone working on even DEXes to ultimately collaborate, because our product is intrinsically collaborative. We want to work with people that have done DeFi primitives so they can stand up their own RWA secondary markets, right? So that they can onboard RWAs as collateral. That is ultimately the objective, is let an RWA lending market self-service solve the secondary market problem.

Awesome. And yeah, I mean, all the docs are in the description of this podcast, so if you're a developer interested in getting your hands dirty in lending markets, definitely check that out. And I guess, I mean, you kind of said it the last couple of questions worth, but in a succinct way, how would you say Mystic Finance compares to the competition out there? What's your secret sauce that kind of gives you the edge on the competition?

Yeah, sure. I'll focus more on Octarine on this one, which I think is more innovative, really, and ultimately a better fit for this question. I guess it's again we're solving the problem of RWA secondary market liquidity, which begs the question of the way you source that secondary market liquidity ultimately is the product, almost, right? And we're seeing the competition really source it, well, in different ways. I guess what I want to say is that we are the only ones sourcing it fully on-chain. So we're going for a fully DeFi-based approach, very modular with other protocols. We're really trying to build a Lego piece that fits into the rest of the ecosystem, whereas I would say that competitors are taking a more maybe monolithic approach, right, that is more focused on them standing up their own facility, right? And again, I guess the comparison I would make is between someone standing up their own facility and us who are making infrastructure for others to create their own facilities. So that's kind of how we see ourselves and how we perceive ourselves versus the competition. Will it work? I don't know, hopefully. But that's the game, right? But yeah, that's it. I hope that answers your question.

It does, it does. And yeah, indeed, it's all part of the game. You don't know until you try. And I guess on this topic in itself, kind of to take it a little high level, as a founder yourself, I'm sure you've gone through a bunch of different learning lessons and whatnot throughout the years. For the people watching today who might be on the cusp of starting their own company today, or maybe on the fence of doing so, what's some key pieces of advice that you want to give to them? Maybe it's advice you'd want to give to your younger self before you started Mystic Finance and all?

Yeah, good question as well. I think you really, my input would really be to do what I did not do before, which is think of first principles, right? Do you think the direction where we're headed, or what do you think will be real 5-10 years from now and what underpins that reality? Are those things going to remain real? And if so, and if you believe in them, that's where you should be placing your bets, right, not on what's making noise right now or what you think's going to make noise 3-6 months from now. That's such an easy mistake to make in crypto because things change all the time, so it's very easy for you to like follow some noise you found or some shiny object you thought was cool and like then you're like off on this tangent and it's something that's going to die in and that has nothing to do with your conviction, right? So I think if you're retail, I mean, and if you're looking at where the industry's going and if you take this lens, this is also a lens that doesn't really look at price that much because you're thinking long-term horizon. Now obviously this assumes price follows value, which in crypto is very questionable, but in the assumption that it does and that we're speaking of value, I think you should follow really think hard on that and place your bets accordingly. So on the tokenization example, you're seeing institutions understand the blockchain's better technological rails for their assets. It's better financial plumbing ultimately. And if that's a fact, then you will see this explosion of RWA TVL and you will see institutions coming on-chain and adapting to technology, now if it's private, if it's public, whatever. But you now you start to build on top of that, but you start with a really base assumption of is this work, is this better, how, where? Something can be said for any industry here, so right, prediction markets, memecoins, arguably, right? So there's something for everyone in there, but there will be an underlying assumption for everyone. So I wouldn't be so focused on the now, focus on the later, and think of the assumptions that are real now that will ultimately predict the later and act accordingly, really. So yeah, again, that's what from my history I didn't do and I'm trying to do now, and also think makes it healthy for you because you're following your conviction, you're not acting on impulse and again that makes you more resilient.

Beautifully said. And yeah, I 100% agree and I love that quote. I mean, it's like you have to fail a bunch of times before you succeed and eventually hard work finds luck. So definitely you need to keep taking those shots, eventually one of them will hit the net and you'll succeed. And I guess kind of to touch on the sentiment of the market a bit, we're kind of in this weird bearish state, at least from like the consumer side. I don't really see it from the builder side, and you touched on it earlier on, there's lots of institutions that want to basically tokenize all the things, right, and get into stables and whatnot. I guess for the doubters out there who are like ah, no, this DeFi thing isn't going to be a thing, I guess what would be your response to that? I guess words of encouragement.

