Stablecoins - Eiland Glover @ TOKEN2049

[Music] all right Milan Glover I'm a co-founder and CEO of koalas you just found out and I want to talk a little bit today about what's happening in this stable coin space we're familiar with this in many ways so we're going to cover the past and a little bit of what's coming down the line so koala has been around for a couple of years as you just heard and we are a team of about eighteen people at this point half of those are developers and they hail from companies like PayPal some of them are theorem core devs from status I am from crypto kitties even and we've been working to create something that we think is really necessary for the industry to take the next step right now crypto is tiny you know we have experienced a lot of cool growth and a lot of buzz over the last period of time especially the end of last year but right now it doesn't feel that way right we're kind of stuck we're sort of receding a little bit and so there are other asset classes in the world that are much much much bigger like for example the money supply 90 trillion equities 70 plus trillion derivatives 540 plus trillion real estate 217 plus trillion we all know we're here because we know that the token economy is going to take over large swaths of these industries but it has not happened yet and I want to talk about one main reason why this hasn't happened yet and what we need to get to that next stage we think that the biggest obstacle to mass adoption is volatility if you are a business person or if you are a regular person you know that you cannot run your life or your business on a currency that's going to drop 30 percent from one day to the next it just does not work the numbers do not pan out if you are a blockchain based project and you have your own utility token many of us are also realizing wait a second our economics don't work our projects that we're working on that we're going to launch on let's say aetherium may not work because we don't have a stable coin or maybe because the price of etherium is so volatile that we can't predict our gas prices we don't know what it's going to cost to run our business that's not cool that's a bad thing so what we're working on is to build some of the vital infrastructure that is necessary to get over these obstacles so that we can expand into these much larger territories we've had stable tokens for a while the biggest 800-pound gorilla is tether and tether is a Fiat backed stable coin it controls about 90% of the two and a half billion odd market cap today and it represents I think a very vital piece of our industry it's a great trading tool that's been very important for the expansion of the industry so far but it's like a Gen 1 ok now we're on to almost Gen 4 in terms of stable coins here's the way that we think about the evolution of stable coins so tether and now true USD Fiat back currencies it makes a lot of sense die it's also asset-backed but it's backed by ether instead of by Fiat and then you have projects like base coin in ours koala and our K USD stable coin that are not asset backed at all there's nothing behind them at all zero so that sounds at first I think a little bit scary you know that sounds like it would be a big disadvantage and something that you wouldn't really want but we have to remember what the true meaning of the word Fiat is the true meaning of the word Fiat is because I said so right a government says because I said so this is your money and when we think about it you know we just heard a little bit about the history of money but when we think about it what is money how does it what does this use value you know we need a couple of things out of money we need for it to be to have the buying power tomorrow roughly of what the buying power that we had today and we needed to be fungible we need it too we need merchants who sell llamas to accept it right or else we can't run our lives so our thesis and what we've built is a way to have that use value while retaining all the things that we know and love about cryptocurrency we don't have to give up decentralization to get stability we can have it all and I'm going to talk a little bit today about this new type of cryptocurrency in the marketplace how it works and how it's going to be advantageous for you and what you need to know about it here's a really complicated data table I'm gonna try to simplify this and move through it rather kind of quickly the first several rows I've already hinted out a little bit so I'm going to concentrate on the second on the bottom half these are the things that really distinguish non asset-backed cryptocurrencies and stable coins I mean from the previous stable coins so on the one hand you have to think about how do you achieve stability tether achieves it with essentially an IOU you stick dollar bills into a bank vault they issue a cryptographic token against those dollar bills then you go out and use them in marketplaces and exchanges and so forth dieeee uses ether in a collateralized debt scenario so you put ether into a smart contract you take out 70% of that or some percentage of it in terms of sometimes a stable coin and it's backed by the ether the new tokens like base coin and an hour's k USD use algorithms right just like we do with Bitcoin we trust we can trust in math and we can trust in market forces and those are the two things that you must harness if you want to create a non asset back stable coin mathematics and market free-market economics and you have to design an incentive system that incentivizes all the right behavior in terms of your miners traders individuals and so on everyone in the ecosystem so one key component of that we think and I'm going to talk about that in a little more detail in a second is burning what is burning me that means that if you're going to have an autonomously stabilized cryptocurrency it'd be a good idea if it was able to burn some of its money supply right so it's really easy we know from the history of money and from many unfortunate regimes throughout history who have printed too much that increasing money supply is relatively easy how do you Christon so burning is a way to do this that is we actually remove money from the money supply adoption incentives I mentioned a moment ago that tethers business model is to take real dollar stick them in a bank account issue coins against them where do you make money with that where's your margin maybe you have a tiny transaction fee if you have a non asset-backed stable coin your margin is it matches the best business model in the history of mankind which is seniority right being able to issue your own money that it's a robot that it's going to issue its own money and subtract its own money