Securing Decentralized Stablecoins: Risk, Collateral and Scalability (Panel)

okay before we start okay people in the audience would you if the risk assumptions were exactly the same would you rather have a stable coin backed by USD or backed by Bitcoin and eth raise your hand for USD raise your hand for Bitcoin and E yeah okay so actually most people prefer decentralized stable coins thank you are we done now yeah we're done all right so uh we're waiting for Evan but I think we can ah here we go you can come sit here do you have a mic I think you might need a microphone all right who am I stage with with these guys are you all sitting under your Nam wow this is a cracked group wow so um yes I'm feeling in for Mattias who's unwell so I apologize if you know I don't understand the answers to my questions um so maybe let's start with Tao can you introduce yourself very briefly yeah sure hi everyone this is Tao uh I'm the co-contributor of the aring and also the FX protocol um I started with a Community member of the uh Al Dow and uh I like the product then I start to writing more proposal and getting involved the community more then uh last year uh also on the stable Summit I was uh uh uh attending as the intern and introduced about the protocol then after that I join at the fulltime uh working for the FX protocol yeah that's forun me what about you Joseph uh hello I'm Joseph shy uh at Cupa Joseph I'm building a new stable coin called neite on arbitrum and I've been a contributor to liquidy uh let's get high open dollar among uh stable coin projects and a lot of other D5 protocols so thanks hi I'm Phil I'm building cork protocol we're building a new def5 primitive to tokenize risk so basically we're building a way for you to trade and hedge the risk of deegs on stable coins lsts lrts uh basically the easy way to think about it is as long as you're not a regulator it's a credit default for pegged assets I'm teren uh I handle the growth and institutional products at daero we are building the yield base plate of ethereum soon to be the base PL for all your stable coins and um yeah now we're launching some cool institutional products focus on bridging structured vehicles and defi yields so my name is Evan I'm one of the co-founders of ampleforth um we've actually been working on just this concept of decentralized money for six years started in 2019 with a decentralized unit account called ample That Grew substantially in 2021 and then we eventually developed a very simple fix term tranching protocol that would allow you to reorganize a volatility vample into senior and Junior tranches and now we've kind of extended that into a Perpetual tranching protocol so Perpetual seniors and Perpetual Juniors and so it's it's um what we're working on right now is essentially like low volatility coins not not necessarily stable coins but I I think that there's a great deal of promise there thank thank you and Chin security we are security Auditors we've audited a lot of the projects you've seen on stage today and we are the people who give you bugs so if you've ever received this merch uh of bugs that you can eat it's h it's from us um all right so um maybe let's start uh in the recent years or you know very recently what is the most important innovation in stable coin design that you've seen who wants to start here oh sure yeah so for us uh the stable coin FX USD it's uh 100% Capital efficiency and uh it's a decentralized stable coin backed by the uh East uh Lio stth so uh every $1 FX USD you can always get the $1 worth of a stth then you can get the uh sustainable uh onchain real yield uh by by put the FX USD in the stability pool so yeah uh yeah so for for me most Innovative you know most important advancement in stable coins recent years uh it's all about safety stability and safety uh liquidy is rated by blue.org a stating stablecoin rating agency as the safest possible stable coin that's ever been made so LUSD what are they doing right they came up with a redemptions feature I think FX uh has something very similar where you can redeem one stable coin for the underlying collateral and that's the most important thing right and so that makes liquidy actually safer than usdc right remember usdc dpeg two years ago went down to 85 cents you don't get to call up circle on the phone and say hey Circle send me two of those treasury bills that are backing the stable coin right they don't do that at 2 am on a Saturday uh so the Redemption feature we can build decentralized stable coins that are safer um that's that's the most important that's the most important innovation since uh most important feature since the launch of of maker yeah I'll just keep the tradition here of pitching our own products it's not my product I don't I don't work for liquidy I don't work for them they've never given me any money um not Shing them and I I it's not my project my my Project's nurite I have immense respect for them and I think that is you know actually the thing that is is driving us forward so I think the the ability for everyone to call something a stable coin that's not really a stable coin we''ve just kind of got g w so like you can take Athena and talk about is Athena really a stable coin it's a structured product in a stable coin wrapper and so I think that's a really interesting Innovation if you are broadening the definition of stable coin