Decentralized Commercial Banking

so my name is Dominic Williams and I'm introducing Phi which is a decentralized commercial banking system that creates a stable currency as a side effect it gives out loans algorithmically and creates a stable currency now let me just work this out so before we look a fight let's just recap the problems with commercial banks quickly so commercial banks have massive infrastructure costs HR and buildings compliance that kind of thing and all of these enormous costs in commercial banking end up on your loan interest and financial charges they're also they kind of made chronically bad judgments when they're giving out loans and this is one of the things that exacerbates the credit cycle which is very damaging to the world economy and of course the big example was 2008 when we had this massive deleveraging that cost cost the world trillions of dollars they also are a major threat to civil liberties because as money becomes more digitized if your access to the banking system is removed you're pretty much just frozen out of everything and actually many people in crypts have already experienced what it's like to have bank accounts shut down because you've been taking a transfer for an exchange or something like that so stable coins let's just recap that quickly there are two main approaches to stable coins currently around at the moment the first is something a bit like make a diet where you have collateral on chain market-makers margin calls that kind of thing problem with these kind of approaches is that they're inherently unstable you create a kind of Rube Goldberg device okay and when you put it under stress it'll turn it'll tend to fail the other approach is to use tokens as bearish as colored coin bearish as with collateral actually held in a bank or other financial institution now that does succeed in producing a kind of stable robust system but of course the problem is the banks will want to dictate policy in relation to how these coins are used people in contracts will have to be authorized and of course you add in the geography of the bank and the jurisdiction of the bank into what would otherwise be a very much extra national system so quickly and fiat money fiat money is what we use every day it's dollars euros RMB and not many people are aware of where it comes from but it's actually created by commercial banks when they give out loans so the way this works is that you go into a bank and said I want to borrow $10,000 and if they approve the loan all they do is flip some bits in a database to create the $10,000 from Finnair you get it on the bank's balance sheet the loan is an asset and the money they created is a liability so what does fiat money fiat money everyday money is really an IOU it's backed by the collateral of loans that means that every day money is backed by you know cars houses business cash flows personal guarantees that kind of thing so the a ha moment is okay well why don't we make the world computer give out loans algorithmically and create a stable currency backed by loan collateral right we'll kill two birds with one stone we won't need these expensive commercial banks anymore so I'll save the world a lot of money and we'll also get this wonderful stable currency that won't depends on intermediaries so fie money is is exactly the same as fiat money it's backed by loan collateral how might this work well first of all it involves a network of validators this is a bit like a proof of State Network where the validators are really kind of lone miners if you will anyone can become a validator and this and you do it by making a security deposit to the computer in this case the validators deposited $50,000 and he can validate loans up to $5,000 in size and the total aggregate amount of those loans can be up to half a million dollars so how does a computer issue loans well first of all the person who wants the loan approaches a validator and says hey I want to know if that validator agrees they become the proposer they create a loan application package using open source software and they commit to it with a hash and they tell the computer hey I want to propose a loan the computer then randomly at this point randomly selects another validator and says look can you encrypt that loan package to the public key of the next validator right that next validator then becomes a checker they look at the loan proposal and and so on in a chain which is decided algorithmically until looking the computer decides that the the loan application has been validated once the loan application has been validated the computer creates the Phi from thin air and gives it to the borrower and bear with me for a moment and you'll see why the fibers created out of thin air actually has valley so this this chain of validators the thing to remember is that it's randomly selected in sequence and and it'll depend upon the size of the deposits of the validators and their reputation and things like that why do the validators do this well when people repay their loans it generates interest and the computer gives a share of that interest to the validators right so we might imagine that in this example the proposer gets sixty percent of that interest because you'd put in the work creating the loan application in the first place the to checkers get twenty percent there's another side to this which is that they're also underwriters right so if the borrower fails to make er a payment the computer is going to take that repayment from the deposits of the validators right so we can imagine that the under writings and the same proportion as the rewards and their reputations also a risk so this is how interest is generated let's imagine I borrow $10,000 and I've got to pay it back in ten monthly installments of $1,100 well I get I get eleven hundred dollars worth of I pay it back to the computer the computer burns one thousand dollars which is the principle right just burns it and it created out of thin air in the first place right and the hundred dollars interest is then distributed amongst the originating validators and and also savers and investors who've placed via time so this is I mean I've oversimplified this whole system but intuitively this will give you a grasp of why fire has value even though it's conjured from thinner when somebody receives a loan artist let's say I received $10,000 in fie they're gonna place it onto a crypto currency exchange to get Fiat that they can accept that they can spend right so I've got $10,000 in fire and I put a ten thousand five sell order on to the exchange but meanwhile there are other people who've already borrowed fie and are paying back their loans and they have to buy Phi in order to pay back the computer and in fact you can see that the demand for file be greater than the supply right because people are paying things back with interest so I may when I borrow ten thousand dollars I get $10,000 worth of Phi but actually I've got to pay back $11,000 worth of Phi right so we end up with the system that doesn't involve banks which gives out loans creates a stable currency the last remaining question might be well what stopped somebody just taking a loan getting their $10,000 worth of Phi and just walking away the computer can't chase that right the way that works is when they applied for the loan and the validator would have made them sign a contract that says if you don't pay back the computer the computers going to take the missing repayment from my deposit and consequently all these money and so you will owe me that money so if somebody doesn't repay the computer they can activate this contract and the borrower then has a debt directly to the validator and the validator can just use existing debt recovery systems which which are you know widely available worldwide and so I'll post this deck online on my Twitter if anyone wants to look at it at their leisure I'm from a company called string labs we've got two projects at the moment one is fire another one is called affinity which is a kind of business oriented blockchain which has some new cryptography and think we'll the blockchain nervous system we're presenting on Saturday feel free to catch up with me later there's many questions Thanks