Who Owns Risk? Pricing the Risk in DeFi with Marko Zelman

[00:00:04] [SPEAKER_01] This is the Crypto Hipster Podcast. This is not a traditional interview show. These are perspective-driven conversations with founders, builders, and independent creators shaping what comes next.

[00:00:26] [SPEAKER_01] We go beyond headlines, beyond hype, and beyond price to explore ownership, freedom, and opportunity in the digital economy where builders talk freedom, not price.

[00:00:47] [SPEAKER_01] Hello and welcome back to the Crypto Hipster Podcast. This is your host, Jamil Hasan. Today, I am joined by Marko Zelman, who is the co-founder of Tapir Protocol, a DeFi protocol that's creating a market around DPEG risk.

[00:01:05] [SPEAKER_01] Now, Marko has been in crypto for more than a decade with a journey that's taken him through hackathons, liquid staking, Ethereum infrastructure, Solana, and ultimately founding Tapir. But today, I want to start before Tapir and understand the journey that brought him here today. Marko, welcome to Crypto Hipster Podcast.

[00:01:30] [SPEAKER_00] Yeah, thank you for having me.

[00:01:33] [SPEAKER_01] You're very welcome. So, before you became a builder, before you joined Crypto, who were you?

[00:01:41] [SPEAKER_00] Before I joined Crypto, I was doing a couple of things, but my main thing, my main gig, I was running e-commerce business. Basically, I had an e-commerce brand that I was developing. Before that, we were doing import-export business as well. So, my background is basically running a small business with physical products.

[00:02:12] [SPEAKER_00] But before that, I have done master's thesis in finance and a special type of financial derivatives. And my background is in finance. Then, basically, I jumped into working on my own business while I was looking for opportunities in crypto. And yeah, that's basically how I came to crypto.

[00:02:39] [SPEAKER_01] So, back in 2015, crypto did not have any derivatives. Okay? We had Ethereum and Bitcoin. So, what happened in 2015 that said, okay, I'm going from derivatives to crypto?

[00:02:53] [SPEAKER_00] No, actually, my journey was a bit more complicated. I was working, I was very excited about crypto in 2015. And I started working in one startup. I worked there just for a couple of months. It didn't go anywhere. And after that, I didn't see, you know, I didn't, I wasn't necessarily technical. I had the financial background, but I didn't know how to code back then.

[00:03:22] [SPEAKER_00] So, I was looking also at other opportunities. I always had crypto in the back of my mind. But then, I started, basically, my e-commerce business. Yeah. And I was really excited about that. I was building that for two, three, four years. But I always, you know, having my eye on crypto.

[00:03:46] [SPEAKER_00] And, basically, long story short is, in 2020, I made the leap. I basically sold my e-commerce business. And I decided to go full-time into crypto. So, that's, like, my before crypto story.

[00:04:03] [SPEAKER_01] Got it. So, you're going, 2020, 2021, we're COVID, right? You went from participating in crypto, be interested in the market, to going to actual ETH global hackathons. So, what was that experience like going to the hackathons? Especially during that time.

[00:04:21] [SPEAKER_00] Yeah, it was very exciting. It was very exciting times. You know, back then, like, the DeFi use case, what's really the biggest thing out there? There weren't any, I mean, there were some NFTs. But for me, that was kind of the main thing I was really focused on. There was really a lot of energy, a lot of things getting built in the hackathons. And I thought it was a great way, a great opportunity,

[00:04:51] [SPEAKER_00] how to get to know other crypto founders, people who want to work in crypto, and basically see around, see what I can build. Yeah, and hackathons were a great way to do that.

[00:05:08] [SPEAKER_01] Great. So, I'm trying to think of what's, like, there's a big difference between owning crypto, being interested in it, and actually building and learning how to code. So, you had to cross the line somewhere to be able to say, okay, I want to learn how to code, I want to learn how to build. Like, what was that moment then for you? I mean, what was, how did you decide to do that?

[00:05:29] [SPEAKER_00] Yeah, it wasn't hard for me. For me, I always love new challenges. I like to learn new things. I just love the process of learning itself. So, yeah, I basically decided to, you know, go through the tutorials. I have learned myself to code with the help of other people on the hackathons, et cetera, et cetera. But I have to say, my main expertise was in coding.

[00:05:58] [SPEAKER_00] I did do some coding. It was mainly designing the protocols, making sure the mechanism design and how they are built and structured makes sense. So, more like the technical design of the protocols themselves. Yes, that was kind of the main thing, my main role I had in the project. And yeah, I just picked up some coding

[00:06:26] [SPEAKER_00] to enable myself to work on projects.