that far but I think what we're bringing to Market again the tradition here that you didn't start um is actually the ability for the market to price the different risks on different stable coins so that you could actually see something like LUSD as being the lowest risk as the market sees it um or seeing something like Athena being higher risk or seeing something like tether being higher risk same uh I think that like broadening the scope of narrative around like what a stable coin actually is is probably more important than whatever the stable coin actually is uh exactly the things that like you're seeing with Athena like being able to wrap a basis point trade into a stable coin crazy um and I think that like a lot of what's left to do is bridging Two Worlds and you can only do that between you know shifting narrative so yeah I like seeing people think stable coins or stable coints when they are yeah Structured Products yeah this is a really interesting question for me because um me and my team we've been thinking about decentralized stable coins for like I said about six years and we've looked at a great many things um rather than discuss a single Innovation that I think was really transformative I think there is like one breakthrough idea that we've stumbled across and it emerges from a very simple underlying idea which is that you can't just arbitrarily create or destroy volatility um on a balance sheet so no active Financial engineering can simply create or destroy volatility but you can reorganize it right and um in doing so you can create um essentially tranches right high and low volatility derivatives um where no net volatility is created or destroyed and the the simplest analogy I would draw your attention to is like Leverage perpetuals right you can imagine that somebody holds a 2X S&P per and a 0.5x S&P per together they multiply into something similar to a 1x SMP per it goes the other way as well where you can take an S SMP and reorganize its volatility into something that's significantly more and less volatile such that the aggregate volatility is conserved and in doing so you can create something durable um and therefore you can create something decentralized because I think that if a system ultimately is going to work for some time up until the moment that it doesn't and then relies on a bailout well as kind of independent issuers of money you can't assume that that's available to you unlike you know Fiat monies which are very good at bailing themselves out or you know even a corporation that might be bailed out or a bank that might be bailed out and so this idea that um you can create Perpetual D derivatives in a decentralized and durable way I think is a breakthrough idea which leads me to my next kind of claim here which is that I think that for a number of reasons not all reasons um low volatility is greater than no volatility um beginning with the possibility of creating a decentralized low volatility derivative um but extending far beyond that so who is the real user of your stable coin is it people who just want you know to do Leverage is it uh everyday payments is it yield Seeker who uses your stable coin maybe we can again start with with okay so for us uh most of the Year hunter or stable farmer so for us we are concentrate on the stable farming part is the people get the onchain sustainable yield the yield coming from the amplifier uh staking reward since uh the whole thing like FX USD and The Leverage side the exposition is all of them together is backed by The Reserve but only the stable side get all the yield from the reserve so it's a amplify staking reward then we have the FX emission which is our government token emission and also the Perpetual trading fee right so any people open the exposition or closer Exposition 70% of this fee will be going to the stable so that's why it's very sustainable and it's also transparent so most of people want to have this stable coin and getting the yield that's the onchain yield no no offchain component so yeah uh so for decentralized stable coins if it's a CDP model a collateralized debt position model which you know is back by crypto assets and stable coins are being borrowed against that the primary use case for that is getting leverage on the underlying assets so for nurite that's getting leverage on eth on wrapped Bitcoin um some other similar assets for liquidity it's just getting leverage on E and we can say a lot about uh okay stable coins are good for payments and uh you know yield bearing and all these things but it's a good question because like the underlying who are we actually building this for um everyone who's raised money from VCS uh to build a stable coin or related product is trying to grow tvl right that's that's that's that's the Game grow tvl and the real customer who does that is the person looking to go long and looking for leverage or looking for loans so they can pay their taxes or buy a car uh without having to sell eth right so that's that's who the customer is initially um but we can still build uh really great payment products really great things on top of that uh after you know reaching a a certain size may maybe it's different for Athena I don't know um maybe their their customer is uh like basis traders who maybe are not necessarily always long just people seeking yield yeah just people seeking yield yeah