Joao Reginatto, M^0: How to Build Your Dollar Stablecoin

next up we have D of m0o labs he's the chief strategy officer uh and he's going to talk about how to build your dollar stable coin thanks hello hello can you guys hear me um so I'm Jal I um I'm Chief strategy officer at mzero um as said prior to mzo I worked at uh Ciro for about 8 years I led uh the product teams at cirle for a little over six years I led the the build out of uscc Euro coin uh cctp kind of all the stable coin products that cirle eventually had in the market and um I left in August last year because I I believe that we are uh only scratching the surface of this sector it's clearly the hottest sector in crypto whether you like it or not um and um I agree with what was said just before I think the one of the reasons why I'm excited about stable coins as a piece of infrastructure is because I do actually believe it will be the um the underlying substrate for uh Next Generation banking effectively I think we will look back 20 years from now and I think we will see Commercial Banking being Rewritten not not exactly in terms of the technology that we have today because it's still V1 but at m0 we are trying to come up with the V2 and the V3 or what's necessary so um just a raise of hands um how many of you are involved in building a stable coin all right not not too bad um would love to talk to anybody who's interested um after all right so there's a there's the old way as I said of building stable coins and then there's a new way and I'm going to try to talk about the new way as much as possible I think I think the what what a lot of people have been doing so far is uh what I call the go go your own build it your own approach um you know it's the way that uh stable coins like tether like Circle uh a lot of others have been built so far um it's a it's a really complicated uh piece of product to put into market and effectively the reason why you have uh you know kind of a win or take most model in in this in this sector is uh is for a lot of reasons the difficulty that I think people underestimate when bringing a product like that to Market I think in general um a lot of these products tend to be led by Tech folks like myself I am a technologist um and building an erc20 token for a stable coin there's really no building you just copy and paste from something that has already been done but usually the complication is what sits around so for example if you start from the from the bottom right from the back end um and I'm talking more specifically here about stable coins that are collat ized by real world um Fiat money um so that that complicates things a lot because if you want to build a product like that you need some sort of Reserve collateral infrastructure you need a partner you need a bank you need to be able to custody and manage a portfolio of assets you need to choose what assets they going to compose your stable coin then there's usually the issuance or primary Market um side of things which you know you need to be able to on board customers people are going to come to you saying I want a million dollar worth of this I want $2 million worth of this you need to be able to manage those orders the technical part the minting and burning which as I said tends to be the little little box that people focus on and say I I built my stable coin uh that's that's obviously just a tiny uh tip of the iceberg and then you need infrastructure like payments and settlement people are going to send you know you as a iser funds uh you need to be able to observe settlement of those and and convert into the digital version of those uh I think over time we learned that there's a huge need for transparency and accountability so usually people have pushed out the responsibility for actually verifying that these issues have the collateral that they say they have so you need things like attestation you need a ton of reporting work you need systems of record or or oracles for where that that collateral is and how it's composed in in as frequent a a basis as possible um and then I think you have on the top what actually is building a stable coin which is the most complicated part I think a lot of issuers have gone uh you know as I said uh their own path um just build building a product and then hoping that a market would be found for their product I think that era is done it's over nobody will be able to penetrate stable coin markets anymore as an isolated issuer unless they own the distribution unless they actually own the the the distribution channels and uh and in those distribution and second secondary markets you need things like composability interoperability incentive mechanisms you need to find the utility uh liquidity is always a problem for new products and obviously you need brand awareness so as I said if you are a company or an entity capable of building all of this yourself you you might have a little bit of a chance most people actually don't have a chance and and 99% of the the new upand cominging issuers are going to to fail we still have companies that we know are about to launch their stable coins we we still think those are going to be failed Enterprises one of the biggest problems with that approach is that everybody keeps building all these things I don't know if you guys are nerds about uh studying the history of money as I am but you know study the history of Commercial Banking go back to the 1800s and look at how Commercial Banking started in countries like the us or in Europe and you will see that it's exactly what we have in stable coins today it's like you know a bunch of issuers printing a bunch of