[00:06:32] [SPEAKER_01] Got it. So, I don't remember the name of the man who I interviewed. I interviewed somebody at Marinade back in 2024, I think. But I know, I don't want to get buried in the Marinade history, but I know you were working on liquid staking very early on in Salinas development, right? Yeah, yeah. So, what did you learn there about the relationship between, you know,

[00:07:00] [SPEAKER_01] yield, liquidity, and risk that brought you forward to today?

[00:07:07] [SPEAKER_00] Yeah. I was involved in many staking protocols and with Marinade, I basically co-founded it. But then, basically, early on, we won a hackathon. We won a third place of one of the earliest hackathons. We got the initial funding, but then I decided to leave the team and pursue other paths in Ethereum space.

[00:07:37] [SPEAKER_00] And what I learned around the risk and the staking, I mean, crypto doesn't, I don't want to say it doesn't bring anything new to the table, but regarding the risk, it usually is true, not always, but usually it's true that with high risk, you get higher yield. So, that thing kind of stays the same. Staking, any kind of staking,

[00:08:06] [SPEAKER_00] the native staking, like staking Sol on Solana or ETH on Ethereum is kind of the lowest, the lowest risk yield you can get. You can compare it to having the risk-free yields on US dollars, similar to T-bills. So, yeah, but the superpower of staking itself is that you can have

[00:08:35] [SPEAKER_00] your staking liquid and always on hand. You can have a token that basically represents your position, which is a big unlock compared to traditional finance, for example. So, that's one of the things that's kind of unique. Yeah. And I think...

[00:08:55] [SPEAKER_01] So, we're talking 2022 timeframe. 2022 is something important happened. Well, something huge happened and that was the implosion of the entire market because of Terra Luna and because of Celsius and, you know, and you moved into the SSV network. So, there's a difference between understanding risk intellectually and actually understanding risk like through experience and stress, right? So, what's the difference and what did you learn by watching the systems behave the way they did?

[00:09:24] [SPEAKER_00] Yeah. I mean, what I learned is, you know, like me personally that you always kind of need to be prepared for the worst while hoping for the best and even like investing is very easy on the paper. You know, like buy when everything is low and sell when everything is high but psychologically it's very difficult. I mean, that's the part, that's the difficult one, right?

[00:09:55] [SPEAKER_00] You know, when everything is down, everybody is saying that, you know, we've been through it. We have been in crypto in some time. We've been through these cycles for some time and even I know that, you know, it's going to be better eventually. I still go through the same emotions as everybody else, you know, just being depressed when the prices are down, you know, and just being in the bad mood and for me, what I think makes sense is like always, you know,

[00:10:24] [SPEAKER_00] have something on the side, make sure you can get through the rainy days so you are not the fourth seller. That's kind of the main thing and also, if you can, just protect the downside and being able to protect the downside in any kind of investment and in crypto is, it's especially important and especially missing that's the important part because it's a, it's a young market because of its history, you know,

[00:10:53] [SPEAKER_00] being full of DGens and how it came out to be. So yeah, that's how I think about it in general.

[00:11:02] [SPEAKER_01] So you went from being a technologist to being a risk manager. It wasn't somebody thinking about risk. So was there a moment where you thought, okay, I'm going to get into the tap here. Like, you said there's an enormous amount of capital out there and DeFi does have an enormous amount of capital and it's sitting there either in the order or sitting on the sidelines, right? But we still haven't figured out a good way to pay, to price the risk, right? Like, how did you look at the market and say, okay,

[00:11:32] [SPEAKER_01] let's figure this out. Let's start tap here and how did Tapir here become to what it is today?

[00:11:39] [SPEAKER_00] Yeah, basically, even while working on the staking where I was one of the main contributors for the SSV network DAO, I developed the DAO control framework and basically and it was an exercise in risk modeling a little bit, basically making sure that the parameters that the DAO controls,

[00:12:08] [SPEAKER_00] the DAO basically controls some parts of the protocol and making sure that all the things are set such that, you know, if some unexpected event happens, if something goes bad, you know, the DAO and the protocol can withstand it, right? and I was always kind of interested in this, as I've said, designing protocols and making sure they are designed well, making sure they can withstand