understand a simple trade yeah yeah but every every CDP stable coin is really built for uh for people looking for leverage well it's I I would argue that like if you look at maker or sky right they're actually now just a credit fund right and they're rated like S&P has rated them a B+ credit fund right and they're started out as just a CDP for people who want to get leverage but now it's largely for also for people who want to get yield so it has that dual purpose and maker a little bit got into the place where it was being used for payments and had other use cases and other utility that was being permeated throughout the ecosystem whether it was trading or just defi use cases so that was a really interesting use case for stable coins but what you're starting to see is more and more stable coins that are bootstrapping tvl using VC dollars to get that tvl in the door initially and then what do they have left and a lot of them are building out things that are backed by treasuries today but ultimately they're going to be competing for yield in the future with you know some large stable coin that actually is able to pay out the same yield rate and so they're just going to have to move up the risk stack so they're just going to a lot of these stable coins are just going to become more look more like credit funds and The Innovation there is that basically by using sort of like a rebasing model you've cre taken what normally a credit fund does which has a price based on its nav and you basically said the price is a dollar I just gave you more shares which doesn't exist in trafi and so you've actually created something that could be more fungible and possibly have more utility as time goes on the question always is what's the risk associated with that when people think it's worth a dollar when it may not be actually worth a dollar if it's not like having its nav marked on a daily basis can can I ask a side question is that allowed I don't know what the rules are for panels okay uh okay if makers a credit fund but it's over collateralized there's no credit fund on Wall Street that is like hey you have to give us $110 to get $100 in credit right that's not how they work sure so makers over collateralized to CDP over collateralized to the shares that they have issued if you think about it that way the shares that they've issued that are the stable shares they've issued less of them than they could B because of that but it's still they're managing credit risk internally and so the return that's being generated return that they can pay is in theory risk adjusted is risk adjusted right and so like for a B+ credit fund when it was paying 13 a half% that was a that was a great trade at 6 and a half% you can probably find a B+ credit fund that's paying a little bit more it's a very interesting way to think about it so what about you guys you have different use cases you think in your users or is it kind of kind of similar um I think the CDP thing like boiling down to just like users looking for leverage probably isn't the best way to put it just because like the best Capital efficiency is leverage right like in order to get there you need to be able to borrow against your dollars so I think like a CDP especially one that's maybe backed by a yield bearing asset um doesn't just like attract users looking for leverage actually actually largely attracts user users looking for like Optimal Capital efficiency right like if I want to optimize what I can do with my dollar that's pushing back you know five six points then uh yeah I want to borrow again so you get some leverage and then figure out a way to get flat so I can just keep you know earning whatever that rate is without having to take on any take on any risk you know what I mean you that you just described getting leverage it is leverage yeah yeah I I think it's we need we can move Beyond just demand for leverage right so I think that one of the great use cases today of decentralized stable coin protocols like liquidity and maker is that if you you know are long eth and you want to borrow against it you can borrow against it right but it's extremely capital and efficient um and you pay an interest and you have to constantly top up that interest that interest gets passed on to maybe people who stake in a in you know a stability module or something like that um I think there is a great deal of demand for leverage out there but there are a lot of kind of suppliers of Leverage right it's not just onchain protocols that are going to give you access to leverage you know it's offchain exchanges and things that can give you access to leverage and so there's this whole other side of the equation which is demand for stability um and I think demand for stability has largely been met by centralized stable coins like usdt and usdc successfully right uh with some exception of course they you know they're not censorship resistant you know they're highly permissioned you know somebody could freeze your assets and whatever but in general if you just want you know dollar denominated stability there's just so much liquidity available in usdc and usdt and now there's like kind of an Emerging Market here which is like how can I get additional yield on a low-risk kind of asset right and so that I can outpace inflation right we have this new economic pressure here that says like I don't want to just put a