Building Synthetic Derivatives on Ethereum by Allison Lu, Regina Cai(Devcon5)

[Applause] thank you all for being here for building synthetic derivatives on aetherium just to quickly start off by introducing ourselves my name is Alison I'm the co-founder of Puma I come from a traditional institutional finance background after graduating college I traded interest rate products at Goldman Sachs for about six years managed at thirty billion dollar buck with 100 million bail ultimately decided though that you know that was just making rich people richer um and wasn't particularly fun decided to get back into my roots and technology joined a start-up in California that did mobile lending still that company is still doing great but through that experience I really discovered that you know whether I was working with big central banks or micro entrepreneurs in third world countries the financial incentives that existed in art the existing financial system just weren't aligned between different stakeholders so I got married in chanted with all of this blockchain stuff the idea that you could embed economic incentives into a technology and changed the way that people interact with it and so that's how I came about to get started with uma my co-presenter is my colleague regina by regina I lira financial engineering efforts at uma I also came from a traditional I'd say finance background so prior to joining Emma iOS AI could be derivative structure at a bank so I thought a lot about different kinds of natural products and how to structure bespoke trades for clients so first just to tell you a little bit about what we do at uma we build financial infrastructure for aetherium and specifically this means two things one is a set of smart contract templates that you can use and filling different parameters to create customized financial products the other is a decentralized oracle service that can be used to verify and validate the payoffs associate these financial contracts today this is beliefs agenda we're going to be talking about synthetic derivatives different types of derivatives the market dynamics with which they trade just a high-level overview and then we're also going to be talking about what you can actually do with today we've created basically a subset a particular type of synthetic derivative that you can actually use and interact with both on the etherium rinkeby test net and main net and we're going to talk a little bit about ways that they are both being used and could be applied to different use cases today and how you could actually extend it further and then lastly because all derivatives fundamentally require an ancient Oracle we're also going to touch on how you can actually write a secure scalable financial contracts on the blockchain that don't require a constantly live on chain price Oracle called the priceless contract design framework and hopefully we'll have a little bit of time at the end for Q&A ok so just to really quickly introduce synthetic derivatives here I'm sorry if this is a little basic for some of you but derivatives are a very very very flexible invention within financial products where basically you can create any arbitrary payout structure that you want based on external reference data and so what we build at uma is basically the smart contract templates of if this then that logic for how different payouts should work and then the decentralized Oracle service to validate the accuracy of this external reference and really simplistically if you understand betting you really probably get derivatives sorry I'm American so I used a football example here but you know these binary discrete and continuous examples here really are actually the simplest examples of derivatives that you can make so you could create a binary derivative that's answering a yes/no question like will the Giants win their next game if yes to pay Alice if no pay Bob that really is a binary derivative same with the street where you're choosing between a discrete set of possible outcomes like which team within the NFL is going to win the Super Bowl this year and then there's continuous derivatives of like how many rushing yards are you going to have or what's the valuation of a given team and just like when you're making a bet with somebody you have to define the terms of a derivative in advance so if you and I were to make a bet right in advance we'd say what size like ten dollars that the Giants win their next game we would also define the expiration or it might be implied that the exploration is right after the next game occurs and we'd also have to talk about the collateralization and payout terms do I just trust you or are we both going to put ten dollars into a pot and have somebody else hold on to it and are we talking about dollars or die or eath as the payout currency and then finally there's the valuation function so a really simple binary bet is really easy to understand ten dollars if the Giants win the next game for me and ten dollars at the Giants lose their next game for you but the valuation functions are can become infinitely complex or are composable as well so it could be like you know if the Giants ever win the nectar if the Giants win the next three of five or if the Giants ever win some number of games in some particular permutation of ways over the next 10 years of existence so the thing that powers all of these synthetic derivatives is a external reference so in the example of you and I making this bet about whether the Giants are going to win the next game or not you know we're kind of also implicitly where we're where we need a way to actually reference and validate you know who actually won that next game and unfortunately when it comes to blockchain smart contracts well they're actually quite dumb when it comes to external data they have no way of knowing anything about the external world and unfortunately there's no external penalty if we encode all this logic into a smart contract but somehow you're able to corrupt the Oracle so what we need to do is in order for us to even begin to think about building synthetic derivatives we need a way of being able to build an honest Oracle and so our the way that we've basically defined an honest Oracle here is we're simply trying to create an Oracle where the cost to corrupt this Oracle is going to be greater than the profit our actual initial assertion is that any on chain Oracle can be corrupted there's some way in which you could pretend whether through a bribe or even hardware malfunction caused an oracle to return bad data so we need to make sure then that if we're going to be using an Oracle to to validate the payouts of a multi-billion dollar a multitrillion-dollar contract that we have a way to guarantee that it will be on and that it will be honest and so in the example earlier of you know Alice and Bob entering into a contract that has external reference data the way that we can think about setting up these incentives is any amount of money that Alice and Bob are putting into this contract to back you know their bet is a potential profit that somebody could earn if they were able to corrupt the data and the amount of money that Oracle would accept as a bribe to actually corrupt that data as kind of the potential cost of corruption so what we need to do is to design a mechanism to keep the cost of corruption greater than the potential profit from corruption and so it's really just three simple steps figure out what the cost of corrupting an Oracle is figure out the potential profit somebody could make by corrupting the Oracle and have this mechanism build this mechanism and prove that it's white or I cut the slides with all the math but the white paper is on our github if any of you are so inclined to go and look at it okay so do my protocol yeah um okay so talking about synthetic derivatives I gave the really high overview of how you can create arbitrary payouts and these payouts mean binary or discrete or continuous there's also another thing to think about when it comes to synthetic derivatives and they're the way that they're created which is how many counterparties are involved so if it's just a bet between me and you that's a bilateral trade typically those are done peer-to-peer or OTC and because it's just you and me that needs to negotiate the terms of this thing we can make it very very customized we can make the payout in Nike shoes if we wanted to even there are nobody else in their right mind would probably want to build out a market for trading you know Giants games from the tip to Nike shoes in other types of synthetic derivatives the number of counter parties involved are way more numerous so in some cases you have many people who want to be on one side and many people who want to be on the other side typically when that happens a good example of that would be like you know bit Mex perpetual futures where many people are long perpetual futures on bit mechs many people are short perpetual futures on bit backs and what happens in the bit Mex exchange is every single term of the contract is already standardized and the only thing that people are negotiating when they actually trade is price and size so it simplifies the potential terms for negotiation because everything has else has been standardized and advanced and it allows many people who are long and many people who are short to actually be able to coordinate to do a trade with each other generally speaking many to many when the counterparties are many-to-many those products trade on exchanges then there's this kind of newish paradigm that exists in this blockchain space which is a one-to-many a coordination mechanism so that could be like one smart contract to many users of the smart contract or what regina is going to be talking about later is actually our first template which is a template that lets you build synthetic tokens where there one creator of the synthetic token facility and many users of the synthetic token that gets created from that facility and depending on the specific dynamics of that contract that they create that product could substance subsequently trade peer-to-peer OTC or on exchange depending on how liquid how liquid the underlying product becomes so Alison mentioned one of the first products our financial product templates that we've created is one of these synthetic token builders so I'll talk a little bit more about what is another asset token is and then I'll also show you hopefully