Trustless Collateral Orchestration for Stablecoins

okay everyone my name is toin I'm a JD PhD student at Columbia University and law science and finance I'm focusing really on the redesign of capital markets on public blockchains and then I'm also the found of T Finance where we work on building a decentralized clearing trading and settlement system um today I'm going to talk about the trusters collateral orchestration for stable courts so it's fair to say that today stable coins are the most successful product in crypto we can say that they are maybe the only successful product there's like a lot of demand for them they all L used around the world and interestingly though they're like not really Crypton native they are based on a currency that is created and minted by the US government it it's not really appear to be a cash but a representation of us government backed money it seems to least a bit at least a bit ironic that the purpose of Bitcoin was to get kind of independence of governments get basically Independence after the financial crisis of 2008 and to kind of move to an independent Financial system um but that that has not really played out so far so we're going to use this talk to speak a bit more about how we can get there and how we can reduce our dependence on government systems um and we're basically going to start that by talking about basically what the future of money will look like and for that we're going to take a step back and talk about the the history of money and how we got here and why it's such a misunderstand Concepts in in many ways um money is a really difficult concept it's not really a technology it is kind of something between techn ology social construct and social contract it goes basically deeply to what we are as humans and basically how we live and organize ourselves so once we have answered the question what money is we're going to move at like how stable coins actually look today and then basically in what forms they come and then basically as the title of this talk says we're going to talk about like how we can design them in a more decentralized secure and trust this way so money is basically a concept that's more than 5,000 years old and it there's this kind of myth that it was like invented like through a bataa economy and that's basically true so David gab has shown that money has always been either depth based or it has been commodity based and we have always idated between these two systems we had always either debased money what we call feat back money or we had commodity back money like the gold standards and basically coins and maybe silver ban also and that is basically really important to understand um to to to understand where we are and where we go from here and then maybe last part on that part is that money is kind of as old as as the written word basically it comes with like music and languages and we can't really put a date on the invention because it's so innately human so basically money started like around like 3,000 years before crystas and we we basically have credit money from the earliest days onwards so we have transactions that are recorded on on basically on on tablets yeah um and they basically were kind of negotiable instruments they kind of promisory notes and they are basically an accounting measure and the the actual physical exchange of money didn't did not really happen so what happened that that in these accounting systems kind of entries were matched into each other and that's what I was like I'm pretty similar to our bank accounts work today and when when kind of silver was used they used like silver shackle to for like calculating the amount of that really and then like after that around like 800 for cryst until like 600 after we get the first coins so coins are basically invented in in China and India and they're basically a solution for the inadequacy of the credit system in many ways yeah and we get all these kind of local governments rulers issue basically their own currency because they they gain power through that um they can make their basically citizens dependent on them and over the next kind of Thousand Years is that kind of becomes s of a worldwide phenomena um that we see everywhere and then basically after after that kind of 600 after crystas under like the 14 15th century kind of we move back to an um to a credit based system yeah we have the invention of paper money in China and we get a really kind of complex Banking and credit system for the first time and we also get kind of in Europe we get a kind of a more more vital kind of system with merchants and governments that kind of really based on sophisticated credit and credit arrangements and then actually interestingly when capitalism starts kind of on the 1400 1500 and we get kind of the modern banking system we we actually moved back to gold and basically bullan systems which basically remain dominant from like 1450 until Nixon gets rid of the gold standard in 1971 and that's basically based on a lot of colonial history and um it it is basically really um yeah moving back to this coinbase kind of coinage system and away from the credit system and during the time as well we kind of see the first Banks we see kind of first central banks first in Britain then in the Netherlands then in France and we also saw the first kind of real bonds issue and then we basically until kind of after 197 one we move after after the US kind of get rid of the gold system of the gold standard we move into this free floating exchange rate system which we are leing kind of in ever since um so basically we have no gold reserves anymore we have like no commodity anywhere backing our current kind of money but exists digitally it is basically in if we talk if you take the US dollar it's a claim on the US government kind of it's a it's claims trust in the system yeah it's trust in our in our institutions so basically the most important lesson to take away from all of that is that money was never invented it was basically always there it's always been kind of a human kind of trade and more like a feature of the societies we are living in and that there's kind of not only one form of money and that's important for our purpose we talk about stable coins it can be a commodity it can be a depth based system maybe it can even be more going forward and we we really need to understand on