bunch of dollars in a dollar coin I want to I want to beat inflation right but I don't want so much downside deviation and the trouble with these leverage based systems CDP based systems and they're very good in a certain way um but the trouble with it is that like uh the crypto markets go through bare and bull cycles right more rapidly even than the macro bar and bull cycles like for example we saw Bitcoin go through multiple winters at a time when you know it was a money printing Bonanza from the great financial crisis until Co right um equities weren't going through those bare markets um and in these micro Winters um demand for leverage dries up entirely and so the yield on these kind of stable assets also dries up as well so you go from something that like you know might be generating 20% yield to something that's generating like single digit you know sub 5% yield in these bare markets and people pull their liquidity out that kind of like In-N-Out Behavior I don't think has been very good for our space so you know one of the great questions is like how can we generate um high yield with low risk in a sustainable way and that's um one of the things that we do at spot it's just a low volatil derivative but that volatility is also opportunity so simply by staking spot and usdc in a Unis swap um V3 LP position the trading fees Harvest kind of this mean reverting volatility and can deliver 20 to 40% apy in a way that doesn't demand doesn't depend on Leverage right so because it's just buying Under a mean and selling over a mean that kind of behavior Can persist even when the demand to borrow dries up like for example right now I think you know demand for to borrow is probably coming down a little bit these things will always happen but I think at the end of the day the proposition of a stable coin has always been bigger than mimicking the dollar it's always been about like how can we create something that's actually stable on a purchasing power basis over the long run right if you look at the Dollar's purchasing power from 1965 to present it's monotonically decreasing right but if if you look at like gold and equities it's like parabolically increasing right so obviously over longtime Horizons one outperforms the other and the question is why right why is the dollar kind of um losing value over time in spite of markets generally going up well it's because we're printing a bunch of money to stimulate market growth right but that's not being captured in uh the purchasing power of the dollar so one of the kind of insights we had is like we just imagine what would happen if we had had a low volatility goal because like although this works over long time Horizons over short 1 to fiveyear time Horizons it's not stable enough for Commerce it's not stable enough to use as an alternative demand deposit for you know just keeping wealth around if you have dollar denominated invoices that you have to draw down from and pay in a 1 to fiveyear time Horizon and if you compress the volatility of gold by a factor of 10 instead of something parabolically upwards you just get something that's a little bit more gently upward which is strictly better than something that's monotonically decreasing and so for that reason I think that a low volatility I I question why we would want to create a synthetic dollar that's down and to the right I I really strongly believe in a low volatility derivative like low volatility eth low volatility Bitcoin low volatility gold those sorts of assets would completely change the macroeconomic landscape and I also believe that that volatility can be harvested to generate Superior yield that don't depend on Leverage and so to answer your question our primary use cases like low volatility staking high yield so you can either have like 5% apy on zero volatility or maybe you can have 30% apy on 5% volatility thank you um um I was say the use case for that is very different than what we would traditionally Define as a stable coin totally different yeah it's a very different product it's meant to it's meant to actually be more for a saver or for someone who's actually purchasing power maybe since since the panel is about securing the centralized stable coin maybe we we can move on from this topic maybe we can go go back to it after um but so there were large hacks that happened for bridges for landing protocols uh not large hack not large hikes for stable coins do you think this is just luck or is this that you know stable coins take security more seriously uh well we found a bug in liquidy you know like 10 days ago that was like $100 million uh so there have been you know stable coin issues it wasn't the hack though uh yeah yeah okay sure yes correct uh okay so no more hacks on stable coins they're not allowed so anybody watching this no we're not allowed to do any more hacks on stable coins it's over from this point and stable coins I'm declaring them safe but those aren't the like a hack isn't the only risk to a stable coin there's a lot of risks to stable coins that especially if you're intending for it to hold a Peg and for to be worth a dollar youi risk right and what's happened is is that we stopped thinking about stable coins as actually being forms of credit right we've started all stable coins whether they're decentrally issued or centrally issued they're all IUS unless we're talking about bean and