NextGen Stablecoins and the Omnichain Future | MatthewCommons -USVD | IreneWu - Layer Zero

okay great awesome um thank you for those of you are coming out to listen to this fireside chat on verified USD and uh how they're leveraging layer zero and a novel algorithm called color Trace introduce myself my name is Irene I'm head of strategy at layer zero Labs layer zero Labs is the developer company behind layer zero which is the leading Omni chain interoperability protocol and also the original developers behind Stargate Finance which is the most widely used Native asset Bridge uh Matt who's joining me today is president of the verified USD Foundation could you introduce yourself sure hi there uh yeah Matthew commin president of the verified USD Foundation uh the verified USD Foundation is is the issuer of usdv uh a Omni chain stable coin actually the first uh Omni chain fungible token stable coin uh it's a collaboration between uh layer zero on the technology side and Matrix port on the operating side uh so we've been live about three months and uh yeah really here happy to be here today and and share a little bit about what we're doing and and how we can work with the community so to set the scene a little bit for people who are unfamiliar with USV layer zero Labs had been uh approached by a team that posed this question of how might we create a stable coin that can share revenue or issue rewards back to its mentors uh and subsequently the community that has helped grow it and this problem is actually an age-old one it's uh commonly referred to as the colored coins problem meaning when you have onetoone fungible tokens how do you actually differentiate or I store the the traits and history of these tokens in a storage and compute constraint sted environment for Bitcoin there's this lossless metadata layer but in an evm environment that would be uh an accumulation of addresses and and information that is intractable in such a constrained environment and this question was actually a very interesting one for us a bit of a side quest compared to our uh primary focus which is cross chain infrastructure but the outcome of it was this novel algorithm called color trace and uh the verified USD Foundation is the very first token issuer that's leveraging this algorithm my question for you Matt is you previously were CFO at algorand you have spent much of your career in this space when you first heard of the project what Drew you to this stable coin in a competitive stable coin landscape yeah um so so first of all I uh have been a huge fan of layer zero labs for a long time uh I was one of the reviewers on the original layer zero white paper um got to know Brian pelino and the team and really was you know very enthusiastic about you know working with them and kind of like followed layer zero for a couple years and uh this was you know so when Brian reached out last summer I was immediately interested um and flew out to Vancouver and and wanted to learn more about it just because of layer Zero's uh you know background and reputation but you know my interest in stable coins um you know I've always liked decentralized systems permissionless systems and um you know it always kind of irked me a little bit that we had permissionless systems and then there are these two centralized private companies sitting on top of this as the major issuers of you know 100 billion plus dollars worth of stable coins that is really like a key key component of the decentralized economy like if you're going to be decentralized you know why do you have you know these huge points of centralization there so um you know was interested in the concept of of how to do it and you know coloring the coins makes sense like if you can color the coins then you can attribute value to the underlying um you know to to the the parties who who brought Capital into the system and share yield that way but from a technical perspective it's really never been possible to do that um you know if you have multiple different colors and you have one wallet um you know the complexity increases exponentially so um using a conventional just kind of tagging each coin with uh you know with some additional data you know that was not going to be scalable and do it so the you know layer zero solving the colored coins problem was really key to un locking this and um you know was immediately intrigued by it yeah to set the scene also a little bit for those listening this isn't the first time that a team tried to uh Share value back to their contributors so if you look at coinbase for example um I believe last year Circle formed a very special partnership with them in which uh it now attributes to maybe a billion uh a billion dollars in value back to coinbase every year and so for all of the the growth that coinbase contributes to usdc and the volume across our our ecosystem in centralized exchanges and elsewhere uh they are uh sharing in the rewards of this however if Circle wanted to then share with say Unis swap pancake Swap all of these dexes uh for whom they uh attribute most of the the growth of of stable coins in say like the B&B ecosystem or other l2s there isn't actually a way to do this fairly in onchain um you could perhaps Trust offchain uh that there might be some sort of marketing fee that's paid back to these protocols uh but if it's not verifiable in on Shain once again it's almost like trusting your credit card company to give you points for what you have uh purchased with the card so the problem