first principes so we are able to basically create better stable coins and better um better money at the end of the day and if we think about it what what kind of makes good money in that sense is that is globally accepted and that it has basically a stable purchasing power over time and the one of the big goals of stable coins must be to do kind of these two things yeah to be globally accepted and to have like a constant purchasing power over time um and then maybe kind of for like to to to kind of this part um the strongest argument for money as commodity is really a trust thing yeah because people did not trust other people like for their debt or you couldn't go to China if you were based in Europe and basically pay with like your debt from Europe so that's basically where coins basically came up and um we we kind of also like why we moved away from it over the last 50 years because it's kind of we can have a global depth based kind of Fiat money system um since 50 years because we became more transparent and basically more open so basically we're going to move now in the kind of how money Works in public blockchains and basically money on on trust that systems in the in in the basically in that sense and what we had like so Bitcoin is basically the first because of the first TR that yeah um it it describes itself sat toally describes it as electronic peer-to-peer cash and we try to get wi kind of rid of the trust assumptions but Bitcoin as money has pretty much failed yeah e has failed as money so both are like also really kind of poor and bad implementations of money um they are basically they're they're not accepted as payment worldwide and they're also highly volatile in their value and these two features are basically the opposite of what we just basically determined and described as the as the main characteristics of good money so what what we ended up with is kind of stable coins yeah so we have like stable coins back by Chain collateral like offchain depth we have stable coins back by onchain collateral by onchain depth and we basically tried our hand at collateral with like like without stable coins without collateral so we got algorithmic stable coins but we basically kind of know now that they don't work we can basically show empirically that they don't work and mathematically that they can't be really stable that they can keep the pack so that's basically we will keep the category out from here onwards and onchain collateral has just like the big issue that we have not solved onchain credit yeah Onin CR is inherently difficult it's not yet there we aren't able to do it um it's highly risky it's not a good backup system for for for money even if it's kind of going forward kind of if we envision the future really what we want we want to have onchain dep that backs our onchain kind of money system um and basically not what we have today or like we're not yet able to do that b um so it basically comes down to what we still like well that's the where tether so powerful today in use and um but the main issue with like all all offchain collateral back stable coins today is that you need to trust the collateral provider we are trusting tether we are trusting I don't know maybe Mountain protocol and Ono um basically all of these kind of companies foundations to keep track of the collateral offchain in a special purpose vehicle or in a bank account and some do it better some do it more transparent no one does it really great it's it's in a general kind of a we we are really inducing a lot of trust in these institutions and that are basically the first kind of points where the system will break down as we have seen like with circle and Silicon Valley Bank like as soon as Circle can it kind of we put a lot of trust in circle and that basically that point can can default that point can break down so the big question is how can we prove that and how can we get rid of that trust assumption um going forward and basically what what's even worse is that we that the that the money that we create that the stable coins that we create are not fungible because basically we have like large issuers we have small issuers We have basically issuers that use web T builds we have issu that use private depth We have basically issues that are regulated in in Bermuda that are regulated in the EU that are regulated in Switzerland so they are all different but like not not none of them is kind of great so like we get really kind of nonf fundable system of money in this point so basically how can we move away from this trust based system and kind of towards a trustless collateral system and um basically what my research is about and what our company is really about is defining or kind of bringing off chain collateral as closely on chain from a legal perspective as possible and what are the what are the two biggest issues today in that space so the first one is that we have basically these kind of centralized SV vehicles that are basically not independent of each other that are not bankruptcy remote and that the the other part is that the on onchain representation of collateral is basically through a token that has no real legal enforceability to it so the the token that you issue on chain has very little to do with the kind of offchain asset you really want to have a claim on and these two these two things so the basically the legal form of the offchain organization that holds a collateral and the basically the legal claim that's inherent and the token are really the two B kind of big issues so then the question becomes how do we kind of brid that gap between kind of code and law in in a decentralized way where we where we basically have a connection between the offchain system and public blockchains and what what basic I suggest is a legal protocol that works like through a decentralized consensus mechanism and onchain codified agreements and basically Capital Market licenses and financial licenses and it basically enables onchain financial instruments without basically the legal risk premium that we just talked about and that basically allows integration of of of law really into defined into crypto and this protocol takes over the role basically in the sense of a Global Communication and clearing system yeah it it ensures the inherence to law and it makes Smart contracts enforceable um in that way or like through that