I like that question. Yeah, I mean if I could follow the advice I'm about to give, I'd be a happier man for it, I think. I mean ultimately your success is completely correlated to your resilience. You need to stay in the market long enough to quote-unquote be lucky and find the right opportunity. And that in my eyes means you can't be looking at the opportunity cost. Like if you're building in crypto, if you're capable of launching and having success on your own product, there's probably going to be a company elsewhere that's going to pay you a better salary than you're earning doing that for your talent. And that means if you're always thinking oh this is not working when I could be working at XYZ earning A, B, and C dollars, I mean I don't think that's the right frame of mind, right? You should think of yourself as a missionary, not a mercenary, right? You're doing this because you really want to do it and there is no money to substitute that want. And once you do that, you're quote-unquote free to just build away, so to speak. Obviously, I mean there's real-world constraints, you need to have money, etc., right, that's not what I mean, but just not constantly being focused on the opportunity cost and more focused on the upside is healthier and leads to you being resilient, and you being resilient leads to you staying in the market and ultimately staying in the market, you increase your, a friend of mine, a founder friend of mine has this expression I really like, which is your surface area of luck, something like that, which is just the amount of shots on goal you can make, you'll eventually get lucky on one of them and you really only need to get lucky once. And so that's really it, right? You've got to be resilient and maybe a secondary one is like just build alongside people you like to work with and don't do the journey by yourself, plus now with AI it's so easy to do that, right? But it's ultimately just 50 times tougher. So you know, just find people you like to work with and build a team and be resilient and hopefully it will work itself out.

Beautifully said and yeah I 100% agree and I love that quote. I mean it's like you have to fail a bunch of times before you succeed and eventually hard work finds luck. So definitely you need to keep taking those shots, eventually one of them will hit the net and you'll succeed. And I guess kind of to touch on the sentiment of the market a bit, we're kind of in this weird bearish state, at least from like the consumer side. I don't really see it from the builder side and you touched on it earlier on there's lots of institutions that want to basically tokenize all the things, right, and get into stables and whatnot. I guess for the doubters out there who are like ah, no, this DeFi thing isn't going to be a thing, I guess what would be your response to that? I guess words of encouragement.

Yeah, absolutely. Good question as well. I think you really, my input would really be to do what I did not do before, which is think of first principles, right? Do you think the direction where we're headed, or what do you think will be real 5-10 years from now and what underpins that reality? Are those things going to remain real? And if so, and if you believe in them, that's where you should be placing your bets, right, not on what's making noise right now or what you think's going to make noise 3-6 months from now. That's such an easy mistake to make in crypto because things change all the time, so it's very easy for you to like follow some noise you found or some shiny object you thought was cool and like then you're like off on this tangent and it's something that's going to die like in and that has nothing to do with your conviction, right? So I think if you're retail, I mean, and if you're looking at where the industry's going and if you take this lens, this is also a lens that doesn't really look at price that much because you're thinking long-term horizon. Now obviously this assumes price follows value, which in crypto is very questionable, but in the assumption that it does and that we're speaking of value, I think you should follow like really think hard on that and place your bets accordingly. So on the tokenization example, you're seeing institutions understand the blockchain's better technological rails for their assets. It's better financial plumbing ultimately. And if that's a fact, then you will see this explosion of RWA TVL and you will see institutions coming on-chain and adapting to technology, now if it's private, if it's public, whatever. But now you start to build on top of that and you start with a really base assumption of is this work, is this better, how, where? Something can be said for any industry here, right? Prediction markets, memecoins, arguably, right? So there's something for everyone in there, but there will be an underlying assumption for everyone. So I wouldn't be so focused on the now, focus more on the later, and think of the assumptions that are real now that will ultimately predict the later and act accordingly, really. So yeah, again, that's what from my history I didn't do and I'm trying to do now, and also think makes it healthy for you because you're following your conviction, you're not acting on impulse and again that makes you more resilient.

Love it. Love it. Yeah, well said. I completely agree. And as we're coming to time here, one last question for you. For the folks that are watching us today or listening, what's the best way for them to follow all the progress of Mystic Finance, Octarine, and yeah, generally how to keep up to date with all the things? Yeah, appreciate the question. Follow me on X @itskelmat, I-T-S-K-E-L-M-A-T. Follow us on Mystic @mystic_finance. This is all X. And follow us on Octarine @Octarinefi on X. That one's soon to launch over the coming months, so keep an eye out. Otherwise, if you're interested in building in RWAs, if you're interested in building in on-chain lending, or if you just want to talk startups and crypto in general, I'm always here. So yeah, that's it. Narb. Sweetie. Love it.

Yeah, likewise, João. Thank you so much for taking the time out of your busy day to come chat with us today. And yeah, definitely looking forward to seeing all the amazing things that you mentioned kind of come to fruition. We'll be keeping an eye out. And I guess with that, I just want to wish everybody a very happy Tuesday or Wednesday, wherever you may be, and we'll catch you back here Thursday for another episode of DevNTell. All right-o, till then, have a good one. Cheers. Have a good one. Thanks for the invite, Narb. Of course, no problem. See ya. Take care. See you.