from the money supply based on its price in the marketplace when it issues that new money it's based on demand and use value that is newly created value that in our case goes to our mining token holders so one of the cool things that you can do if you have 100 percent margin is you can incentivize the network you can incentivize exchanges you can incentivize users you can share that wealth and you can do a lot of really cool things to drive adoption and wallet share finally the focus among our company tether and all the other projects has been the US dollar to start out with and this this is for obvious reasons this is the biggest money brand in the world it's got 70 percent of the narrow money supply so more than more than 15 trillion and so it makes sense to start there because a lot of the world thinks in terms of US dollars but tethers coming out or maybe they've come out already with a with a euro version and we plan on coming out with with tracking stable coins that track all of the major currencies in the world because we believe that many of those different currencies have different use cases so I want to talk about one layer of stability algorithms in our model I mentioned before that you have to control the money supply in a totally decentralized autonomous way we don't have any controller or demand but the system can control its own money supply so I'm going to break that down a little bit let you see here is a chart of what hey USD might look like on an exchange the yellow line here in the center is one US dollar that's what it's always going to try to get back to and the demand of course makes it go up and down on the exchange so the green in red the green means when it's above a dollar and the red is when it's below a dollar so want to talk about the things that happen when these in these different circumstances so here in this first section in the green the demand for K USD is higher than the supply people are willing to pay slightly more forward on the exchange and what's going to happen is that information is going to come back into our blockchain via a decentralized oracle and the blockchain will automatically begin to do something it's going to say to itself you know what I don't need to be at a dollar I want to be at one dollar so I better start menteng more k USD it's gonna meant that new money automatically and it's going to distribute it to our miners they then some number of them have to decide on their own to turn around and sell that on the exchange that increases the money supply and if demand is the same or it's not outstripping the new money supply then that price begins to come back down to it to one dollar so what about when it dips below a dollar let's say that there you know the Chinese government comes out and says it loves Bitcoin and it's going to make it the second ranking currency in China I don't think that's going to happen but let's say it did right so people might want to sell they might want to get out of our stable coin really fast and get into Bitcoin because they anticipate a rise and if they want to get out of it fast there may not be enough demand to absorb that k USD they want to sell there might be they might have to settle for 99 cents or 98 cents and when they do that that's cool other people can come in and buy it but what's gonna happen with our system how does it remove money from the money supply what will happen are a couple of things for one the block reward stop it doesn't make sense to print money that you've got if you're trading below a dollar that doesn't make any sense so those stop and also there is what we call a stability fee that's instituted this is a tiny in almost every case a very very tiny transaction fee that is placed on any on chain transaction that takes place during this period of below $1 it's a small number but multiplied by many transactions over time it's a very very powerful way to remove money from the money supply that money does not go to us it doesn't go to our miners instead it goes to a burn wallet this is a dead-end address from which it can never emerge importantly everyone in the world can see this dead-end address and they can see this burning taking place so the mechanisms are transparent and the money supply increases and decreases are transparent to the entire world this is one layer as I mentioned there are others that I don't have time to go into but we'll keep moving on I mentioned a moment ago that burning is really really important it's another thing that I think sounds really scary at first but I want to explain why it's so important that our blockchain can remove money when it needs to these stability mechanisms that I've been describing to you are effective at returning that stable coin back to a dollar given time right given time they're not immediate so how do you actually provide a very very stable token to people that's stable all the time it's not us but it's the market it's a market informed by what is going to actually happen in terms of the stability mechanism so if you know if you can predict exactly what's going to happen with the money supply because you can read the code you've seen it happen in the past guess what you're going to do if Kay USD hits 95 cents some number of traders are going to be a buyer they may think to themselves hey I'm gonna make five points on my money maybe it's gonna be a few minutes maybe it'll be a week I don't care five points on my money every week I can live with that right so we have to the simplicity of the model and the effectiveness of the model has to be simple and it has to be clear to traders so that you can have an effective peg to any any currency using a non a set back stable coin so I also mentioned that this is effective over at removing significant portions of the of the money supply over time and here's some examples is with some conservative assumptions the blockchain will remove 8% of the entire money supply in 30 days our 40% in 180 okay so that can give traders and everybody in the ecosystem the confidence that if something really goes wrong it's okay because the blockchain will burn enough money to return itself eventually okay in the knowledge of that however the traders don't really let it drift too far from the peg in the first place all right we're running low so I'll finish it up so we view ourselves as an infrastructure provider we want to provide tools for you that you can use and help your businesses function better if you're interested in talking with us if you need a stable coin please please come and find us if you need a an ethereal based blockchain that's super fast that also features a stable coin we want to talk to you as well thank you very much for your time [Applause] [Music]