through that technology and that is basically then a system where we can store collateral or like if we now apply it to to stable coins we get a system where we have still offchain collateral but we put the collateral into a smart contract governed special purpose vehicle so we have organizations or like legal organization legal persons in the real world that are governed by code that are governed by onchain consensus and thereby are decentralized so we get rid of basically the centralized parties that can default and that basically have all the control and then we need to trust so we basically substitute them by decentralized organizations that are governed by smart contracts and onchain consensus and then the next step that we do is these organizations are issuing on chain native kind of bonds and assets so instead of today where you basically get this imperfect representation inside of a token that has not really legal claim to it we then issue a completely valid and enforceable legal contract kind of a bar Bond on chain that basically gives you gives you kind of full legal impossibility and kind of complete legal recourse and claim on the collateral in in the special purpose vehicle that's behind the stable coin and then long term obviously where we want to go is that we get completely rid of the offchain parts so in the best case scenario where we want to have like the the collateral onchain we want to have the table basically onchain is finally as primary Ledger where the smart contract really is the only agreement that we have the only contract that we have and that we can then use to back our stable coins and then we can always kind of we can also obviously extend it from T builds to like maybe more like a private dep or public dep but the key feature is really once it is on chain we can get completely rid of the trust assumption as long as it comes to like the collateral part because we can always basically we can in real time observes the value of the asset on chain so stable coin can be like onchain real time be linked to the collateral and that's obviously the kind of the future the kind of the end game in this kind of whole kind of scenario and this whole protocol architecture that we are kind of posing um because then we really have a trustless kind of money system and that really kind of needs to come through integrating law and integrating kind of credit contracts um on Shain so basically let me let me sum up the talk and make done done with all the um we have basically started and said that money is basically as old as human societies are yeah there's like this but the of money is not true we only we always had either a credit based system or like commodity based money system and the commodity based element only came from a trust issue so we are removing the trust issue kind of through public blockchains but we still need the kind of depth part the credit part to it so we are left with a credit system for money basically and then we have the issue that everything that we have triy today on the stable coin side is kind of inferior because we introduced new trust yeah and it is like it's really kind of not feasible yet to kind of go outside of crypto it's only used inside of crypto to Rally trade um other cryptocurrencies um but like the goal is kind of over the next year is to move like to a trustless system where we have the collateral basically on chain and where we have basically an in that sense trustless collateral management and really a trust L trustless money kind of money tax stack and that's basically I think the future where we headed in the future where money will be or where money on chain will be really really impactful and will be really successful so it it basically this future from like from that perspective lies in basically decentralized and transparently managed collateral and that is created like through leveraging the power of public blockchain which minimize trust and maximize security and then we integrate an real time accounting and legally enforceable smart contract system into it and there by creating a more robust and flexible Financial system and then we basically can start from there basically moving into a global acceptance and stability phase where basically make the in in that sense hopefully the whole financial industry a bit kind of better through better kind of money technology um and I think in the end it's really exciting to do because there hasn't been that much kind of innovation and finance and also in money so I think it's really great that we can do it and basically we're going to do it like we are looking forward to do it um through technological advancements and through a commitment to decentralization and transparency and then yeah if anyone's questions happy to take them but I think um yeah I think we can do them yeah afterwards when one perfect thank you yeah wait do I do I need to speak into the microphone or oh okay cool uh so I just wanted to ask about the the special purpose vehicles that you set up so is that in a particular jurisdiction or in one particular jurisdiction only that would be one and also if the governance is decentralized um how do you make sure that their financial reporting is a a fluid process basically yeah good question so like for the jurisdictions we we will launch it in multiple jurisdictions it's not possible in every jurisdiction around the world but we have like we have seever we have several in Europe it's like Luxembourg Ireland Switzerland um it's probably possible in Wyoming to a degree they're like different jurisdictions kind of and over time I think they would will that will increase so will kind of extend or like increase that range and then to the second question it's that's basically where the protocol the foundation comes in so basically the developer like the engineering team developing the protocol is kind of creating that link between the bank account and basically the onchain representation um so obviously that doesn't come from like itself but like it's basically that to say that someone needs to build the protocol as well and basically that organization is also going to build the link but it's like going to be open source it's going to be published we can look at it um and the data stream basic comes in chain um if that makes sense if that question okay big Applause for [Music] torban thank you