Pinto which is a credit backed stable coin and not a Ponzi scheme right thank you I think it's a coincidence or like it's just sheer luck that stable coin protocols haven't been hacked so to speak these are just like smart contracts if they're bugs in them they can be exploited I think what is more unique right is that we've seen a great many decentralized stable coins fail by bad economic design um where other things can't quite fail in that same way like you can like say for in the case of Tera right you can completely trash the market attempting to defend a peg with a bad economic design and that's just as big if not bigger than you know uh security vulnerability um and yeah I don't think there's anything particularly unique about stable coins that makes them unhackable um in the case of like I usdc like maybe it's just like mostly centralized I have another theory the people who design stable coins are just exceptionally handsome and smart and and nobody wants to hack them as a result that's right and they just they're just better I can I can go with that M off for that one they didn't like that wow okay uh yeah they're just you know they just uh think about things deeper maybe I don't know it's probably it's probably just coincidental to be honest yeah stable coins have been stolen stable coins have dep pegged and gone to zero stable coins have deay and gone down in value because people didn't understand what they were these things happen the risk factors in stable coins are actually huge and largely ignored in the market um but it's just I think totally coincidence that they haven't been hacked specifically also in some cases especially in the instance of like a centralized stable coin the design is much simpler right it's basically I'm issuing an erc20 token based off of my controller of that I'm keeping control of that allows me to issue that based off of something that I have backed and you don't even know that that doesn't mean that those things haven't been hacked that someone has gotten into tether and just minted a whole bunch of tether and no one like tether is not going to tell the truth about it cuz why would they interesting you guys want to add something before we move to the next question go ahead do you think that has happened do you think there has been secret hacks to tether that they're not telling people about I don't know that they are hacks like is that like the opposite of a tether truther it's like a tether liar I actually don't think that happened but it it how would we know like there's not that much transparency and what's going on behind thean there were fun Seas for example like crypto capital banking partner behind tether for example like you know lost access to a bunch of assets and obviously they're not going to issue a PR announcement about that they're going to try to solve it the fact that it's like completely opaque buys you time but no I I really do think that there's no reason why a stable coin can't be hacked like any other yeah smart contract actually I think that's a great rumor to start uh that stable coins don't get hacked and also that is ly that would be a great conspiracy theory to start during this panel right now I think exactly the reason why tether has not been audited is because they were hacked and someone issued an extra billion uh dollars of tether which they used to buy Bitcoin all right somebody cut that into a video and then posted on Twitter and then remove the factious comment at the beginning I am unaffiliated with this opinion and I am in this group randomly all right all right very good so um talking about k catastrophic cases um let's imagine in the next 5 years if your stable coin were to deeg for a longer duration or for forever what would have caused this to happen what what catastrophe now could in the next five years cause your your stable coin to dpeg and maybe Phil you can talk about your stable coin of choice okay uh stable coin of choice let's say let's say uh Bean for example which is currently trading below about 30 cents per stable coin which is supposed to be pegged to a dollar no big deal sorry I I said Phil because you know Phil has a different protocol but it would be ideal if you talk about yours keep talking about be okay yeah I'm gonna okay uh sorry go go ahead go ahead I'm sorry get a word in yeah yeah so so actually for us we have advanced packing system so we have to make sure FX USD is packing to the $1 faw to make sure the xation can be opening so if you're talking about end the word scenario it might be like is price going to less than $100 whatever or all the crypto you know uh the private key have been uh you can get it or something like that right computational Computing or whatever yeah so that's kind of the end of world scenario for the packing at least for hours yeah but you have you have a Redemption mechanism as well so so that is actually one of the the safest possible scenarios because even if the price is dep pegging you know of the stable coin dep pegging you can always get out of the stable coin right so uh that's like a genius design you know you still need a liquidation and the rebalance to make sure the whole system is uh working prop can you talk a bit closer to your mic oh yeah yeah I mean you still need like liquidation uh rebalance or liquidation to make sure you have enough collateral to back all your