money none of this interoperates with each other you know it's all the same dollars but everybody's creating their own rapper for it and uh it's going to end this is not you know if we want to build a better Financial system like this is clearly not it um so what what is it then well we think the future uh infrastructure for stable coins look you know as as usual like an evolution of what we have today so first of all we need multi- ISU models this idea that you have you know a single pseudo Commercial Bank printing their own money it's very 1800s as I said you know it it gets old pretty quickly because you know you want to interoperate and don't I know usually when I say this people raise their hand and say what about curve what about trading that's not interoperability if if one stable coin requires price covery to go to another asset that's not interoperability that's just a market um we need actual interoperability otherwise the banking system is better than stable coins right if you transfer funds from Chase to Bank of America there's no market for your dollars there it's just infrastructure that has been built over time these networks need to be open ideally I mean again if we want to build something better than the banking system the banking system is an open Federated model model right commercial banking system is an open Federated model I mean we can if we have what it takes here we can raise our hands go to a regulator and ask for a charter to build another bank and it's open I mean it's half open you know it's it's a it's a really kind of hard and and high barrier for entry but it is open um and stable coins are not open if I raise my hand and go to tether and say Hey I want to issue your coin you know what the answer is going to be same for Circle Etc um it needs to be multic collateral in terms of form Factor um I think you know there's a there's a there's been already a lot of evolution in terms of what is the best and most pristine collateral I think everybody understands that the core of the dollar is us treasuries and some some shortterm version of that but I think that will evolve and I think these protocols and these Solutions have to be able to evolve with that as well it needs to be able to to support multistable coin what I mean by that and I I'm really not a fan of the term stable coin but I was there in the early stages when this um erupted but I think I think every stable coin as we see today will resemble more as um uh you know Bank deposits as we know them today so you know the dollars when people say dollars you know you have to scratch a little bit more under the cers to understand what people mean because there are many different form factors right you can be talking about cash and that's the most underlying kind of representation of the dollar but if you're talking about the deposits on your bank they have a they have a specific kind of risk profile and specific quality properties to it right and um and it doesn't mean that if you have dollars on Chase that they're better or worse than dollars on on Wells Fargo and so on it's just different and different customers are going to choose different things um I believe that stable coin flavors over time will resemble more like that more as as it was said sort of deposits with this issue right so a particular version of that but the problem is that today they're not interoperable we need to build interoperability I think we need self-re ation because this this infrastructure for this kind of product will essentially be Global we don't have Global Regulators Regulators are bound to to countries um to to you know nation state systems uh I don't I I think people love to talk what about regulation is it coming do we have better regulation I think we spend too much time I think the sector has to self-regulate a little bit and and things will fall in place I think there's a lot more technology that needs to be built and and will be built um and I'll talk a little bit about this later and again if you have a common and interoperable network you can benefit from share liquidity which is something that's necessary today the barrier for entry in the stable coin sector is so high essentially because of liquidity everybody has to pay for liquidity right everybody has to pay for incentives or some liquidity on curve for you to to get convertibility Etc not everybody is Paypal who has 10 152 million to waste on on things like that and get it wiped out after a few months um so we need we need better Solutions for this so what what do we what do we are trying to build at m0 and I I'll skip this I think for in the interest of time so at m0 we have essentially um a multi many things solution and I'll explain this in a moment but essentially m0 is a combination of a a protocol that lives on chain or ethereum today that allows multiple issues or multiple legal entities to connect to the protocol and if approved you know if they if they hold the appropriate collateral the eligible collateral they can become minor of a fungible stable coin that we right now called M um M is for us the reason why we didn't call it something usds because we see that as a building block it's the equivalent of cash you know the the most pristine version of cash on chain but we also allow for M to be extended into multiple of other versions of a stable coin and uh the cool thing is that the business model of the the infrastructure is that the issuers they pay a fee to the protocol to be able to participate in this open Federated Network and uh that fee that is collected by the protocol uh also can be distributed to to Holders um in in a WID listed