a video of how you can actually use these synthetic token builder to build your own synthetic tokens on repeat a snap today so a synthetic asset token is as Allison said a type of one-to-many derivative a synthetic derivative and what that means is that one person such as me could create a token facility which is this rectangle could create this token facility and then mint tokens from that token facility but I can then distribute to other people to give from afterwards so in that sounds it's one too many or I'm a single token sponsor giving financial risk to many different people all who just watch won't have to hold some children so they don't actually have to enter any particular spoke agreement with me all I have to do is buy a token that was created from the token facility that I created okay so in that sense of some that isotope it looks a lot like other over collateralized lending facilities that you might have seen so I think this looks very similar to for example a maker CDP where in the same framework you're depositing some collateral and then using that collateral to back tokens that your vintage and then distributing to other people there are definitely a couple of differences though between this and who make your CD key namely that these for example are expiring tokens so what happens here is if I create this token facility I use that to create some synthetic tokens that track the price of something and what happens is the after a certain expiration timestamp the amount of backing collateral that backs the tokens is fixed so it's fixed to whatever in the latest price was at that point and anyone can then redeem those tokens for the backing collateral so it's one really big difference between this and other communities perpetual lending facilities but in some ways it is very similar right so you've also got these good and bad situations where depending on what the Unchained price feed tells you the prices you can be under or over collateralized relative to the collaboration requirements so in the good case the price key tells you okay this is the actual price that's how much collateral you need to have to back the tokens you need to be over collateralized by say five or ten percent that's where that is and oh great you've got access collateral in excess of your required clock in the back case what happens is let's say again the reference price comes in at this it says you need to have this much required quadrille but you're under collateralized relative to that that's fine a penalty is assessed that's awarded to the token holders anyone who holds those tokens is equal to come in and redeem their tokens for the backing collateral plus a proportional amount of the penalty and the whole trades on ground so there are two or at the main differences here one is that the tokens always have an X Bri so they have this future where they can be redeemed for the backing collateral when they expire and the second is that these token facilities are not fungible if I create a token facility and I admit these tokens those tokens can't be redeemed against someone else's facility so they're not fungible in that sense or as with dye right diet is fungible you can use try to close out anyone's cdz so those are two of the main differences behind the synthetic asset tokens and I'm more than happy to discuss some of the motivations behind why we chose to include those two features that has a toll on stead of but that's roughly how a synthetic asymptoting works and we think this is really exciting because it means that you can use this in your contract template to create lots of different kinds of natural risk and provide that type of financial risk to lots of different people the single a universal market access so I also will discuss some other examples of that but first I'm going to show you that you can build your own token honoring to be using the synthetic token barrier so if you're connected to the Wi-Fi you can go to token builder human project org and on wrinkly test net you'll be able to actually follow along with us hopefully that video there not to show you you just need to have tests eath and test net die all right so let me try to get this video up summary okay so if you're able to get to this website and you have test it you can doesn't die first thing you're gonna do is move in a token facility so it's actually creating that box that I showed you in the diagram before right so what does that mean you're studying a bunch of parameters and then launching a smart contract so when you launch the smart contract it's like you're opening a new token facility then you're going to deposit some money into that trophy facility right and borrow tokens that are backed by some portion of that margin so in this case they're depositing 10,000 tests net died in withdrawing five children's so they're borrowing five tokens that are backed by the 10,000 died that they deposited so I think this this clip is actually 50 seconds so really fast and if you know you're doing a presence that's super fast but you should feel free to actually go in look at the different price feeds that we've already curated for you as well as some of the experts that we've curated play around with it create your own tokens send them to people have test net financial notes and then check it out but that's how we've basically shown you the financial engineering behind it right and then we've shown you an implementation or a way that people can access that type of financial engineering I think especially the structure I see the first kind of diagram with boxes and arrows and cash flows it makes a lot of sense to me but one of the really cool things about tokenizing this kind of natural risk is that it becomes very accessible once you have these tokens on test it you can just send them to anyone and begin your financial risk that way there's no need to hammer out a bilateral agreement between two counterparties so that's the video me close this was anyone able to actually get onto the token builder well we tried and for at least trying this is a look at a QR code for that theory of galaxy game so that's going to be our little challenge but feel free to scan that and collect your in your star I'm just going to pass it around to so the Machine I can move up reputation if you don't have it yet okay I see some phones so I will give you three seconds okay that's it I'll set so we're moving forward but anyway so now we're going to talk about a bit more about the financial engineering behind the scenes and what that synthetic acid token really is and what it's doing so as I mentioned before right in that video but someone did was the first thing he did was he defined a couple of parameters so he chose a freight speed you chose an expiration date he chose a name for his tokens and his total facility then he employed the contract right so now we've actually got a Toby's facility that's live on earth we test now nobody knew he deposited the collateral gracie deposited died died is the margin currency that we've chosen for this synthetic token will there at this point but of course that's something needs change we see you probably died in the choking facility then you borrow tokens that are backed by some portion of that guy remember that you're over collateralizing the value of the tokens like our borrowing and so there will be at least as much dye in there as the value of the dye value tokens that you're borrowing and then once you do that right that's all done by its token sponsors so that was the position that I was saying I had before I'm a token sponsor so I'm creating this hooking facility and then borrowing the tokens and now as a token sponsor now that I have these tokens I like to is some I trade them some I trade them with a token holder I'm to actually begin having financial risk just raise your hand if you understand why the token sponsor doesn't have anything actual risk here before this okay okay so I think that's actually that's a really interesting data point happy to go into that in more detail later but that's also an interesting tidbit about this kind of token system toking facility employment is that before here before you trade them with anyone you actually have no risk to the price feed that you're using but in any case sure you have a good question on defining the parameters looks like you have a limited set of portables and some expiration dates so how do you think about letting people create contracts and do composability versus just launching this on yourself like launching like the perfect question allison is going to discuss a lot of that in the next couple of sections so yeah so I just wanted to highlight here that the idea someone is defining a bunch of parameters and then launching a token facility from which they borrow these targets and sell them but to your point absolutely you can change the parameters and we would love to see people change the parameters are currently available and include their own parameters so what you can do is again if anyone can access this this is just a link to that yet have where all the code that powers the synthetic choke and builder lives so you would actually go there and follow along as I'm talking about this but there is in the code there's a section where we define a bunch of parameters in fur to have a facility and I want to highlight three of these parameters because I think they'll probably be the most interesting to people who want to create their own token facilities they're synthetic tokens one is this finer dress is basically the price feed right on trading price feed that the token price is going to track so if I say for example that this address points to an on chain price feed for the price of Bitcoin and die it means that each of my synthetic asset tokens that I'm borrowing from the tribune facility will be backed by that number of die so that's the one but should be interesting and then two other ones are the expiration deed of the facility so in the synthetic token builder in the video you might have seen that there are a couple of pre-selected dates that you can choose other ones and then the margin currency of the facility so as I mentioned right now we're using die on testa but you could certainly change that to be a different origin currency that you would like we already have some cool projects that have done things like that or looking to do things like that so Alison's going to spend a bit more time talking about