[00:12:36] [SPEAKER_00] the huge shocks that the crypto markets are going through on a regular basis. so yeah, and after me working on SSV, I also worked as an analyst, as a researcher for Diva Foundation, another staking protocol, which unfortunately didn't go anywhere, but I was kind of analyzing the protocol from the risk perspective

[00:13:05] [SPEAKER_00] there as well, making the full analysis of their tokenomics and their mechanism, and after that, again, in token dynamics, I have been working as a researcher for token dynamics and there again doing risk analysis for the protocol, designing protocols as well. I have designed the USX

[00:13:34] [SPEAKER_00] stablecoin, their initial version, that's kind of the native stablecoin for the scroll ecosystem. So, this was kind of my background, you know, analyzing, analyzing protocols for their risks, for their vulnerabilities, and also looking at protocols from like my personal side and basically like trying to solve my own problems as a crypto person

[00:14:05] [SPEAKER_00] of, you know, not everybody can do, and even I, you know, that have like extensive experience in this, I do not necessarily want to take on the full risk of the full investment every time, you know. You have some very juicy investments in crypto which are kind of short-term, usually newer products that can give you north of 10% yields on your stablecoins, and I don't necessarily,

[00:14:35] [SPEAKER_00] you know, want to take on the risk of the full investment. I would rather take some smaller part of the yield, you know, still a nice yield but trade the risk part with someone. So, this was how I was, where I came from and how I thought about the problem was actually something I was looking for. Interesting.

[00:14:57] [SPEAKER_01] Because I know your company says that only less than less than 2.2% of 150 billion sitting there in yield today is protected, right? And a lot of people don't look at it that way. So, what did you see that everybody else was missing?

[00:15:19] [SPEAKER_00] I think that the two main things that people raised like why this doesn't exist is one, it didn't work. Similar products didn't work in the past. So, I think people were missing and some are still missing now that for crypto it just doesn't work. We have, you know, for the traditional finance, all of the instruments, stocks, bonds,

[00:15:49] [SPEAKER_00] whatever, like all of them have very sophisticated derivatives to be able to transfer the risk or to have some kind of a risk protection. But we don't really have that in crypto. There are no like developed risk markets here. So, one thing I saw is that I think like as we get more mature in crypto, like this is unavoidable that, you know, these kind of risk protection things, tools

[00:16:18] [SPEAKER_00] are demanded by people coming from the traditional finance holding most of the capital. hold. So, that's what I would say. It's one thing that I saw that like it's definitely coming and the other is people have been saying that these things don't work in crypto because they haven't worked in the past. and yeah, I saw that they were not really working

[00:16:48] [SPEAKER_00] in the past and I think we believe that we have a different model and we kind of know why it didn't work in the past. It kind of needs a different model than in traditional finance because there are different requirements, different risks. So,

[00:17:08] [SPEAKER_01] I didn't want to get in the product but I think we should. Briefly, right? So, explain to me what you're building as if I'm somebody who understands crypto but doesn't spend any part of my day thinking about structured risk products.

[00:17:23] [SPEAKER_00] Yeah. Yeah, okay. Let's not go into the details but the general idea for you and for your listeners is that currently you have a DeFi investment. Let's say a simple investment could be Aave. You can deposit your USDC to Aave or kind of a and you have the whole risk spectrum. You can just do staking, right? Then on the risk spectrum, if you go more towards the risk,

[00:17:52] [SPEAKER_00] you can deposit into Aave. Then you go even more towards the higher risk and higher yield and you can do more of these structured products as one of which we are doing where you get around 8% or 9%. Basically, the money is deployed by some hedge funds to do some delta-neutral yield strategies. Then you can go to

[00:18:22] [SPEAKER_00] the very extreme yields. You go on the pendle or yearn and you go either into looping positions or you go into positions on pendle, which can give you north of 10% yield. But at each step here, you can either take or leave the investment. What we kind of bring to the table is that you can go into the high-yield

[00:18:52] [SPEAKER_00] investment. Let's say, I don't know, your users would know pendle or yearn and let's pick high-yield investment there. What Tapir allows you to do is to take a risk off investment. Instead of 10% yield, it will not give you 10%, but it will just give you 8%. You will pay the additional 2% for somebody taking on the additional risk. Suddenly, you can

[00:19:21] [SPEAKER_00] express your preference much more clearly. You can have basically a risk off portion of the initial investment with lower yield and a risk on that takes on additional risk and has higher yields. That's kind of it.