is actually a really challenging one and I I think from an ethos perspective the idea that protocols should actually be fairly rewarded for the growth of stable coin ecosystems resonated really deeply with us um I think that monopolies are very prevalent within our industry and for decentralized technology to actually properly Thrive there has to be competition so my question for you then is uh usdv is not only a stable coin that is uh Revenue sharing from the yield that it uh earns through short-term treasury bills which are the current collateral but it's also an omni chain token can you talk a little bit about the product and uh in Market how it changes the experience for developers and then also for users sure absolutely um so you know there are really three main differentiating features about usdv one of them we talked about already uh the color Trace algorithm which allows us to share the yield of the underlying collateral equitably in the ecosystem through our partners who who mint usdv uh so but uh there's there's two more you know one is another one is the onchain transparency uh because we actually have our collateral locked onchain uh and really best in class auditing chain link proof of reserves Etc then the third uh is what you mentioned there Irene which is we are the first stable coin to use layer Zero's Omni chain fungible token standard so what this means is that all usdv is effectively born on eth mainnet because on mainnet is where the collateral in the term of the stbt treasury bill token is is locked up uh you know $1 of the treasury bill token stands behind every $1 of USD v um but because we're an of uh there is a very straightforward way to burn usdv on eth Main net and then remint it on other chains so today we are live on seven chains so uh main net arbitrum optimism polygon BNB Avalanche and a uh Southeast Asian Focus chain called viction um but you know as you know Irene layer zero connects to over 5050 different chains today uh with more on the way uh evm as well as non-m so uh you know when we look at the road map and expansion um you know we want to be native on more chains than uh any other stable coin I mean today we're on seven and you know the other big players are on 15 uh but we anticipate that sometime later this year we will pass by them and we'll never look back one of the unlocks of the of standard I I me change funfold choken standard is that once you have deployed this contract you can under say 15 minutes or as easy as deploying an erc20 smart contract expand new chains and these addresses are the same there's unified liquidity there isn't a need for say pools or external LPS to enable this seamless horizontal composability so take for example uh a stable coin on base uh and a user who wants to now move that stable coin to arbitrum typically you would have to do the 7-Day bridgeback period and then from there use the native Bridge back to Arbitron with layer Zero's o you can pay in one click with one gas token and go from L2 to L2 or go from point to point within this mesh Network so for usdv you know eviction makes a ton of sense there is actually product Market fit in Southeast Asia to launch on say uh Clayton which is a very popular South Korean chain or many others would take 15 minutes say and I'm curious how are you guys thinking about the prioritization of different chains yeah um so there's a few different ways a few different kind of data elements that fit into how we prioritize chains um so by far the easiest from a technical perspective are evm compatible chains where there's an existing layer zero end point um you know as you said you know deploying an of is is is very easy and then sort of within that Universe it's then a question of you know we want to have some type of basic functionality on the destination chain so you know we'd like to have you know some kind of a DEX as a partner that can be be minting so you can get into and out of usdv um to the extent that there's not a bridge already we'd like to have a bridge in place um and then uh you know moving towards having borrowing and lending so it's really just sort of you know can we get critical mass we're limited to seven chains not because of Any technical reason today it's just hey is there interest and I think here at eth Denver we've had a huge amount of interest from um you know a number of chains evm as well as non evm again non evm it's a little more of a caseby casee basis but I think if you look at layer zero they do have a number of non evmm points more to come and that's definitely part of our growth plan and for protocols if you implement usdv or you list it effectively how this works is your protocol assigned a color so let's take for example Unis swap uh any minted usdv or other stable coins swapped into usdv would be colored pink let's say and even if these tokens leave the Unis swap protocol they're sitting in some eoas uh or they are uh inserted into some other protocol so long as that token is colored pink the yield is perpetually shared with Unis swap it's about 2.5% or half of the short-term treasury uh token yield and I this means that you are uh effectively rewarded simply for the proliferation of these tokens in the space now when there's some other protocol that has also registered as a colorer if these tokens end up in their protocol let's say it's rainbow wallet and their color is purple they can pay a onetime fee to recolor and then get all of the re from there on forth so it creates almost an arena likee