those projects that she's seen as well as some ideas for those of you out there who want to build new things okay so we started off by saying Who am I is a decentralized financial contracts platform with the decentralized oracle service and smart contract templates specifically right now the first one that we've created is the synthetic token template and what you can do to customize and adapt the synthetic token template to your particular use case or any is first choose the reference price index and as regina mentioned in the UI we had already curated a certain set price indices that we thought the audience might find interesting but the cool thing about derivatives is that your imagination now is really the limit so in terms of the prices that you want a reference you can reference cross chain assets like Bitcoin or gos or whatever off chain acids like traditional Fiat Adsense old sp500 etc local currencies so not just dollars but sterling or any local foreign exchange currency that you can think of and then also non-tradable things so things that aren't inherently assets or things that you can touch and buy but rather just price indices so for example the number of followers that CZ has on twitter or the number of votes that a particular reddit post has or my favorite topic interest rates which we're going to get into later you can also customize your margin currencies so you know in the Daffy UI we curated it with dye it's just a little bit easier from a mental model perspective I think to think about things in dollars but you could also use Eve or even things like interest bearing stable points so that you can be even more efficient with your margins and then once you've created your synthetic token there's a lot of different ways to actually apply them and use them so you could go and trade them on an exchange or bills and build an exchange around synthetic tokens you could use them for local payments you could like for example if we had a synthetic yen token we could be trading again with each there instead of trying to figure out actual cash you could obviously interface with them through a wallet or some other sort of brokerage experience and by a brokerage experience just to differentiate that from exchange that's like how if you're buying stocks in the US or something you're probably buying them through a broker you're buying them through like fidelity or Robin Hood or etrade as opposed to trading directly on the New York Stock Exchange or something like that and then you can also look at creating funding and issuance platform so much like the maker CDP portal you could actually use these token facilities to attain leverage for yourself but in this case customized levered exposures so just to highlight some of the use cases that we found really interesting and that were either working with on proof of concepts or or supporting in the marketplace I talked a little bit earlier about local currencies and how they can be used for payments there's a really interesting company called tempo they're building they basically helped NGOs to give aid directly in places that have been affected by disaster and for an aid recipient right they don't really want to think about died or eath or whatever they think about their world in their local currency but unless their local currency exists as a stable point on blockchain we can't actually use a blockchain base wallet to facilitate that whole process so what we can actually do then with the synthetic token builder is reference the price of the local currency so like the vaatu die exchange rate and then we can margin that contract with something that has real value like die or see die interest-bearing die and then we can use these synthetic basu tokens that get created in the actual wallet and payment system so that from a user experience perspective the end user just thinks oh I'm moving bought you around great like I'm familiar with that instead of having to do some sort of mental gymnastics around what's the dye to bought to exchange rate is another really cool use case I don't know Tom's here but if you're building International wallets or serving international users many of them lack access to international traditional Fiat assets or if they're already crypto native just would prefer the convenience of being able to manage all of their financial assets out of a single wallet so what we can do is reference something something like the sp500 or another major global Stock Exchange margin and again either in a stable point or an interest-bearing stable point depending on how capital efficient you want to be create these synthetic tokens that track the value of let's say the S&P 500 and then actually sell that to these international users that are looking to invest in US stock indices but don't otherwise have access to it and then the third use case is making otherwise untradable things actually become tradable so a lot of people talk about Bitcoin dollars that's right and you can look at you know the Bitcoin dominance index or you could look at an altcoin dominance index whatever it is it's actually really really hard to trade right there's thousands of coins imagine trying to actually go around and swapping those in and out and then rebalancing it in live time you'd incur a great deal of trading cost and it's just kind of a headache well what you could do instead is you could create a synthetic token that directly references the Bitcoin dominance index itself margin it in whatever you think makes sense and then take these subsequent tokens and trade them out so if you wanted to if you're a Bitcoin maximalist right you could actually buy a Bitcoin dominance token or if you're an Allpoint if you wanted to short like the 2017 okras you could try to create this facility and sell an L point dominance token to somebody else as well on the topic of non-tradable indices I'm gonna talk about interest rates in particular so interest rates have this really really interesting quality where they give you one more variable to play with so most of the time if you're trading something like if you're trading Bitcoin for East there's only two variables that you care about how much am i treating and what's the price that I'm trading at and you know most things kind of follow your standard 2d supply and demand curve when you're trading interest rates you add another variable of time so interest rates measure the cost of renting some amount of money for a period of time and you end up being able to basically create these 3d interest rate curves according to what the cost of rent in that money is how much money you're trying to rent and how long you're trying to rent it for the killer use case centerfire and basically all of defy has been within borrowing and lending and that the interest rates that are used in those borrowing and lending protocols and all just been short-term interest rates they're more or less ignoring time and they're saying here's the cost to rent die for you know to rent you know a hundred die and then the interest rate actually resets every time the stability fee changes or every time somebody new interacts with that compound lending pool but oh but if we wanted to create an interest rate market we could actually create a market for how much it would cost to rent that specific amount of die for a defined and longer period of time the reason why this is it's because first of all it's a huge huge huge market if we look at the Fiat world derivatives are 500 plus trillion dollar market almost all of it is interest rates so and if you want to talk about uniquely enabled use cases these things have to be traded synthetically there is no other way to trade time without a synthetic derivative because an interest rate is an abstract thing you can't touch look see or feel it it's not a token you can only trade it in the form of a derivative and it's important actually that we are able to trade these interest rates and allow people to trade interest rate risk over time because right now the only reason why people are using these borrowing and lending pools in d5 it's generally for speculative and kind of not price sensitive use cases right if I believe that eath is going to moon next week I don't really care if I'm borrowing at 1 percent 10 percent or 25 percent but if you're talking about non speculative use cases a home loan car loan business loans student loan price does matter a lot more and the ability for borrowers and lenders to actually start offsetting their interest rate risks the ability to walk in interest rates or speculate on interest rates is a fundamental necessity in order for these use cases to get unlocked and define so this is why you know we care a lot about this there's a whole hour and a half long workshop on YouTube that you guys can find later if you want to go really deeper in but I'm gonna highlight three ways actually that you can create interest rate products with uma today using the synthetic token template now I'm not saying that the synthetic token template is necessarily the way that it should be created or the way that it necessarily will exist forever and ever ever but these are actually three different ways that you can actually create them today that would give us price discovery and insight into how this market could evolve and so these three are why it took kind of a simplified version of Dan Robinson's Y tokens Summa which is a project that came out of each Boston and then fixed rate tokens which is more or less something that I made up so to dive into these um so how many of you have read the white Hogan paper just okay okay so the way that basically Y tokens work is you're trying to create a yield curve for what the eight dollar funding rate looks like over time so how much money will it cost or sorry how much will it cost for me to borrow dollars against my eighth for different periods of time that's that's what a yield curve for each dollar would be and and that's what the motivation is for creating y tokens is the way that it would work is you take the uma synthetic token template you make the reference price index the price of dollar e so it's just one divided by the price of e you use eath as the margin currency and you basically just say that every toe can I borrow will pay out $1 at expiration if the price of East goes up it's less East and if the price of East goes down its more East it's always $1 worth of East at expiration and so effectively it's sort of