[00:19:38] [SPEAKER_01] Yeah, yearn is risky. We know about yearn. You're not actually trying to eliminate risk at all. You're creating a market where people can decide which risk they want to own. Right? through the creation of structured products, kind of like equivalents to forwards and futures and straddles and strangles, but from a crypto side.

[00:20:03] [SPEAKER_00] Exactly, yes.

[00:20:04] [SPEAKER_01] Wow.

[00:20:05] [SPEAKER_00] Yeah, it's not, you know, one-to-one. It's not like the product is not a derivative in a traditional sense, but it serves the same purpose. Yeah, definitely. And why we think this makes sense risk. And what crypto is kind of missing is that in traditional finance, you never get rid of the risk, right? If somebody tells you that you are probably getting fooled somewhere, but what traditional finance, what kind of these

[00:20:35] [SPEAKER_00] risk products allow you to, is to have a specialist that basically can do the due diligence, can go through, you know, the five different protocols that are included in the final yield position, can evaluate the risk and perhaps if they see, okay, you know, the risk seems reasonable, they are willing and happy to take on additional risk because they can calculate how big the risk is and they are

[00:21:04] [SPEAKER_00] happy to take the position. For this you have a huge working market in traditional finance. In DeFi you don't necessarily have that and you have these very good, I would say good, not necessarily good, but very high yields, which potentially, you know, you have some yields on Tandle where you have around 20% APY right now, which is really high, right? So, but you have no way to get, for example, 15 or

[00:21:34] [SPEAKER_00] 12% APY which is risk protected and, you know, and this market doesn't exist, but we believe it should because there are the expertise of being able to analyze crypto products is rare, right? That's why you would have these kind of experts. So, I would love to, you know, take a low or medium to low risk

[00:22:04] [SPEAKER_00] product that earns me like 12%, right? That's kind of a killer product or 10%. But currently, you can't really do this because you have just these, you know, high yield strategies that you are uncertain about how risky it is. And if you can't evaluate the risk yourself, if you are not a risk specialist who has like infinite amount of resources and time to evaluate the position, you're just not going to take it, right? We have all been burned in crypto multiple times.

[00:22:37] [SPEAKER_00] Multiple. Yeah, speaking from the heart.

[00:22:42] [SPEAKER_01] I'm thinking back to 2022 and Celsius and they gave you 3% on Ethereum and 15% on Matic, but it was the same risk. It was the higher yield, but so what you're saying you're able to do now is to correlate the yield to the risk, right?

[00:23:02] [SPEAKER_00] Not necessarily correlate, but be able to price the risk on the high-yield investments and being able to trade the risk to someone else for a portion of the yield, but if the investment is high-yield, then it makes the most sense.

[00:23:24] [SPEAKER_01] Well, since we're not all risk experts, I'm getting there. I have a master's degree in finance, so I understand traditional risk, right? I'm implanted the crypto, but we're not all experts. So do you think that maybe a way to investor and how do you think that could work?

[00:23:43] [SPEAKER_00] Yeah, actually, what we are building is a risk market. So everybody can look what is the pricing of the risk, right? And that kind of also gives them, even if you are not interested in buying either side, you kind of see how does the market price the risk. So I think even from the market perspective, it's still very valuable to just see, okay, this is

[00:24:13] [SPEAKER_00] how the market value risk on this particular investment and I can, you know, make an informed decision.

[00:24:22] [SPEAKER_01] Got it. So do you think that sometimes we've confused decentralization with the elimination of responsibility?

[00:24:28] [SPEAKER_00] Yeah, of course. Yeah, I mean, yeah, that's a whole another kind of worms, but happy to go there. I'm not exactly sure what you want to say by that, but we have a lot of, you know, a lot of projects are not necessarily

[00:24:59] [SPEAKER_00] very decentralized. Other projects, even though they are also the decentralization itself, it's it's a two-edged weapon, it's a two-edged sword, right? On one hand, it kind of protects you from the insiders of the protocol. On the other hand, you know, if there is something wrong with the protocol and it's fully decentralized, then there is nothing,

[00:25:30] [SPEAKER_00] then even the founders or the founding team can do nothing about, you know, some hack or some exploit being done, so it's not entirely clear always like what's better and I think the market will figure it out. I think total decentralization could be good for some protocols but not necessarily the best for others because what I've just said, you know,

[00:26:00] [SPEAKER_00] that's how I look at it. You know, we also start with some backstops in place. like the protocols, the funds like it's not like there is no multi-sig holding user funds or anything but we could freeze it potentially if you know, something went wrong. We have basically 24 hours monitoring set up for everything, you know, automatic pausing function, etc., etc. And I think we are not the only ones. I think

[00:26:30] [SPEAKER_00] that's good and that's where the market is going and that's basically how we view kind of the trade-off between centralization and risk.