Dynamic uh which incentivizes again the growth of the stable coin but also uh the fair uh reward distribution verified again on chain this week what have been the the questions or the Curiosities that have surprised you from developers who are asking you about usdv yeah um so I think first of all I think a lot of people have kind of gotten it you know we when you kind of spend a few minutes in sort of explain this idea of yield sharing hey it's not yield to the end user but it's yield to the protocol they can reinvest in the ecosystem people get it and there's like the light bulb goes off and they're like wow this is like this is the way that these things should be done you know so we've had an enormous amount of positive feedback from it that's been really encouraging um you know some of the typical questions we get um you know around how yield sharing works so we'll kind of walk through you know some elements of that one thing I would highlight is that you know 50% is sort of the floor of what we share with the yield the other 50% goes to the foundation but the foundation again we're a nonprofit entity our you know mission is to encourage the usdv ecosystem so uh a lot of times we'll work with the various dii protocols in addition to 50% of the underlying yield we'll do some other type of emissions or matching incentives or things like that usually it's on a onetoone basis that the protocol or or the partner will be putting up a dollar of of incentives and the foundation will do that as well so it can certainly go significantly above 50% especially in the early days I mean a lot of the times we're trying to allocate this in areas where we we think it's a good fit and you know we want to make the we want to make it grow and incentives are a part of that and one of the key things too about Distributing yield to the mentor rather than end users is the issue around Securities uh and I'm curious or would love to hear you expand on this a bit having also been CFO at algorand I many lending and borrowing Protocols are hesitant to list some of these next year stable coins that directly issue yield to Holders it poses an enormous security risk in this way it is a particularly creative and and novel uh mechanism to to still reward contributors to the ecosystem could you just speak a little bit about that and how that's resonating yeah sure so our underlying collateral token we're using as as you mentioned before Irene uh something called stbt or shortterm treasury bill token uh it is issued by an orphan trust that has no owners uh uh except the um the token holders uh but it's really something that it is a security you know it it holds treasury bills the treasury bills pay interest and the stbt token pays interest it rebases every day including on weekends so what that means since it is a security um um it you know you have to be Whit listed you have to be kyc and at this point it's only open to non- us investors who are also meeting the qualified purchaser definition so um which is sort of an asset uh Financial threshold to show that they're sophisticated enough to do that that's just where we are right now so we don't have any minting in the US you it has you have to be non- us entity and you have to be able to to do that we hope that changes in the future you know there is a stable coin bill there's a lot developing obviously we're a USD stable coin so and the US is the largest crypto market so you know we'd like to have more active participation on Shore in the US we just need more regulatory Clarity in order to do that the whole Foundation is spending a lot of time in different regions and I think over the last few months there was also stable Summit this week a lot of conversation around where there's actually product Market fed what is uh an area of of intrigue and what kind of uh like evidence has supported the foundation's investment in these spaces yeah um so you know as as as you can see I mean with our existing partner set um you know we've started with CI and dii and and that that is definitely the place to start it's quick you know we can we can meet people here say hey get in our chain partner with our decks and you know it's a it's a very very quick process you know we do some kyc we sign a very standard form contract and boom you're set up as a set up as a mentor and and we go um but really the long-term growth you know we see uh stable coins in general and certainly usdv in particular extending well beyond just C and Defi and really being used for payments for savings for remittances other types of things so um there's a lot of interest in Emerging Markets um you know really places where people don't have like venmo and PayPal and an FDIC insured bank account a few of these places that you visited yeah sure um so Argentina for one is particularly interesting and we've got a very crypto friendly uh Libertarian president there now um who's making a lot of changes you know this is an economy that um you know 10% of the physical US dollars in the world are in Argentina um because people don't trust the banks they don't trust the government they've had very bad experiences with you know their Dollar Bank deposits being seized and devalued uh in the past and you know people buy houses with stacks of $100 bills there um and you know there is interest and real usage of of stable coins there today um tether on Tron is kind of the largest incumbent uh right there now but uh we believe that our partnership model where we can you know share