like what you've created there is an expiring stable point from the token sponsors perspective if they were to create this product create this token facility and borrow tokens against it it would enable them to get levered east exposure kind of a similar reason to why anybody might open up a a maker doughsay appears like that but the difference is that the way that they would get this exposure would be with a fixed interest rate over the lifetime of that token facility from a token holders perspective they get to own a token that they can redeem for $1 at expiration and they're buying it for less than one dollar initially free money right but basically it's it's kind of like interest it's an interest bearing token interest bearing stable point but you know kind of different from seed die and if we have a market for this what we could do is observe the market price for these y tokens that have different expiration date and use that market price to calculate back into what the implied funding rate for East dollar is for different periods of time so you could create a a Y token that expires in three months a why token that expires in six months and a why - that expires in one year they would all have different prices and based on that price you could get an implied interest rate based on that implied interest rate you'd be able to build out a yield curve and then you'd have better visibility into what the market expects the east dollar funding rate to look like over periods of time right now all we know is that the makers - what the maker Stability fee is today we don't know what it'll be next week we don't know what it'll be next month and it's actually quite hard to figure out what expectations are if any of you have ever been on any of those governance calls there's quite a bit of debate this would actually give them more insight into what the market already naturally expects the interest rates to be another way to treat this is through soo much oaken's where basically the reference price index is 100 minus the expected to the stability fee that you would pay between two fixed dates so let's say we're the two fixed dates are January 1st to December 31st and we're what we're referencing is what the market expects the stability fee to be on average between Jan 1 and DS 31 and then we take 100 minus that so the price of this thing would generally always be less than 100 the reason and the reason why somebody might actually want to do this is if they wanted to really directly speculate on what their expectation of what the expectation of interest rates are over time so the token sponsor would make money if rates increase effectively a token sponsor could use this if they were a borrower and they were worried that interest rates were going to increase and so they could create these too much hook ins in order to match off the P&L there from assume a holders perspective they make money if rates decline it's kind of like a lender who wants to lock in their interest rate today because they think interest rates are really high and they're going to go down in the future and the same deal we can look at the market implied price and it will reveal information about what the market expects the interest rate to finally be the future final version is a fixed-rate token it's just kind of like too much pumpkins but a little bit simplified you just directly reference an expectation of what an interest rate will be between two fixed dates and you tokenize it so if I say like you know between Jan 1 and D 31 the expected interest rate is 10% every token so the interest I 100 I'll own would be 10 died then the token would be redeemed for 10 died at expiration and then you can directly trade these fixed rate tokens between each other so every token is effectively the variable interest rate that you expect the maker Dao system to cost you on a $100 loan over those 2 fixed dates so to kind of summarize what we've covered there with all these different use cases synthetic products are highly composable within the defy and general etherium universe and the innovation can kind of occur at many different levels the innovation can concur of her at the price index level where you can just make up basically or reference arbitrary price indices the financial engineering level basically the interaction between the price index and the margin currency and the payout structure that you're creating or even at the application layer so how you're delivering the product to the user and what's new or unique or different or special about the way that you're delivering that product and synthetics are really great because they you know offer the features of leverage support for cross chain off chain non-tradable assets and this ability for synthetics to we'll risk transfer for things that were previously not tradable is critical for developing markets like interest rate markets where we can start to think about supporting non-speculative news cases and so Regina is now going to talk about how you can actually build contract templates not necessarily just the synthetic token one that we already have but other contract templates that are safe secure and scalable the fundaments as great as some synthetics are at a fundamental level they all require an Oracle and on Jane price feeds are expensive they are hard to maintain they're dangerous you know a number of d-phi projects out there all do use Oracle's and many of them have had Oracle that has actually failed at some point or the other and so we actually believe that you know it's going to be really hard for defined actually scaled at a global and large size without a secure arm chain there sorry without a secure Oracle but we believe that the right way to actually build these contracts that need an external price reference is actually to minimize the use of on chain Oracle's at all and so Regina is going to talk about our framework for writing templates that fulfill this I want to emphasize one more time that the topic of this workshop is building synthetic derivatives so what we mean by synthetic is specifically this that the financial risk that you have on chain comes from an external price feed come from a reference asset that the derivative is referring to rather than any sort of physical token that's being borrowed or - chief leverage I just wanna emphasize up like very very clearly because I think the rest of this talk is going to be about getting rid of those price feeds and so I want to make sure that we're gonna chance it like synthetic derivatives are all about referencing an asset and they have nothing to do with like actually physically borrowing and lending anything to get leverage so on that note we talked about the stokin facility right and how there is a certain price that comes in from this price feed that tells you how much collaterally needs have to actually fully back the tokens and then again will your Kalaa causation requirement is so fast off of this one price fee that's being pushed into this token facility we know both the price of the Mondavi plateau and the micro fired bottle some of these two things then we just do a check to see if you have sufficient collateral to meet those requirements right and so depending on what price the price feed pushes you know that you're either in this state or in this state and once you're in this state you know that okay great like it's penalties assessed and that all gets paid out to the token holders and people so this is how probably most people think of synthetic derivatives I'd say in fact this has a lot of analogies to how Fiat works and how synthetic derivatives are settled in Fiat so if this is our existing framework for how we march in and trade and set all synthetic derivatives we've got a lot of pensee on this price view and that's why these prices are so expensive we pay a lot for them in the fiat world and of course as Alison's been talking about with the Oracle they're corruptible so if I have students make a lot of money by saving me from this penalty maybe it's really in my favorite to crop this price steep so I can keep the penalty or so that I can really reduce the amount of money that token holders get I might want to accomplish my scheme there are a lot of reasons that in defy especially this is susceptible and in Fiat that there are a lot of reasons why this is really expensive so it-it's things like it's Fiat it's expensive from a dollar cost perspective and in d5 it's also expensive from a leg computation and keeping things alive on constructors is there any legal framework to basically put some liability and for for the price it's like in the current business India yeah sorry in traditional finance I think there there might be I would say the larger places the more conventional way that we've addressed this issue in Fiat is we hire a lot of people to look at prices and confirm that the prices that are being sent from one custodian to the other custodian are currently some of the will neither we can undo the things right and yeah let's another thing you can do on Fiat is that you could undo these transactions so you can hire people to go back and move money back from certain accounts to their goats we should be able to pack for this future I know it's not fully process on that Senate automated but know this is the like I think that's a little bit out of scope for this presentation but happy to discuss later okay so as I mentioned before right in that picture we've got these crises that are regularly pushing prices to smart contracts so one way to visualize this is to say okay we've got this price feed that runs that someone has to maintain it's an unverified priced feed your innocence but I'm gonna say it's just something that's been piped in from say Bloomberg onto the blockchain maybe we're using some service that ensures that you know it's not been corrupted from Bloomberg on its way to the blockchain but it's unverified in the sense that like if it comes out incorrect from Bloomberg we don't really have a solution so here is my price see that's regularly pushing prices to this smart contract I'd say frequent 15-minutes price updates right so the question is how do you provide prices so quickly from a decentralized economically guaranteed or say that's the big question that we're trying to answer right we want these prices to come frequently so that we can liquidate people when they need to be liquidated but we also need enough time to actually have I guess in the Fiat world to have like humans look at prices and check to make sure that they're correct so how do we how do we address this problem and then there are two options that were currently seeing in the person you can implement a delay at the Oracle level so what you can do is you can say we're still gonna get prices every minutes but each of those prices is going to be delayed by an hour so the price you get at 1:00 p.m. is actually the price from false yeah so 1 p.m. in blockchain timer like real real-time corresponds to a price of pocket so you're basically giving people a one-hour delay before the price from public lock hits the blockchain at 1 o'clock one thing that's really cool is this looks kind of like how settlement works in fiat so right now if you trade stocks let's say in your brokerage account as Alison mentioned you get filled at a certain price and you know that you got executed at say the price about 12 o'clock but the stock doesn't actually arrive at your custodian until say two business days later so you know physically have it or you don't have that record implemented until that time so in that way right it's a lot like this kind of mechanism where you've got this price that's delayed then hitting the blockchain at a later time and then you move you actually move tokens or collateral at 1:00 p.