[00:26:43] [SPEAKER_01] I went there because a lot of people say with decentralization with crypto, we don't need intermediaries. Well, I expand on that. You don't need parasitic intermediaries, but intermediaries that are creating a market, that's a different story, right?

[00:27:04] [SPEAKER_00] Yeah, yeah, yeah, exactly. You always need, you know, markets is, you know, it's the root of and the beating heart of capitalism, right? That's what makes everything work and things efficient. So, yeah, I mean, having a market for everything just makes, you know, makes things more efficient, better, usually. So,

[00:27:33] [SPEAKER_01] what's something now that you believe today or what's something that you believe when you started, Tapir, that you no longer believe?

[00:27:48] [SPEAKER_00] Maybe one thing is this, when I entered crypto, I'm a big proponent of decentralization and I was, before I was building my own projects, I was, you know, I wanted to go full decentralization, right? But after a few years in crypto, after seeing, you know, what has happened, what the protocols have been doing,

[00:28:18] [SPEAKER_00] yeah, I basically changed my opinion on that, like the decentralization is not a silver bullet and sometimes it's even worse. yeah, this is one thing I changed my mind on, you know, just seeing what kind of things were going on and also, like, I was also a fan, you know, of like anonymous

[00:28:49] [SPEAKER_00] founders and basically like the anonymity in the space, which I think is, you know, if the product is not fully decentralized, like there's, I don't think like the team should be anonymous, at least I don't want to invest into those projects, there should be some accountability, right? So I think those are kind of the main things that it's good to have

[00:29:19] [SPEAKER_00] some controls in place. Those are kind of the things when you are building protocol, like you really want to avoid in all cases, you know, your customers to lose money. You like, you want to prevent that as much as possible, right? To just sleep well. Yeah, and it sometimes means, you know, not being fully decentralized because then you can't do,

[00:29:49] [SPEAKER_00] you know, you can't do anything if something goes badly.

[00:29:56] [SPEAKER_01] So say you and I have this conversation in five years. I don't know if we're doing a Christmas podcast in five years from now, but say we are, okay?

[00:30:03] [SPEAKER_00] Okay.

[00:30:05] [SPEAKER_01] And we're sitting here and Tapir worked exactly out the way that you wanted it to work, okay? What changed in DeFi and what changed in our historical and future view towards pegging because you built it?

[00:30:20] [SPEAKER_00] Yeah. That's a great question. And basically, what changes, what would be kind of the greatest success for us is is that we become the poly market for the yield products. Basically, when reporters, when everybody writes about some particular yield product, they mention what is kind of the risk premium onto peer. cheaper.

[00:30:52] [SPEAKER_00] So, that's a success for us. For DeFi itself is that it is much that you can be much safer. You don't need to be. If you want, you can take on as much risk as you want, but you can get these medium high-risk positions that are protected against the risk. So, that would be a huge success for us. DeFi is a safer

[00:31:21] [SPEAKER_00] place or basically a place where you can really express your risk preference to your liking.

[00:31:31] [SPEAKER_01] Sounds good. So, I have one last question. I think one last question. So, you've been here since now, you're going on almost 12 years, right? You know, and you watched a lot of things happen in 12 years, right? And you build a lot of things, you watch all of the things, you learn along the way. So, I'm interested. You know, I'm still here after 2017. So, what keeps you here in the industry?

[00:32:03] [SPEAKER_00] I got really excited and I still am about it. Just building, being part of something that is really changing how people behave and interact and basically being able to design and create systems that are self sustaining, you know, being able to launch a protocol that can live their own life, as to say.

[00:32:33] [SPEAKER_00] And really, you know, I think some of the things, if we succeed are kind of the foundational architecture for the future, basically, being able to participate on that and kind of build a part of the future that I believe is better for everyone, that's kind of why

[00:33:03] [SPEAKER_00] I'm here. And that's also what fascinates me, you know, just I love complex systems, also, you know, biological systems, evolution, love to read about those, and, yeah, kind of to design and reason about complex systems, that's my big passion.

[00:33:26] [SPEAKER_01] Thank you very much for your time today, I really

[00:33:28] [SPEAKER_00] enjoyed the conversation. Yeah, perfect, great questions, thanks for the convo, and, yeah, thank you very much.