the yield back with Partners in Argentina and other countries is uh is useful so so you know Argentina's probably a good example of like a hyperinflationary economy and why that's interested you know Turkey is interesting as well but lots of other Emerging Markets Vietnam uh you know we mentioned with the with what we're doing with eviction you know 100 million people very young population technically Savvy um but also kind of underbanked largely in the conventional sense um um so you know huge opportunities there and around the world as we're nearing up on time and and I want to try and Reserve about a minute in case there are questions I what is a a parting note here for how developers who are learning about USV this week can engage or experiment with implementing usdv that's great well we're um over at Booth 302 so that's kind of by the polka dot and near Pavilion just off of the rainbow next to uniswap um so you can you can find us over there uh usdv money uh as a good place and then from there you can find Twitter and and other places so yeah but thank you so much Irene this was great and um yeah parting note from my side is uh having been deeply involved in in the creation of the color Trace algorithm there are other novel things you can do with it too I was just speaking with one of the most uh widely used trading platforms and they have always wanted to do onchain ref links uh how can you replicate the experience of referral links through say a centralized exchange but now uh through a DEX or a trading platform I'd love to see color Trace implemented in a novel way in that regard and then with usdv the kinds of protocols and products that are best suited for this model are anything that has high throughput of of stable coins going through it those are wallets for example these are uh dexes lending and barrowing platforms some of the protocols that you guys already work with are fra Venus pancake swap uh wallets like Beam by Eco uh some omnni chain wallets as well and on centralized exchanges uh bitette and and a few others so I I'm Keen to to follow on in the progress we're certainly really excited to see color Trace used by developers right now and uh thank you guys for coming we have time for a few questions so if you have any please come up to the mic here and uh you can also find us after so you mentioned that the uh that the stable coin industry is dominated by two players and we would like to see more competition uh how many different stable coins do you think the market could bear in the long term yeah um I mean you know we see a lot of different types of stable coins out there now um I think you know there's kind of algorithmic stable coins which are you know I would say in a different category than um uh you know treasury back stable coins and algorithmic stable coins it will really depend on the platform and we partner you know actively with those you know we're you know frax is one of our launch Partners we want to be part of collateral of of others so um the uh yeah so so algorithmic stable coins you know it's sort of you know dependent on the number of successful di5 protocols for treasury back stable coins I think it's probably a smaller thing up until today really table Stakes were yet to be really big so tether Circle you had binance in there for a while PayPal now you know you've had to H in order to play in the game you've had to have really heft in order to to do that what usdv allows is it allows Partners to participate in the game to share in the yield they don't necessarily need to have their own stable coin they can get the benefits of economies of scale fungibility and so forth um through partnership so so that's kind of where we see the growth going forward yeah it can be very meaningful for protocols if you take a look at pancake swap for example I think they make about it's between 10 to 20 million a year and yet the the volume or the amount of stable coin growth that they've accounted for is several billion and with usdv if they effectively convert many of their users to using it it adds uh several million dollars to their bottom line my point of view is that there are a few different angles one certain stable coins serve different purposes so um algorithmic stable coins are often used by uh like D5 power users and that will always be the case uh maker for example is launching a new stable coin as well that's something to watch and I think their uh like Target demographic is very different than say uh the demo of of usdv perhaps and um when you're selling a stable coin you're selling trust I don't actually think that the market will uh be able to mind sharewise sustain 15 20 stable coins the real chain abstracted future in my mind is wallets and dexes that abstract away even like the tickers of different stable coins it just ends up becoming like an intermediary it it's something that's just pegged uh to a dollar and so you could swap say uh usdt for usdv without performing the actual swap uh it it adds so many clicks into the process in which you're really just trying to to send value to someone elsewhere so uh the next few years will be interesting because they are very exotic stable coins and we'll see if they're stable uh but I really think the Mind share piece and the fact that you're selling the idea of trust is a scarce resource great well thanks so much Irene really appreciate your time uh here in doing this and um yeah looking forward to continuing our collaboration amazing thank you guys so much