m. to correspond to the 12th BAM price so that's one option one of the challenges with this though is it puts everyone on the same clock so this is a great because let's say you've got a lot of different smart contracts all depend on the same price and this is fine but it means that let's say you've got some contracts that have you know a small amount of money and you're ok having it be updated every 15 minutes you don't need the one hour delay it's not that much money at risk like I'd be happy without it but let's say you also have some contracts that have a lot of money and you really really care about making sure those prices are right well this it works but it puts our own signal so you me not I do another option is you can implement the delay at the smart contract well so what you can say is great so again the price is coming in exactly at one o'clock this time then what we say that's fine we recognize that price on chain but we're gonna move margin at two o'clock so here it's just like the the picture I had before but instead of implementing the delay at the Oracle level we're implementing it an athlete smart entrepreneurial but still it again it looks still like someone to Fiat it still looks like the option from before the only difference is do you implement the delay when removing margin or do we implement the delay of when the price is coming on chain requires fewer Oracle calls in the sense that you don't have for example here right like you don't have this limits one hour delays it's a little bit less Oracle intensive but you still have the problem of you just put a one hour delay summer whether it's at this level so the benefit of the delay is if you have for example a price that you're seeing in the real world at 12 o'clock it gives time for us all to agree that that price for 12 o'clock was the correct price and when I say us all to agree I mean physically for like human human analysts to look at it and like confirm oh that makes sense the price of the SNP is not 200 right and so it gives people a chance to review so as you can see both of these options are doable certainly they have been implemented but they're not great like you still have this whole settlement issue we still have unverified price feeds so what I'm gonna propose is instead of pushing prices to smart contracts let's let the projects just pull them when they need them right so instead of having all of these prices pushed onto the smart contract why not have a smart contract that says okay like I don't need to know the price right now because everything's going fine there are no limitations I don't think there should be any limitations it's fine right so so we're here everything's going fine then when you see in this defy smart contract that there's something that would require their price say oh hey like I think there should be a liquidation here why not let them just raise that as an issue I'm going to call that a dispute in this picture but raise that as an issue and then let an Oracle handle it so this concept I think is one of the most important things that king designing like finished contracts that are compatible with an Oracle is this movement away from a push mentality into a poll mentality so as you can see here right you're moving away from having someone pushed prices into a smart contract and just letting the smart contract pull prices from hiddenness can be decentralized economically guaranteeing of our goal and just pull those prices when it eats them great [Music] great question so the smart contracts doesn't know what the prices all right because the support contract hasn't actually pulled for a price it doesn't know it doesn't know if you should be liquidated but we've got a bunch of human beings interacting or I guess like other robots interacting with these smart contracts and they can do the work of saying oh based on my assumption of what the price is right now I don't think there should be a liquidation so I don't need to raise a dispute to make that smart contract to pull a price down what I can do is I can say well it looks fine to me because I can see off chain that oh like I look at the price on Bloomberg it looks fine I think that these should not be liquidated I'm okay I don't need to pull a price so I'm basically saying that the human beings or the other robots interacting with a smart contract are looking at that smart contract and saying I don't need to go pull a price right now I'm letting them decide when okay there's actually a situation where someone's actually in default someone needs to be disputed someone needs to be liquidated at that time there needs to be an issue that's raised to another power that I can say okay you're correct you're right and segregated I'm now going to give you the final verdict on what that price is great question I actually know it's a really great technical question left oh sorry are we worried about das attacks great question our team has done some thinking on that I will put you in touch with this people after this so what I want I want to get through the rest of these slides because I do want to mention this in the context of synthetic tokens which I hope will be helpful in understanding the framework more than happy to take questions after this and outside cool so I talked about this framework right now let's talk about how you might apply them to the synthetic tokens that we were just talking about because in the synthetic tokens before right there still is that problem of okay we've got these aren't we and phrases to each other team is really hard to put on chaining but those are still comfortable and potentially could cause limitations on their Trinity so how do we make these synthetic tokens in the priceless framework I I kind of mentioned this in my answer to that questions that I took it but here does it here's what you can do right you've got the token facility you know there's backing collateral in it and you know that there is some hearts proto plot so I can see this information I can see this information kind of but what I really did see is the total clock and then I'm sorry I'm saying I is the token holder right so I'm someone who holds a token that was patient right here what I can say is I see the total cloud when I look outside of tests that I love and I say oh a bloomberg is telling you this price based on that information I can say well that looks right okay he's got enough collateral that it's that price we're to be pulled onto the blockchain right now and it really were that price there would be no issue this person wouldn't have enough back in collateral they would have an to meet the required collateral these question marks would turn into checks and so what I can do as a token holder is say this looks fine I don't need you to pull in a price I don't need you to pull that data and perform that very expensive check to make sure that everyone agrees on the price this looks fine I'm happy with it the token sponsor is free right now to keep depositing or withdrawing margins from their token facility they're free to keep doing this because no one's disputed his position but if something were to happen let's say I look off chain on the chod we called our little Goff chain and the price actually looks really really high and I think to myself the total collateral actually is lower than the required collateral there should be more collateral in here right that's an issue why it's a spread right that's an issue so what should I do I should say that looks wrong EVM help us resolve this dispute raise this issue - as I was saying before the other power this is DBM raise this issue to them and say hey we need you to pull a price off chain now we need you to come and resolve this dispute because I think this guy is under collateralized you need to help us resolve that issue and that's why you miss building a TPM to help you answer that question right to say hi how can I help in this situation great so we've got these two scenarios right in the happy path in the happy scenario this is going on no one needs to pull an expensive price on chain tokens phones that are free to deposit and withdraw with no delay well with some delay I'll go to the delayed this but they're free to deposit in withdraw and unhappy hath an unhappy case well we've frozen the margin in here while this DVM the DVM stands for data verification mechanism but while this dispute resolution process takes place we freeze the margin and someone else does that work of pulling about price chain so what does that mean for a smart contract if you're building a smart contract that intends to use this framework what additional considerations you need to have the way it works is your smart contract remember this is the token facility from before that was deployed in the ring feet s net this token facility needs to consistently pay these continuous taxes so what we have in this picture is they're paying taxes regularly to this Ummah store contractor so you've got a token facility that's paying these taxes and that helps ensure that going back to Allison's statement about the Oracle it helps ensure that the cost of corruption