stable yeah I mean it would be like a precipitous fall in price where it was a gap down that you couldn't cover and liquidate fast enough could cause the redemptions to not meet the demand yeah me meeting demand um that's definitely I think one of the like edge cases uh you know chain security has audited liquidy um near right my stable coin is a fork of liquidy it can't deeg be as long as there isn't bad debt because you can always redeem one usdn for $1 worth of collateral that is backing it at any time you permissionless right and that's inheriting that design from liquidy the redemptions I think is just really an incredible incredible Innovation just in money in general uh so if something's going to deeg like that specifically a liquidy style system uh then it means it's gotten bad debt and uh all of crypto is at zero and nothing it doesn't matter anyway anymore so I mean you can just pick apart every single stable coin and talk about what could cause them to deug because every single one of them has risks associated with it right tether could be we're assuming that there's not bad actors in tether or hacks there right tether could end up being backed by a ton of Chinese paper that's not marked to Market and is worthless and can't be sold and therefore they couldn't honor 100% redemptions they could probably honor 95% of redemptions but not 100% And so if that information were to be true and leak to the market then Heather maybe start being trading at 95 cents right we saw what happened when uh svb went down right that caused uh usdc to deeg and thank God that it had worked out okay for everybody but you could then about Athena right there was a very brief moment in time where people were worried about USD and it did dpeg because people saw that they had collateral at bit right and that 1.5 million billion dollars was out the door was that their collateral turned out it was not at all their collateral was totally segregated and not at all at risk but that could cause it to beend so you just keep going down the list each one of these has on top of which smart contract risks yeah I think it's uh probably a losing game to figure out like what the end of the world is for crypto but it's not a losing game to just make sure you properly manage whatever the cleal is behind your damn coin um and not just properly manage it but properly select a viable collateral asset right um earlier you're talking about usdt right and like a lot of these things we joke about okay maybe tether is hacked and someone's waiting for another whatever billion dollars to show up and say oh uh oh I had the keys the whole time um offchain settlements offchain settlement the reason that those things can even exist is because we'll never know about them because they're underwritten by much larger players than any of our protocols could be right so yeah good collateral don't misuse the collateral and uh yeah if you have an offchain book you have a form of a Redemption mechanism that's probably better than anything we could build on chain so yeah in our case we can't p is we're we're not pecked I do not think it's possible to synthetically create perfect stability right just like imagine you know imagine you're trying to recreate the volatility movement pattern of gold and I give you 10 billion to do it right at some point an extreme Market disruption could cause you to run out of this buffer with which to synthetically create the movement pattern of another asset at which point you out of luck right and in the case of you know CDP based systems as well we can just imagine the collateral asset you know taking a huge huge Dive Right resulting in cascading liquidations people are buying this asset to liquidate someone and then sell in a spiral right of course it can happen um for me you know that's why we don't have a pet because we want to create something durable and and there's really you can go really really far with this idea of not having a pet right it started with that example of imagining you're holding a 2X SMP per and a 0.5x s SMP per the combined volatility is one now imagine it's like a 3X and a 1/3x and a 10x and a 1/10 x and 100x and a one over 100x right this idea of reorganizing volatility without a peg can get you very very close to something stable without introducing the fragility of a system that's willing to murder suicide itself and the space by dep by defending a Peg and so that's why I really believe that it's it's kind of a breakthrough idea for the purpose of decentralization and durability um but yeah I do think that you know if you are trying to Peg an asset to another asset and then you're not collateralizing it with that same asset should probably get some insurance on it you know yes range bound stability is a beautiful thing EX ex why not land of the free stability is scary it's not about black and white yeah it's about a rainbow what you give us a range something Continuum everything in the natural universe is continuous and not discreet why would we think this is any different it's also just about understanding how these things are built right because some of them disguise themselves or are marketed as pegged assets and are you know the consumer thinks that it's supposed to hold the stable value and that was actually never the design yeah and everybody's in this business of apologizing for not being perfectly stable