Emerging Markets are the Proving Ground of Mobile Crypto - Patrick Baron

all right thank you so much for sticking around uh for tboy the best one yet that's right six o'clock here we are my name is patrick i'm a core contributor to moola protocol which is a borrowing and lending application built on the cello network and i'm going to talk with you about a pilot project that we have that we anticipate launching over the next few weeks in kenya i'll also do a short demonstration of what mobile crypto looks like um if you were here a couple of talks ago there was a great slide that was showing web 2 adoption relative to web 3 adoption and uh there there was a great illustration of smartphone penetration uh relative to uh ethereum based wallets and uh our thesis is that in the same way that many folks in developing nations skipped over landlines and went straight to mobile many folks are going to skip over a traditional financial system and they're going to they're going to come straight to us they're going to come straight into web 3 because frankly we have a better set of products and and we're able to get it to where they are so i think it'd be helpful to take a second and look at the technology stack that we're working with so at the base layer mulla is composed on top of the cello network which is a carbon negative evm compatible proof-of-stake blockchain mainnet launched on earth day almost two years ago has had a hundred percent uptime and it's built really from the ground up to be optimized for mobile devices and what that manifests how that manifests is in a number of different ways so for example you can you have the option to map your phone number to a public key what this means is that we can tap into social networks once you've mapped your phone number you can import your contact list and you can see who else is also already on the network we can also expand through social networks so i can text any of you in this room cello dollars or cello euros and even if you've never used the network before you get a text message that essentially prompts you to verify your phone number which is done in a decentralized way using the validator set once you have verified your phone number then we have an ability to release the funds that i texted to you from the escrow smart contract into your newly created wallet the seller network also has built in a native stability mechanism that uses crypto collateral it uses uh uh cryptocurrencies to collateralize the value of the stable coins so for example the cello reserve is composed of the cello native asset bitcoin as well as ether and it also has a carbon offset token which is quite interesting it's interesting because what this enables is a cryptoeconomic incentive mechanism to see more of the things that we want to see in the world so for example what that means is that as supply demand for these tokens increases so too does demand for the assets that are backing it so as the circulating supply increases demand for bitcoin demand for ether as well as demand for carbon offsets which means that the chain itself and the circulating supply of stable coins are directly contributing to offsetting carbon the cellu ecosystem also recently launched something called the climate initiative which is a setting the intention of adding real world assets to the reserve uh specifically tokenized versions of old growth forests and rainforests and it's really based on this idea that why don't we back money with things that we want to see more of in the world it's a very interesting cryptoeconomic experiment that we're running moolah is on the application layer so it's a borrowing and lending protocol has shared ancestry with ave version 2. and all of this is accessible through front doors mobile wallets like the velour wallet which has a very similar look and feel to venmo so let's see what this looks like so uh what we have here is something i recorded on my mobile device moola is accessible through any web browser we chose to make this accessible through web browsers first as opposed to a native application in order to prevent censorship and enable anybody who has an internet connected device to access a system so what you do is first connect your wallet i skip that step and then initiate a deposit so in this case what i'm going to do is that i'm going to deposit 100 sello dollars so i type in the amount i'm then prompted to confirm the transaction this is happening in real time so now i'm signing the transaction with my mobile wallet you could also do this through a dap browser through metamask or i'm token and now i've made a deposit now that i have collateral in the system i'm going to borrow 25 euros so i'm going to swap to swap to euros input the quantity i'm going to adjust this to a stable rate to lock it in and then down here oh excuse me darn it let's see if i can there we go uh so what we have here is uh basically a synopsis of this loan that i'm taking showing my health factor uh liquidation threshold the price at which i could be liquidated as well as the the current price the interest rate mode and the interest rate that that we're getting and i confirm the transaction again sign the transaction using my wallet and within a few seconds uh five second average block time we should see a prompt showing that the that the funds have been deposited into my wallet there it is so now let's talk about defy and emerging markets and why this makes sense this type of technology so if we look at defy lending relative to community-based lending there are some very clear advantages microfinance for example which has been around for a very long time it's uh you don't have to have a credit history uh but you may not be able to get an immediate loan you may not have access to large capital pools also the interest rates tend to be less