is higher than the profit from corruption because what this is today is it's saying these taxes are going to make the cost of corruption higher and once you've done that right once you've created a token facility that's up to date out of taxes let's pay the correct amount of taxes it gives them the ability to later call the DBM when they need it so what you can do is you can say well as the asuma's DBM as the Oracle I say well great this token facility has paid its taxes regularly now that they need to raise a dispute I'm more than happy to when they do that right the token facility requests the price on train you pull it in to result in dispute it generates an answer and then you as the smart contract can go in and retrieve the price from that Oracle great so to recap what we've discussed so far actually I guess this is all of it but to recap what we've what we've discussed we started out this conversation talking about on chain price feeds and sancho contract templates right we started out talking about how with ease and with our synthetic token builder contract with the synthetic asset token contract all the different kinds of things you can do with that Allison gave like six or nine examples of things that you can build with that and more and we would love love love to hear other things that you want to do with these things and how you might use them in different applications so if you have ideas about that please please talk to Allison because we're thinking a lot about you know how you can use these templates to to meet cool tools for other projects then from there we talked about how you could deploy these commands or contracts with new parameters so we talked about how if you change for example the price speed or you change the expiration date or the merchant currency you can make new things that go into those applications Matt writes who's our lead engineer sitting here and can help it anyone who has questions about how to do that from a technical perspective and then we ended this conversation with how you can use you can escape these on train price feeds and build things that rely on Oracle's or these kinds of backup Oracle's like the most and how you can do so many different types of financial products in that way and see if you want to talk about that more please find me so that's kind of what we've discussed so far more than happy to take questions now and have additional conversations well is there a mic we should use or should they just yell just yell okay can you explain more details how taxes from the contract to may will help to keep the Oracle there sure sure so it's a basic idea of how the Oracle works is that when the Oracle is requested the price is requested from the Oracle okay what a wonder price is requested from the Oracle the Oracle then goes out to a bunch of people or I mean they're saying that's very colloquial e but it goes autopunch people and says tell us what you think the correct price should be those people then submit their answers for oh I think the price should be this and they also have some balance of voting tokens so those voting tokens influence or determined how much influence they have over the correct the final price that's returned to the smart contract so the it's basically if you own more voting tokens you have more of a say in what the references the taxes that I was describing for those go to do token buybacks so those increase the cost of corruption because now those tokens have gone to to increase the price of the tokens so if you want to go and bribe the Oracle you need to go out and buy more voting tokens for those voting tokens are now expensive that's a cost approach so the only way to get that audience is from taxes which were say oh well I can get it somewhere somewhere else if I want to vote on prices for the Oracle I can go out and buy the boat token but the price at which I have to buy the voting token is influenced of course by that at the buybacks 20 seconds here I'm going to use because I wouldn't really need your cost right somebody I said people are living I'll let math math you know get burned they get the ideas that it be prizes out of all the value of those vote oaken's go to zero because you effectively from those into that worthless because you're gonna expect use the system in the future so so the boat tokens you don't burn them the idea is that you're holding them so if you were to do something bad the value you're holding will go to zero so that's that's the economic because I think place human goodness maybe fix that we have another hybrid humans that continues to have and have okay that's more a statement so I think that in some ways there are a lot of corollaries to the fiat world right but like when you and I enter into a contract in the regular Fiat world we're abiding by the terms of the contract because we know there's external consequences if we fail we know that you can take me to court you can sue me potentially if I did something really bad somebody could send me to jail right in the blockchain land there is no such thing so this horrible that we built is basically a primitive that allows us to create an economic incentive to be able to get some of this off chain data on tape and be able to verify things that you can do more with our smart contracts that we otherwise would not be able to do because in this blockchain global world there is no you know external Jail there is no external single global court system that we can all arbitrate you what is the wonders of what happened great so on the first question let's say you're right so so let's say someone misses like a situation where the right so let's say in that in that diagram in that diagram right so there was a situation where initially we were here and then we got here and no one called the pole for a phrase there are two outcomes right one is the next time someone does call for a phrase we're still here so eventually it gets caught just not by the first person the second case is find the time someone's come in to say okay something looks off we're back here in which case what's happened is you've given someone that kind of like optionality right and saying oh well oh I know I'm under collateralize but I'm just gonna hope that no one calls to pull fair price I think that's a very valid concern but the hope is that with lots of different about utopian or voting lots of different voters or is lots of different counterparties in a system that has like more liquidity that people will be monitoring that stuff and I would say actually one of the cool things about potentially the way that this ecosystem grows is that we eventually have third parties that are incentivized to watch for this kind of stuff and pull pulled for those kinds of price feeds or pull those prices because they've got some kind of economic incentives to do so so I think there are lots of ways that this could could be built up in the future and has like different add-on features so all this driving and placement would still like in whatever two types of legal contracts enable someone to operate right so a pretty complicated because every country kind of has their own set of rules the first thing to kind of understand is that sadly there's a lot of ambiguity when it comes to this stuff actually not just because of the blockchain aspect but just in general the definition of a derivative and the definition that missile carries not always super clear and it really depends on the specific facts and circumstances of what you're trying to create so if for example you're using a non security as the if you're using something that's not a security as collateral like E and you're using something that's not a security as the reference price index like the price of Bitcoin and you don't have very high leverage then you know it's unclear these products depending on jurisdiction could be classified as a derivative or a loan or a hybrid instrument but certainly not a security alternatively if you use a preference price index that absolutely is a security like the price of Apple stock or if you're using a margin currency and that absolutely is a security like some sort of an sto thing then yeah like that would probably be subject to Security's regulations but it always depends on the precise combination there's things that you're trying to do so every one of these unique effects plus the traffic was following obviously UX work with this when you have thousands of different codons this interoperate with like this isn't gonna what great question I think again there are like two different ways that this could well and probably more one way that I can see the ball thing is we do more financial engineering work on making those tokens fungible between different contracts that have the same parameters we've done some thinking about how you can implement that and decided not to launch our initial version with those additional features because they seem very very complicated but it's possible to make a system where all those things are fun - I mean dye is an example of something where they are much well and the second is depending on the way that that marketplace for synthetic tokens looks in the future potentially we could have you know lots of different individual token sponsors who then create children's and sell individuals but depending on the way that the the ecosystem looks in the future you could imagine a scenario where there actually is one big token sponsor and maybe that one big token sponsor is actually some collection of individuals who've pooled their risks of power right there there's so many ways that this could grow and change leggings definitely like the first thing I mentioned with the financial engineering is one thing the composability with other ways to pull risk is another lastly is maybe there is like UX solution that works better so I think there were lots of different ways that this could go and I'd be more than happy to can you continue that conversation if you consider this from Melissa you have the light do you think this would work from a parametric insurance perspective but you just have an event you get to pale festival is too much right yeah so your question is about parametric insurance yeah well just insurance in general we have events and this would be a panel tool because the minutes essentially the same logic just a different price feeder so yes asterisk with some caveats so I think the biggest issue with binary payouts on