or bragging about how perfectly stable they can be and if you're bragging about that either you're centralized or one day you know you could be wrong if you're apologizing for it you're kind of missing the point because like it's not about like zero volatility and zero return it's about a spectrum of like some volatility some return High volatility High return super high volatility super high return and what we can do in between is way more fantastic than a false promise yeah and these things can all be actually one thing right because like to get to a point of range bound stability what do you need before that no range like you need immense periods of volatility to be able to issue the yield that users in the ecosystems that we all work in want right you want to come in see some ridiculous API but the only reason that that exists is to get your collateral to a point of scale where you can switch on Range bound stability and actually do something viable liquid size I think yeah and and the problem with these things being pegged to a dollar when you are starting to take more risk is that they shouldn't trade at a dollar right and that's the reason why all of these stable coins that are treasury backed are backed with very very short dated treasuries is because they need to be able to go in and out of them even against interest rate changes and have no volatility against that as people start competing for more and better yield to start moving up the risk Spectrum they're going to start taking duration risk and be sensitive to interest rate risk that could cause if you needed to liquidate losses or gains right and these things are pegged to a dollar may not be the appropriate thing I think right now the dollar is universally you know the global unit of account and it's not I mean it go it goes pretty deep right there are all of these International Trade invoice agreements Long Live contracts that are denominated in dollars right say I'm an importer of Wheat and I have a longlived you know sales contract it's denominated in dollars and or export of Wheat and the buyer of that has to keep a lot of dollars around in order to fulfill those invoices in the future and you know the these might not be American entities this could be an emerging country that has obligated itself to pay off a longlived invoice that's do dollar denominated what does that mean means they need to keep a lot of dollars around and they don't want to just keep those Dollars around for the hell of it right and so what does that mean that means they have to be willing to lend those dollars out at low interest rates and so um the stickiness of the dollar as a global unit of account is profound and that's why we all care about things that are dollar denominated right um that's why these businesses they just can't sit on their local currency they have to sit on a lot of dollars and then lend those dollars out but my question is like imagined a slightly different Universe right where yes I have a bunch of Long Live invoices that I have to pay in dollars even though I'm not in the United States but one of the options that I can hold instead of dollars is like a low volatility gold let's imagine a on10th volatility gold or maybe a 1/ 100th volatility gold something like that um there would be there would be a reasonable allocation of my kind of Holdings that could more than pay off these future invoices and so to compete with a dollar as you they still paying the invoices off in dollars what's that but the invoices are still priced in dollars yeah imagine I owe you like you know a100 million dollar per year for oil that you're selling me and and this is a 30-year contract right I better be holding a lot of dollars to pay that invoice off because well every other currency other than dollar is like you know is more inflationary right I mean I don't think this actually moves us to a different system that's that crazy from where we are today where people actually do similar things like this and treasury management strategies and corporations engage these kinds of Strat societ settlement matters but let me let me just go ahead and expand on that right so everybody who's doing this portfolio management thing they have barbell strategies right so they have assets that they can yeah if we can make this because we don't have much time and then we have another question yeah if you we're just getting to the good stuff how do we move on to a Bitcoin system to to to put it briefly everybody has essentially a barbell strategy where they hold zero volatility assets and high volatility assets like equities gold Etc the zero volatility assets are their safety buffer the high volatility assets they're not supposed to touch for 5 to 15 years but the concept of safety is highly subjective anything can happen and all of a sudden the buffer that you've saved here is not sufficient so you're drawing down from a a portion of your fund that you're not supposed to touch to for 5 to 15 years and so there's this m massive messy middle um asset class right or opportunity where like where do I store value in assets that I may need to draw down from in the 1 to fiveyear time Horizon and this is actually the problem that every hedge fund every private Equity Fund money market funds are trying to solve how do I convert this barbell strategy into something that is an easy hold that's