favorable than what we can do with d5 lending protocols payday loans you do you don't need credit history uh you do get immediate access you may or may not have access to a large capital pool but the interest rates can be really unfavorable uh the telcos have gotten very involved through impesa and other initiatives but you have to have a credit history you don't get an immediate loan don't necessarily have access to large amounts of capital but the interest rates can be favorable traditional banks absolutely need a credit history in order to get a loan you typically don't get funding immediately you do have access to large capital pools and the interest rates can be favorable but we look at the bottom row here we can see that defy outperforms them all no credit history required immediate funding very large capital pools and favorable interest rates so this is the current process for the employer-based lending model that we are essentially going to replace with our d5 based lending model so we're working with an employer in kenya that employs farmers as well as other other manual laborers and they typically do 100 to 500 loans for three to six months 10 years 12 to 13 percent is generally the cost of the loan but the problems are that it's a very manual process it's very paper-based it requires a lot of identification which folks may or may not have and it also has pretty significant costs and so this is the model that we are replacing it with it's a pretty dense slide but let's walk through it together on the right hand side are the steps on the left hand side is is visually what's happening so in this scenario the employer the employee rather is going to borrow and repay a hundred dollars uh so step one is that the employer is depositing collateral into the d5 protocol into mula um step two or excuse me they also are delegating their credit so what that means is that when you make a deposit into the borrowing and lending protocol you can borrow against your collateral which is what i demoed earlier if you don't want to borrow against your collateral you can assign your borrowing capacity to another address so in this case what the employer is doing is that they are delegating their borrowing capacity to their employees essentially leveraging their balance sheet to give their employees the equivalent of unsecured loans so the employee now has an ability to withdraw from the liquidity pool so step two is that they take a loan uh there's an assumption here that the employer and the employee have determined how long the loan is and if the employee they have two options they can either repay the loan plus interest that would be step three or they don't what happens if they don't repay the loan again it's unsecured uh what happens is that the employer has an ability to essentially garnish their wages or deduct a certain percentage of their wage over a period of time until they're made whole at the moment the payroll aspect of this is being done off-chain for the pilot project we're not going to also handle the payroll however we do have a very clear road map to work with protocols like remox to provide a streaming payroll service as well as automating the the garnishment phase if the employee does not repay so essentially the employer is in a position where they have inside information that allows them to underwrite these loans what do they know they know how long the employee has worked for them they know how much the employee makes they and so they're able to essentially leverage this information to make underwriting decisions uh which an outside third party may not be able to infer the same type of information and determine the credit worthiness so the risk here is that the employee takes the loan and then quits if there's no more money owed to the employee then essentially that would be a default so that's the risk to the employer but assuming that they either repay it or they're able to reclaim it through the wages that are owed to the employee then the employer is able to earn interest on their capital and they're also able to give their employees a very favorable rate so i'm very excited to see how this pilot plays out uh there's another piece that's actually missing here because we're doing this in kenya most folks are using feature phones and they're doing it through m-pesa so there's actually another step in here that i left off of this slide where the cusd is going to a a wallet provider called katanipe and katani pay is an off-ramp into m-pesa so there's one more step taking the cello dollars into m-pesa the employee then repays the m-pesa and katani pay then repays the sello dollars so that's the flow of funds the benefits here are for the employer they get lower administrative burdens they're able to save time it is very easy to track what's happened because this is happening on chain they can leverage this as essentially a perk to acquire new farmers hire new employees they also are earning interest on their on their money because it's going into a money market protocol if they want to get fancy they could even go yield farm but um that's outside the scope of what we're going to be attempting to achieve with them on the employee side from the employee perspective they get a very low interest loan they are essentially able to smooth out their income by borrowing when they need additional capital they can access it through mobile and they get their their money immediately so again uh this is this is one of the approaches that we're taking to uh to bring mobile crypto to emerging markets i'm very excited about this if if this sort of thing also gets you excited you know feel free to join us if you've got an idea for a proof of concept a pilot project that we could do we're certainly open to that but i'm happy to answer any questions that you have