chain is the question of margining so if you want like a million dollar cot insurance policy like I get a million dollars if the rain is really bad this year then the only way to do it really safely is to put the full million dollars into that contract from day one and then have an Oracle that tells you whether it rained really badly was here or not but that's really really capital inefficient and most insurance products don't actually work that way generally when you buy a million dollar insurance policy from a normal insurance provider they're only putting up a small amount of money a small fraction of that million dollars and they don't have to put the full million dollars upfront otherwise they wouldn't be able to write as many policies as they do in the fiat world so it's it's I think this is an area where at least for right now and the way that we've thought about writing insurance on the blockchain that it would probably be less competitive to the Fiat alternative at least I certainly have all the money in governments and then as an investor you just take the recipe gets reserved at the wheel money goes away if the event happens but I was just saying there are catastrophe balls where you put all the miles runs there's a kind of bonds where you put all the money upfront disappears that the bad that never happens but not actually sure how popular they are yeah and there's actually still embedded leverage in those and the way that they work in the Fiat world that doesn't really translate easily into watching land okay and you know your or you have a dispute you see that the conference is gonna fail when it's what is relative happy immediate pricing when he started the presentation very expensive or those price providers can be very expensive and I agree with you but if any on the magnitude of the crisis and significant trillionaire business so the question is more like about being the Oracles what if you would have like five six different Oracle's we have read the derivative from page you have beliefs where this price is coming from if it's going to be from the central bank or from Reuters they've only work at this specific time so my question would be is this Olmec famous about forgetting about the price provider or not trusting the price provider because the financial services so I think that when we were saying expensive we actually meant expensive in a number of different ways so expensive is expensive in terms of actually purchasing the data and getting a license with Bloomberg or whoever for that data but there's also expense with running your off chain servers running the DevOps effectively between your opportunity server and your on chain communication paying the gas fees and then also all of the coordination costs amongst anybody who's participating in a contract like the centralized version so bit max for example they just decide what their XP team indexing is and when they decided that this annex wasn't good enough or when they want to tweak their algorithm they just make that decision unilaterally and they changed the way they calculate the price index they cook up the new API is they do all that stuff but in this blockchain decentralized land if you don't want a single point of authority in that way to make decisions but you similarly have thousands of people who are long and dozens people who are short this is seamless burn doctor how can you actually do that effectively just as own Oracle maybe the Oracle must be like a centralized already established trust for the party like a ruler or for some writers or artists so it's I mean it depends I think on your use case and where and why you're willing to accept that centralization but again even if you are willing to accept Thomson Reuters as the source of truth and you're willing to say I'm going to go with that price things still happen you still get in again you still get 0 you get flash crashes where they go back and break the price and in a smart contract world where you're everybody's kind of self custody in their own points well if you're using that in a end or the zero price from tops of Raiders the coins already moved that's a very very bad yeah your underclothes our lives like before right you see the price of the real world and then you're like oops right and though in this system right before the points in actually move you go to a decentralized verification mechanism to actually validate that this price is the right price rather than just directly and gently using it what prevents the from shorting so in the case that you pneumatic construct pulses instant previous point participation trophy Department something that would allow me to flow across America there's absolutely potentially an even easier way to do that which is if these tokens were on some sort of a landing protocol and they were being lent out their massive size you could simply borrow the tokens take no price risk yourself use the tokens to vote create lots of bad prices that break every contract and then you know make out like a bandit so huge problems will be really interesting to see how that evolves but as that's why the initial conditions of the token distribution actually matter a big deal and why it's really important that you have a really highly engaged voter community so as a rational Ummah token holder as a rational stakeholder I should never lend these out or if I ever observed that there is a meaningful portion of these things lent out then I should not I should no longer own these tokens so these are ghosts while copying these contracts and something great that's really little ammunition the coordination required to get everyone up easily exhibit their contracts before something happens but you need somebody on the other side who's willing to go Leopard lon so if you want a short a trillion dollars worth of these uma tokens you got to find somebody who's willing to go a trillion dollars long so in that discovery process in it will impact the market there will be signal to the market that this is happening and so that it should not happen it would be irrational for that so if it isn't a payoff and on my comment value is left inside like for example if if the group of what a lot more there's a lot of capitals that risk very much so that that's actually the system that we built where if you have let's say a hundred million dollars of margin locked inside of smart contracts that are referencing the uma Oracle then the uma tokens must be worth at least 100 million dollars or the value of the voting tokens actually must be worth at least 100 million dollars in order to prevent a civil attack so that's actually why we have that dynamic tax rate that Regina talked about earlier so if we ever observed that the value of the tokens is too low for the system to be guaranteed to be economically safe because there's so much margin in the system we would actually implement the tax on the system and use that tax to buy and burn tokens until the market cap got high enough again yeah every contract has potentially different collateral and the acceptance of collateral is a governance parameter of the system so you wouldn't be able to just use some random alt point that nobody actually knows what the value is please take your stuff with you don't give it here before you do we would still have more time for more questions okay I remember to leave this up so that you at least you guys know who we are and come find us later [Music] it seems to me this time like looking more circle this together they'll make sure that by using the pole push using the list to external parties that are hard and I wonder if there are some ways sufficient level of market players and sufficient amount of market need to catch those enemies is where we do you invoke some kind of call it is and where there might be like things where you just got to noticing things are happening because you're not practicing rarely data right so I'm just curious if you've thought about this more and you know maybe there's some things being yeah I mean definitely I think one of the key takeaways is just economic incentives drive the world right and so within months of maker it out for example releasing their keep their reference implementation of the keeper code somebody had already improved it and their original code was being beat every single time and they haven't yet had a failed you know liquidation so similarly that we didn't go into it explicitly here but a portion of the penalty actually is basically paid out to the collar of the dispute and so we economically incentivize people to actually go and dispute in addition to just saying like everybody takes some responsibility for it because like you kind of yeah definitely I think also standardization is important so if you so I think if you had affiliates for contracts and a million different ways to all of them and you had to write a separate API for each of them or whatever to actually protection be the keeper that's a souvenir heart so I think the key partner really sorts of systems I think you're successful to make sure there's a standard way to quickly look through all the contracts to make sure they're going to you - across the monitors so for instance if you had ten maker doubts you must all have the same API so the same keeper who we work for so one person can run one system monitor 100,000 contracts yeah how would you say your Oracle solution papers from their solutions I have like chained lineker some of these other systems how would you say this comes in America however there was not necessary sir we around the financial engineering order everyone's part of that yeah so I think the system is very different from systems like chain link because what tree link is effectively doing is taking the programmatic API data and then making it such that rather than having a single node reporting on it you have multiple notes from morning on it where settlers augur and that we both use a shelling point game to incentivize the reporting of honest like honest reporting but we're different in the implementation details specifically that augur has to have a designated reporter initially rather than artists we're actually using the entire network for reporting and also augers markets are done in natural language which is beneficial for some things and that you can do more but really harmful for other things and that a lot of markets resolved in invalid in uma system the price requests are standardized so there's