way to kind of create different yield distribution mechanisms so we're trying to essentially give the infrastructure for people to be able to build their own version of circle usdc if they want if they want to pocket you know the entire yield on the underline or maybe their own version of a mountain uh coin you know where they essentially distribute it 100% to everybody who holds or anything in between so it gives you a lot of flexibility there what what what does it mean from a isual perspective so from a company trying to join this network and trying to be part of it um we we favor people who bring their own use case as I said I don't believe anymore in Standalone issuers I think companies like tether like Circle um that you know only do stable coin issuance and don't really have sort of a use case venue I think that model is gone whoever had the opportunity to take market share has done everything from now on will involve bringing your own use case so do you have a use case do you have an application where people transact or in digital dollars or they hold balances in digital dollars those are the companies that you will see emerging as stable coin issuers people who are just a stable coin issuer just because they might raise some money from some VC who hasn't uh you know been kept up to date but it's going to go away very soon um we believe in people designing their own stable coin um you know coming up with their own Brands coming up with their own features I think uh as I said this is a global market a dollar functions a little bit differently in every market and a little bit differently in every use case um different entities have different maturity phases right so they might not be able to be an issuer in the full stack on day one so they can hire an issuer on our Network and just ask that issuer to issue their stable coin so a little bit in the model similar to paxos but there is a path for them to take over the entire stack as they grow in immaturity um they can pick their collateral composition I I'll mention that in a menu that we are also multic collateral in composition and obviously they can grow with the network um so very quickly as I said um from a designing the stable coin point of view people can start with M which is this raw material and they can um add their own brand and they can customized features most of the features that we add for customization it's it's smart contract writing so actually you can build anything you want but we already have predetermined solutions for convertibility mutability Regulatory Compliance so wh list block list things like that and how you want to uh control yield distribution of on your stable coin and finally the way that this actually looks in a little bit more detail is like this which I which I think it's it's a much much better model probably a V2 or a V3 of what we have today in terms of stable coin infrastructure so as I said you have multiple issuers because this uh you know it's again it's an open Federated model like Commercial Banking works today so it's no worse than what we have today at least um these issuers they join the network and they they keep their own collateral which has an eligibility criteria for the network um right now it's really strict in terms of short-term us treasuries we are in the process of incorporating things like tokenized US Treasury products for example because we have a lot of interesting issuers joining the network and saying oh but I want to use black Rock's bidle or I want to use you know Franklin Temple Ton's Benji and we are in the process of incorporating that as well so the issuer essentially brings their own collateral form factor the protocol ures collateral quality ensure dictates monetary policy and it works a little bit as a decentral bank of stable coins so it it polices the the issuers to make sure that they are abiding to the protocol rules and everybody issues that common stable coin so a little bit like in maker in the old days everybody can open up a CDP but they all issue die in a fungible way and that stable coin is just a building block it's extensible and it has built-in yield mechanisms that can be configured in in line with the the issuer and then every issuer has the optionality you see how these things are connected every issuer can issue any one of these extensions of these table coins um uh the only thing that can be that can block that is if a particular designer of a stable coin configures something in their stable coin saying no I just want this to be issued by a b and c so they can create um some allow list for who can mint it otherwise everybody in the Minter in the in the network has access to Mint that so imagine this is effectively this effectively guarantees native interoperability so we have several stable coins now that don't leave don't need this crazy and and kind of wasteful profile of liquidity spread all over these pools because there is a a permissionless place on chain where you can go from one version of a stable coin to another by wrapping an unwrapping so this is not trading this is effectual interoperability native interoperability um we believe this is a better model we are in the process of on boarding a few issuers there's one issuer live on the network with about $75 million is worth of tvl just after launching in in July and August we are onboarding a couple more issues and as I said in the beginning if you guys are involved with the launch of a dollar stable coin if you know anybody who's interested we're happy to discuss with people because we think this network model is is the future really so thank you for it [Applause]