generating a 20% annual rate of return with low downside deviations that I can put money into and not feel bad about drawing out of in a 1 to fiveyear time Horizon and I think a low voltage derivative of gold Bitcoin eth a cryptocurrency could easily fill that Gap and that's a $26 trillion Market moving on to the to the last question um so we're talking here about decentralized stable coins um of course decentralization is a spectrum I'd love to hear maybe starting over there what tradeoffs have you made uh in terms of decentralization and you know where do you think your stable coin is less decentralized and why did you make these trade-offs I'd love to to hear to start with you so so first of all the decentralizing is important then also it's uh transparency right so for us uh first of all Redemption you will make sure it's always have been U backed by the uh reserve and also um we are not talking about uh what's a usage so we have to make sure uh it's U it's Capital efficiency right if you have to over collateral right all the times then it's not easy to to increase the Supply so the the the supply part will be the limitation of this decentralized that's why we don't see that much decentralized stable coin going up to the higher so that's why the for the FX USD the another key point is the it's scalable so and people open the exposition then basically it's meaning the FX USD on the side so that's kind of make the supply for the FX USD much faster yeah you Joseph it's sounds when you talk about it sounds like you're the most decentralized T coin do you did you make any tradeoffs or are you perfectly yes definitely uh near is on arbitrum which still has a um multi- for emergencies in case there's emergency security issues that's a trade-off um and the collateral types that we take I think is probably the biggest centralization risk because we might take a collateral type that can be upgraded by a different Dow uh so that's that's another risk too but we focused on governance minimization no new collateral types can ever be added to nurite no contracts can ever be upgraded if we need to fix something we have to deploy an entirely new protocol uh so whatever we deploy completely immutable uh and that's you know our our take on decentralization and security I think that when you're looking at their risk of stable coins their risk trade-offs between centralization and decentralization that come in all sorts of flavors right and so in a decentralized stable coin you end up with something that you can't fix and so there can be a bug there can be something that goes wrong in the stable coin and you can't fix it there's nothing you can do about it whereas a centralized stable coin has centralization risk a single hack or a single takedown can ruin the whole thing and or a single government seizure can take down the whole thing and I think what's actually probably the most important thing is as we continue to mature and evolve in this industry and there are more and more stable coins with different levels of decentralization centralization and different risk factors is that the market has a way to understand those risks and price them right and and luckily ours is immutable we can't fix bugs like you said but our team is so cracked we write all the code perfectly every time so we uh we don't have any bugs so yeah thanks too handsome to get hacked like like all stable coins yeah yeah exactly uh the same way there's like a spectrum of decentralization there's a spectrum of centralization right and I think that there's a lot of good things that you get and still need um for with specifically for stable coins today with more centralization like I don't think we're at a point where you can get to the growth that anyone wants for any of their protocols whatever it might be without an immense amount of liquidity that kind of is underwritten by something that we don't see on chain yet um there are stable coins that are very successful and like how deep the liquidity is and how you know how much you can actually do with the damn thing but um yeah I still think I'm not a centralization maxi at all um but I do think that like I sound yeah but um yeah no you you need a little bit of it like there's a re look at the biggest stable coins usdc usdt die like die is not as nearly as centralized liquid which went from zero to four and a half billion in one month uh and has no upgradeability or governance and USD and usdt so you can build big things without those so you can I agree but yeah there's Goods on each side what about you yeah I mean we we've um made no compromises on decentralization um but what we compromises volatility we're willing to accept some volatility I mean you can't have everything but I think that you know we feel strongly that there needs to be something that's a decentralized uh store value and that the market can tolerate some volatility especially if it has a corresponding or greater return profile to it and yeah you can grow quick like ample Grew From a $20 million market cap to 1.

65 billion fully diluted in 30 days you know back in defi summer it can grow um but I mean that's that's tiny compared to a hundred billion doll market cap of of T right but um tin guys that's all the time we have thank you very much a round of applause for our decentralized stable coins please thank you thank you everybody thank you