just a simple identifier the schedule this argument system it is a whole system which is of course quite as much less place of information and the strength regularity love but still if you need a specific actions more like some people maybe it's warming and water you asked event some active so you cannot have like 50 already let's do the same information or a thousand organizations information as to what happened to just regularly push data different different cool that one piece of information because they're all doing contracts on for example like your chancy it would have that actually request each time yeah and I would say that's actually feature not a bug because it prevents parasitic usage parasitic usage so it ensures then that if there's lots of contracts that would like to use our Oracle well in order to use it and have the Oracle use for them they've got to be paying their taxes they can't just observe what other contracts are getting don't worry I'm freaking out still have five minutes one lucky peeking about that even stranger would it make sense in your opinion to be nice under the users on the system to an agreement in currently users to be net magnetic recommending the users with the sponsors and Oracle now look at something that could happen at the application layer if that was a desired feature but not a built-in feature of this are you planning to visit the Regal why not there's over a hundred countries in many countries impact areas and the financial instrument will be considered as a security so if using for adoption yeah so I think that that again is just something that needs to be handled at the application layer and not the protocol there so on on the decision resolution process one thing that occurred to me is you not only need to be able to then very near Oracle to find out with different places and see whether there's discrepancy yeah we also need to like at least I'm asked do you need to then Larry that sort of like a ceremonious to verify that this upside-down look I don't know what you call it a derivative worse it's not yeah where's under collateralized weather this day has occurred in the recent past right because it did the dispute generally is saying like something happened here right but it might not it might not be in that state anymore right so I assume you have to go back away so the point you call this do you say you're basically saying contract is bad right now yeah we take time Stanley yeah it's gonna take some time to get resolved but you figure out the price exactly that time sampling is called and you say is it is freeze all the parts of the contract so basically contract waits to see it was let's add that right into the price net exactly so you're saying that there is no support for like some kind of domino effect got it at the store opening time correct there's me I would think notice where I'd say like the items on your financial contract unemployment ideally it should be more of a dream or president these are all simpler because the value it's kind of complicated people say I wanted it weird less like 10 prices and I want to like check out this kind of arbitrary points because time is continuous any invited and they're also developing but also like all our Oracle does is then it returns what is the price of this thing at this time if you wanted your contract to be complicated you could request some sort of a slightly historical price I mean there's limitations to how historical you go and then you can design your contract for that domino effect if you wanted it to we didn't make that design decision but you could this is that I want to talk about it or distance and employment because most of the costs of all girls collaterally need to have secure in operation and the fact that now we work in the form of Jewish means that they get much less with still the little all the same collateral so somebody needs to pay for the fact that they they operating in a indistinct so one way to think about like a much boating token holders incentives is basically compensating them for the work that they're doing of providing these prices and compensating them for the opportunity cost of holding onto these tokens rather than selling these tokens and find something else that could be productive or more yielding or something like that and when you actually do the math which is in our white paper you can basically think of it the value of these tokens as being a discounted cash flow a discounted cash flow series of all future expected to men's hands and there's kind of different stages for what a total holder would expect over different periods of the ecosystem sperm so at steady state which is kind of like where Fiat derivatives are right now Fiat derivatives have been around 500 trillion dollars of notional volume for like the last 10 or 20 years run a steady state in the movie the desired compensation for Puma token holders is pretty much simply just the yields that they want to be earning on their assets whatever that target yields might be it might be a function of the environment it might be a function of how much work they have to do etc but you can think about what those assumptions might be you can look at like traditional stocks and what the dividend yields are for those things and and come to some number like if an Ummah token holder backed Amanda five percent annualized yield or a 10% annualized yield and then backed that into what the taxes would look like on on on the financial contract users and it's actually quite reasonable so back of the envelope math tells us that something like a 50 basis point annualized tax on these financial contract templates on just the margin which is an even smaller percentage of notional would be sufficient to compensate in whichever holders and still earn the mclubbe a healthy it's about the roadmap that the current usage I senior but the material but are you launching an agnostic and then the second question is that that's mentoring that any water basically built the best six months it's basically only interest rates more effects it's a dying versus what are the actual that are sure so the synthetic token template but financial contract template it's both deployed on maintenance and test set the Mina implementation is referencing a centralized Oracle so it was really just to test proof of concepts at different application and use cases earlier this year a market maker used it to create a US stock index token so that anybody who goes to crypto could also vote u.s. get exposure to US stocks we ended up deprecating that and now we're working with other kind of other proof of concepts around we I think I mentioned currencies earlier there's a different stock thing that we're working on now at the different application layer provider those are coming out later this year or next on the decentralized oracle site our biggest internal priority is to get that on to banette later this year or early next year right now that's still improved all the testing and your final question or watching across the block changes theoretically yes years theoretically yes but practically speaking the Orion community is pretty magical and I think defy composability and standardization is a huge component of what gives this stuff value so until there unless other block chains actually have that type of community where things happen since it doesn't make sense to try to go into playoffs right so do you talk which is why nose let's say prices that being pushed to change we have one of these students existence that used the same basic offense methods in batch the samples choose one price people you can actually end up with a lot more than is being paid taxes because I got only to double up your someone's just created the article last five minutes I probably don't need to create yeah yeah so what you what you are the question you're asking about is basically what a girl calls parasitic usage right and maybe do you want to talk about it yeah I mean we have some we have quite a few ideas but how to how to deal with this but the rough idea is that like we we don't want me to be able to do that we want you so we have we have designs for like a basic white listing contract in some ways they send their bytecode I'm sure they kind of fold to allow them into our systems and it's a little bit technical how we prevent contracts from getting around with those white lists but I just like reading the breaching data like basic proving the existence of our contract and reading it that what but it's a little more like we can talk offline I mean the summary is kind of mr. fuzzing so that you can't directly read outputs but it's all fuzz that's pregnant information yeah we do payout this rather than late prices so you don't say the price is $5 you say this person just $7 whispering for help and that way it's you need to the contract and not everybody can use that because it's specific to that particular contract if you want to oppress each other so you can take that expiry so I got these tokens like a thousand people the nominees was my thing is going pull there on the line right it's a great question and I think there is like a challenge of how do you broadcast to all ticket holders that's time totally repins regularly they they know that they should go back and routine for the afterlife model again a lot of different solutions I'm going to throw out there one is that you know you could have the walnuts being in charge of that race if your wallets supporting these kinds of tokens like you're able to go back and read what is the expiration notify your users rate that's one way the other way is in our synthetic token builder dab and we have right now it's geared really towards toget sponsors right because it shows you what your collateralization is and what you should deposit or withdraw again that could turn into a portal that all ticket holders as well as token sponsors a lot of different answers about but we definitely love to collaborate on different types of products if you're interested in building that kind of functionality I mean ultimately I would say they kind of the solutions that we've envisioned all currently live at the application layer not the protocol layer so we're building this infrastructure and would love to if you have ideas about how we can support at the protocol level would love to hear them otherwise okay yeah I think we're gonna and here but with lavash had outside and they are Thomas [Applause] you